Joining us for some live discussion. Is Steven Angel, Bloomberg's chief North Asia TV corresponded, It's a pity we're not here to talk about Nancy Pelosi because I wanted to ask you the question of whether or not, Well, you don't know yet because she hasn't, um, you know, she hasn't actually made the decision yet to go to Taiwan or not. But the question would have been, is Nancy Pelosi in the process of inadvertently handing China a big win? We're not meant to be talking about that. We're meant
to talk about now. Let's let's talk about China Everground, because there will be another time once we know what happens with Pelosi. Strip I don't know, just teasing it, teasing it. Yeah, but ever Ground, Okay, this is a big story. So they didn't come through with this preliminary restructuring,
which I think a lot of people doubted was coming anyway. Um, but what's the significance of it or asset sales as part of, of course, what would likely be China's largest ever debt restructuring, you know, three hundred billion dollars in liabilities, twenty billion dollars in dollar bonds among those total liabilities. Uh. And the sheer size of every grand's death has left obviously global investors worried that any collapse, if I'm going to use the C word, could spark financial contagion and
curb you know, growth. You know, we we have those p m I numbers that look pretty bad on the manufacturing front. We know, of course the COVID zero has a dampening effect on growth in the first half of this year. Uh. We we have to watch this. This is not just dollar bond holders not getting their coupons paid. This is potential systemic risk to banks and other parts of the economy. But yeah, I think we've spoken to someone in this Bloomberg story saying the whole pyramid is
collapsing now. So things really kind of worse than they were even a year ago. Steve, I don't want to call the Chinese economy a pyramid, but I get where you're going there. Um, there's there's a big problem because the there's no other sector of the Chinese economy that has as large as of an exposure to the property sector than drumroll, please, banking seven point seven trillion dollars.
I think it was the last count five point eight trillion US dollars and outstanding mortgages in the banking system in China, and another one point nine trillion dollars of
loans to those developers. So there, if there's a contagion through the property sector with ever Grand at the top of that pyramid going down into the banks, SMP and Deutsche Bank, among others are saying that there could be between six and a half to seven percent of those outstanding mortgages at risk, and that's gonna be a big problem obviously for the Bank's tricky to see how the contagion would work in China, given that the banking sector
is essentially a state backed banking sector. That's the key. Yeah, And and the government obviously could print money and step and step in. But one definite sidebar to this is the reverse wealth effect, because people in the past in China, over the past say fifteen years, have been buying real estate and seeing their wealth expand, and now it's going
the other direction, and so they're spending less. Absolutely, look in the last twenty years or so, and I lived in China and lived in Beijing, and I owned a property there as well. There was a one way bet essentially in property, and they've never really seen a big crash. Yes, the property market in China has, you know, peaks and valleys, it always does, and they reined in and there's policy, but again, this has been a pretty much of one way bet. It's unbelievable some of the wealth creation by
property from property. But all things come to an end. And this you know, you alluded to implicit guarantees from the government on on banks and deposits and this and that, but there has not been a lot of guarantees for homeowners and and and and uh and the developers who are overly indebted. And so that's why there's a lot
of concern about the developers. I think. Heading towards the Party congress, though, you're gonna see more policies that are going to be backing these mortgage holders who are now boycotting because at the end of the day, they do
not want social unrest tied to this. Let's talk about that and what kind of further stimulus we could see announced too, because as you mentioned a couple of moments ago, we did see weakness coming through once again in the China economy in terms of factory activity unexpectedly contracting, and all of this not voting very well when we're looking to the latter part of the year and very far away from these growth targets that they kind of ditched last week. Anyway. Yeah, p m I Manufacturing p m
I as we've just been reporting forty nine. We were expecting fifty point three. So that's thirteen basis points essentially away from the consensus. That's a lot. So it's in contraction. And we only had one blip upwards in June after Shanghai came back into the into the fold. It was not long lasting. As Bloomberg Economics says, this is an abrupt loss of momentum, and the data was grim across
the board. Pretty you know there their hot takes on Bloomberg Economics is pretty grim for sure for the Chinese ec of me, what's working the best at the moment in China, because there's so many areas where we can see fault lines, but yet the country is still growing, The economy is still it's still growing. Yeah, it fits and starts. Obviously, there's been some you know, of course, the property sector, and you have these mortgage boycotts seen
in more than nineties cities across China. You do also have uh various COVID outbreaks and lockdowns. Wuhan was locked down again. So but as far as the strength, you have to look over at the non manufacturing pm I held up pretty well fifty three point eight. That services which have come back boy in, I think it was April it was down to forty one. Because Shanghai is a services based economy really right with manufacturing on the periphery.
But construction is part of that services non manufacturing p m I. So you've seen pick up in construction as the government has been encouraging uh these developers at all costs get these unfinished apartments completed so people will not revolt. As Dave a quick question on what we're hearing in Hong Kong as well. I mean, you just got out of quarantine. Maybe if you'd waited a couple more months,
that could have been shorter. Yeah, I don't think my boss would give me a couple more months of vacation. I think I did my seven days and and you know, after the fifth day, you're ready to get out, and you've been tested ten times through five days, right, uh rap tests rapid engine tests and also the PCRs, so you pretty much know you're standing after five days. So I'm in all not surprisingly I'm in support of a five day quarantine in the hotel. Well, I'm actually zero,
I'm in supportive. Yeah. The chief executive John Lee told the Hong Kong Economic Journal that that they would be announcing this very shortly, that they would be cutting the required days of hotel quarantine, but he said that they're looking at different data to decide on the exact number of days to cut. Have you heard anything about that, and and also whether or not it's mainland China or foreign countries that are affected. First, yeah, I think they're
going to have a different arrangement for mainland China. Um. But as far as the data, they're looking at every possible granular data that they have to determine if there is a risk of letting people out of hotel quarantine with these latest variants, whether it pops up a lot sooner. So they'll make the decision, at least publicly, they will say this based on their the most readily available data
that they have right now, up to date data. Okay, we will at some point in the near future talk about Nancy Pelosi and her trip to Asia, So I'll save that for, you know, another another hour. Thanks for Steve Stephen Ingol or TV correspondent, This is Bloomberg