This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our day Break anchors all around the world.
Straight ahead on the program.
Twenty twenty four closes out with a rather hawkish Federal Reserve. Plus, can the tech sector keep up its momentum heading into the new year. I'm Tom Busby in New York.
I'm Doug Prisner looking at five possible events for Asian markets in the year ahead.
I'm Stephen Carol E London, who are looking back at a historic year in British politics.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg eleven three oh New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg ninety two nine, Boston, DAB, Digital Radio, London, Sirius XM one twenty one, and around the world on Bloomberg Radio, dot Com and the Bloomberg Business App.
Good day to you. I'm Tom Busby.
We begin today's program with the Federal Reserve, which shocked investors by signaling fewer rate cuts in the year ahead. What does this mean for the markets, the economy for the Feds Dot plot for twenty twenty five well for more. We're joined by Michael McKee, Bloomberg's international economic and policy correspondent. So Michael, let's start by looking at what the FED accomplished this past year. Five meetings that are row leaving rates unchanged and then boom.
Well, you could look at it this way. The last time we were at four and a quarter to four and a half percent was when the Fed was going up in rates, and at that point unemployment was high and inflation was in the sixth range. Now we're in the two range, and we're headed down with the numbers, So the Fed will take a victory lap on that.
We do see inflation stalling out a little bit, which raised a lot of questions about whether they should continue cutting at the same pace, and they sort of answered us by raising their inflation forecast and saying that in twenty twenty five they're only going to cut twice.
Now, at that December meeting, the boat to cut the federal funds rate eleven to one, the Cleveland Fed's new president, Beth Hammick, preferring to hold rate study. What did she see?
She suggested before the FED meeting that we're about at a time when the Fed wants to pause because we're at the upper end of the neutral rate, and that's going to be the big discussion going forward is what is the neutral rate? The rate of interest that neither stimulates or holds back the economy, doesn't create an inflationary situation or a deflationary situation, And nobody knows. It's only something you can observe in hindsight, but there are a
lot of guesses. And Beth Hammick works at the Cleveland Fed where they have an inflation center, and so they were probably telling her that at this point it looks like it could be neutral, could be around four percent, so she wanted to have a pause.
Now.
The other thing that was interesting is that three other members of the committee, presumably non voters because we didn't get any other dissents, also agreed that they should not move rates at this meeting. So there's definitely some gathering strength in the hold for a while.
Camp, and that is inflation. Is that the main driver you think that.
That inflation's moved back to the primary position. It doesn't look like there's anything particularly wrong with the labor market. Now we'll see first week of January, the first Friday we'll get the next jobs report. And while hiring has slowed, it hasn't fallen off a cliff. The unemployment rate is below where the Fed thought it would be at the
end of twenty twenty four. So right now they're focused on inflation, and they are moving up their inflation expectations, in part because it's been sticky and in part because they don't know what the president elect is going to do in twenty twenty five.
A lot of uncertainties there. Well, right now it's at about two point seven percent.
Two point seven percent of the headline may go up. We're talking PCEE here for the Fed because that's what they do, and the PCE headline is going into the end of the year is just below or right around two and a half percent.
Now, Fed officials stunned the markets with expectations or signals of only two rate cuts. There had been projections of four, then three, mostly four. I mean, what's the reason for signaling that right now?
They wanted to, I think, justify the fact that they're going to be able to go on hold and they probably aren't going to raise rates at the January meeting. And if inflation is a problem, then they don't want to cut rates anymore, so they raised their forecasts, and as we mentioned, part of it has to do with what they think may happen under the Trump administration.
But with the.
Forecast higher that scared Wall Street more than anything else. Is the magnitude of the increase about thirty basis points in their inflation forecast, and the number of Fed officials who said that we should go on hold scared Wall Street. They maybe overreacted to the idea that we would have only two rate cuts because the market's immediately priced in only one rate cut, and so that led to a sell off. I think the end of the day huge drop that we saw was probably more related to the
fact that it's been a good year. People have made a lot of money, and most senior traders are going, you know, they take the last two weeks of the year off, so they figured, well, we'll sell take some profits, put them in the bank account since the markets are going down. And then the markets came back, so you know, we'll see what it portends for next year.
Now, despite the three rate cuts in a row by the Fed, mortgage rates have barely budged. They are back above seven percent, while slower, not gone away. What's what's the outlook?
Do you think, Well, if only somebody had asked JP howe that somebody you know had asked jpow that And basically he pointed out that those are market rates. The FED set rates at the short end the two years responsive to the FED up maybe through the belly, but when you get to mortgage rates, car rates, things that are influenced by where your loan is longer, they're looking
at market rates for that. And market rates haven't come down because the market's been concerned about inflation and about what Donald Trump might do.
Yeah, a lot of uncertainties. That next policy meeting from the Fed just a month away January twenty eighth and twenty ninth, our thanks to Michael McKee, Bloomberg's International Economic and policy correspondent. We move next to the US tech sector, which exploded in value this past year, mostly on the promises of artificial intelligence technology and the burgeoning use of chatbots.
But we also saw a US tech back with China, a large number of tech layoffs, regulator crackdowns over data privacy concerns, and more so, what does twenty twenty five have in store with a new administration entering the White House. Well for more, we're joined by Mark German, Bloomberg's chief technology correspondent. Well, Mark, let's start with the biggest developments, maybe even setbacks, that you saw in the industry this past year, twenty twenty four.
So this year was obviously very heavy on generative AI. You saw lots of companies get into the space. You've seen OpenAI roll out new tools. You've seen Apple announce Apple Intelligence. You've seen Google really step up their game in terms of Gemini. You've seen deeper integration at Microsoft through it's copilot initiatives in partnership with OpenAI. So it's really all been AI. We're still waiting on Amazon to roll out their long promised AI upgrade for Alexa on
their Eco devices and other hardware products. And we're still waiting for Apple to roll out a more comprehensive and better or SI. That will happen next year. But I would say twenty twenty four, if it would be to be remembered as anything in the tech sector, would make it the year of artificial intelligence.
Yeah, I mean it's everywhere now, Amazon, you see it, like you said, it's rolling out. Apple is now just introduced in the last couple of months. Where does AI go from here?
Though?
AI is going to become more conversational, and I think it's going to become more deeply embedded in different use cases. What we've seen is open AI and some of these other companies go all the way to one side on our official intelligence, allowing it to do many things on the user's behalf. There are many, very much concerns about AI replacing jobs. So I think what you're going to see is now the technologies out there, and maybe we
can call it sort of a raw form. We'll see it get optimized and more deeply integrated into devices and for different use cases, for more specific actions and more specific sectors within the larger technology industry. So I think you're going to see better technology. I think you're going to see a bit of a pullback as well in terms of how much this tech is going to be unleashed and how it's going to be implemented precisely well.
One thing we learned very recently was Klarna, that is a very popular buy now, pay later. They say they haven't made a hire in months and they're using AI. They've been able to reduce their staff by twenty two percent. So just a hint of what it does mean for the job sector right in the tech industry.
Well, there's a lot of jobs that are going to be impacted by AI. There's a lot of jobs that are not going to be impacted at all BAAI. And there are a lot of jobs, probably the rest of them, I would split it a third to third and third that are going to be augmented and helped by AI. Right. You can imagine consumers using AI as well to get projects done. I want to know the impact on students in school.
Right.
There's some people who's liked to compare AI to the calculator, right, but the calculator is very different than something that can do all your homework for you.
Yeah, no doubt.
I want to go back to which I know you cover in a big way. This past year, a lot of changes at Apple. Probably the biggest is after ten billion dollars of investment, they shut down their Apple Car division and have they taken a lot of that money, a lot of the resources, and put it into AI.
So they fired about half of the employees working on the car project. There were a lot of personnel that they didn't need anymore if you're not working on a car. There's a lot of very specific engineering work for a vehicle. Obviously, they took about the other half and split them up amongst a few teams. Some are working in robotics, some are working on home devices, some are working on software,
some are working on cloud. But the vast majority of the people they kept are working on AI and generative AI more specifically in future iterations of Siri. Future iterations of AI tied robotics, type of software and hardware and cloud initiatives, and so they really are taking those resources
and applying them elsewhere. Personally, I think in the short term getting out of the car space was a good idea, But I think in the long term they're maybe going to have to take another look at whether or not they don't want to be in the car industry because it's just going to continue to heat up. At some point, someone's going to have a much better mousetrap in the car space. Could and should have been Apple. It won't be them.
It sounds like it's going to be Cha.
Yeah, China and cars are becoming synonymous. Is the AI gets better and better. See, cars are a great example of applying AI for use cases that make sense, right, having a self driving car that you can rely upon. And so I think we're just going to see more of that out of China, and we'll see what Google and Amazon are able to do in that space as well. But at some point I think in the next five years, Apple may have to reevaluate it.
Now, Apple's bread and butter the iPhone, But we got some disturbing news from Micron Technology, the US's biggest maker of memory chips, that said they're seeing weakness in demand for smartphones and PCs. Do you see that as a broad based weakness? Do you see any of that evidence in Apple or in Samsung.
I'm seeing it in the sense that the yes, I'm seeing it, but it's hard to know exactly what the cause is given that the last couple iPhones that rolled out, quite honestly, weren't that impressive and didn't include major changes. So what we're going to have to do is wait and see for when Apple rolls out a major redesign, a major revamp to the iPhone, see what that does to the market, and see what the sales of those
devices looks like. If those are strong, we know it's an anomaly because there weren't many compelling reasons stuff grade. If those results are not so strong, we know that something's going on.
Well, a lot to look forward to.
Our thanks to Mark German, Bloomberg's chief technology correspondent. Coming up on Bloomberg day Break weekend. What's on the horizon for Europe's stock market? I'm Tom Busby and this is Bloomberg. This is Bloomberg day Break weekend, our global look ahead at the top stories for investors in the coming week. I'm Tom Busby in New York. Up later in our program, bring you five themes investors are looking at in Asian markets. But first in twenty twenty four, Europe's political situation has
been decidedly rocky. The Block's two largest economies, France and Germany, have both faced tumultuous governmental shifts, sending shockwaves reverberating around the continent, and its economies will twenty twenty five bring better fortunes for European investors. For more, let's go to London and bring in Bloomberg Daybreak Europe banker Stephen Carroll.
Tom It's been a jam packed historic year in British politics. From the first Labor government in fourteen years, to a Conservative meltdown and a long await at elector breakthrough for Nigel Faraja's Reform UK, there's barely been a dull moment. Bloomberg's UK Political editor Alex Wickham has been speaking to James Wilcock and me about the extraordinary events of twenty twenty four and making some predictions for the year ahead.
Regardless of everything that's happened since and all the grumblings that people might have with the new government and kiss Armor's performance, this is something that people in the Labor Party have literally been waiting much of their professional lives for, and finally they get the chance to show whether they're any better in office and their ideas and policies and personalities are any better suited to power than the Conservatives were. You know, it is too early to make that judgment.
We can see some early indications certainly that it isn't as easy as they might have thought it was going to be. That actually the problems structurally that the British state has are hard to resolve, and you can't just come in and go well with the nice, cuddly Labor Party and we're much better than those those awful Tories. Everything's going to be okay. Now it turns out things
are more complicated than that. And I think how labor grapples with those huge trade offs that they're going to have to make and political decisions things that are just really difficult is basically the story of the last six months at least, and probably the next four years.
There's a linitting contradiction here, isn't there? Because I was thinking about what your political theme of the year might be, and on one hand there's this big change, as you just said, But on the other hand, so much is the same, the same economic problems, the same inheritance, the same difficulty in getting government to do what it wants. You know, what would you say we can learn from how labor have kind of taken to power in the
past of five months. What kind of lessons do we take from that?
You know, Strategically, if you talk to people around Kissed Armor, they sort of say, look, don't panic, We've deliberately done the hard stuff first. We want to get some of this horrible stuff out of the way that we were left with by the Tories, that we had to resolve the prisons over crowding crisis, the you know, the fiscal situation,
many other things, and things will get better. That's so, you know, they seem to be relatively relaxed about, you know, where the fact that things will turn around and this is all part of a plan that you know, the first year or so might be might be unpopular, but then they'll get around to it.
Now, if you speak.
To some other people in at the top of the Labor Party, they would be perhaps a bit more candid and admit that actually, perhaps Labor should have done a bit more policy working opposition. Perhaps Labor should have you know, yes, criticized the Tories for the things they did wrong, but perhaps had a bit more detailed thinking about what they
would do instead. Because we haven't seen a huge amount of big ideas from Labor about in government, about how to fix the NHS, about how to fix crime, justice, migration, etcetera, etcetera. And that is going to be a huge challenge for them. And the danger for kist Arma is this narrative that's perhaps starting to emerge over the first six months that
Labour's disappin pointed or underwhelmed or hasn't provided change. Like you say, if that sets in over the next twelve months, that will be really hard for him to turn around. So he does need a bit of a better story to tell next year.
Yeah, and it's hard not to think about how much of a narrative shift there has been since the election. It went from this is the moment, here comes change to this, let's take a listen.
Things are worse than we ever imagine. These riots didn't happen in a vacuum. They exposed the state of our country, revealed a deeply unhealthy society. The tracks in our foundations laid bare.
So that was Kiris Starmer there speaking not long after taking up office as Prime Minister. But setting up that narrative that you're talking about alex of things being quite negative will come back to the rights in a moment was another, of course, very important moment this year politically as well. But I mean, can can there be a tone reset now? Is this a cleverer political strategy to say that everything's terrible so that by comparison things can look better in a couple of months.
They'd like us to think that that was the plan all along. I think certainly lots of people in labor would admit that some of the messaging hasn't been quite right. Certainly in the run up to the budget. A lot of the really negative messaging from the chance that Rachel Reeves was seen is basically hitting economic confidence. The tricky thing is that it's really hard to turn that around.
And when you've had a budget that raised taxes on businesses and a lot of rhetoric from the Chancellor that didn't quite meet the sort of lofty ambitions on growth at the labor we're talking about before the election, she's got to go into the new year and convince businesses and just the public that Britain's got an economy that has strength and is growing and booming and all the
rest of it. And if she can't do that, then it is going to be really difficult for her to deliver on her core pledge to have you know, higher economic growth in this country. And you know, turning that around is she could see that she's starting to try to do that. She goes and meets the CBI and she says, oh, I don't want to do any more tax rises and things like that, but it's going to need a lot more.
Can I ask a very nerdy question about what it's like as a journalist to be sort of doing this job this year in that we have the regularcount of moments. We've had the budget, like you said, you've had the election. We have the kind of normal warp and weft of Westminster. But this has also been kind of notable because everything is on social media nowadays. There's been questions about how
x works. There's also been new political party sort of the rise of Reform, the return of the Live Dems, questions over if Westminster's two party system is still actually a two party system.
How have you gone about covering that? Yeah, it's really interesting.
I mean there is this sort of incumbency problem that positions around the world have had, whether it's Joe Biden or Emmanuel Macron or Enough Schultz or whoever. In Britain we've kind of gone the other way. So around the world you sort of see these kind of centrist liberal governments losing support and then a sort of populist right coming along as an insurgent, Whereas in Britain we had a center right government which which was unpopular and gave way to a center left government.
So we've kind of gone the opposite direction.
That doesn't mean that we can't, you know, just be a few years after everybody else. And like you say, with the rise of reform Nigel Farwars, this sort of fragmenting of British politics. There is a real threat to Kierstarma or in any incumbent. And it's not necessarily the fact that it's Keir Starmer. It's it's just the fact that people are unhappy with how things are going.
And I agree with you.
I think social media is just an absolutely massive acce accelerator of people's displeasure. You know, you used to get people give politicians the benefit of the doubt for a few years, and you know, even Boris Johnson was sort of still popular long into the pandemic, despite you know, varying sort of views on the performance of his government over that. And you know, similarly, you could say, looking back, Tony Blair won elections after the Iraq War and so
on and so on. People gave politicians the time of day, I think a little bit more than they do these days. People are perhaps a bit more cynical, a bit quicker to lose their patients. And it's a problem for Kirs Starmer because you know, social media it tends to be negative, you know, that tends to be the things that do well on social media. And journalists play our part in that because we love a story criticizing a politician, and that's the thing that people read and sol and so,
and it all sort of perpetuates itself. There is a danger for kist Armer that the benefit of.
The doubt runs out.
And while he might have expected five years to benefit of the doubt, you know, maybe getting himself a second term almost by default with his big majority, there's no guarantee of that anymore.
Well, thinking about some of the figures who who are going to be you know, perhaps a thorn in Kris Dharmer's side. We talked a lot about Niger Ferrars round the time of the election. How largely would you expect him to be featuring in the political scene next year, given of course his ties to Donald Trump.
Well, this is the thing with Niger Franch.
He is a sort of genius at getting himself in the news. I mean, we've seen with the sort of Elon Musk meeting at Mara Lago, this sort of suggestion that Elon Musk could donate to reform somehow, whether it's true or.
Not that that could happen.
Journalists have to talk about it, and Farage for fifteen twenty years has been a genius at making sure he can't be ignored. And it's a really real challenge for journalists because we sort of have to write with skepticism. Niga frag is claiming X y Z that may or may not happen, and it could all just be a bit of smoke and mirrors. That is all about really about him getting in the news and creating rowse and creating things for him to be in the middle of.
But it's you can't ignore it.
Other politicians have struggled for years with how to deal with him, and Labor paced this new dynamic now with Farage in Parliament for the first time, with Trump in the White House, with the president's right hand man Elon Musk tweeting every day that Kirstarmer is useless and Britain's basket case. This is a new world that is basically unprecedented, and I, you know, I don't think kirs Starmer has
a plan to deal with it. Nobody in the Labor has has managed to convince me that they've got a plan to deal with it to be fair to them. I don't know what the answer is. It's such a it's such a it's such a difficult problem. So yeah, you know, Forage is is definitely a threat to Starmer, and you could see a world where in the absence of the Tories' is a credible opposition, Farage takes over.
So obviously Farage is good at making noise and getting press attention. But as you said, the election is not for quite a way away. In the next year, do you think we're more likely to see the Starmer humbled by new Conservaive leader Cammy Baidennock or by the labor left what is likely to be the first kind of crunch point for this administration.
Yeah, there is another spending review coming in the spring, and Reeves kind of got away with the first one. It was pretty unpopular. Cabinet ministers were very unhappy. They all rebelled and moaned to Keir Starmer and said, oh, we don't like what Rachel Reads is up to, and basically because she was a new Chancellor, they all had to lump it and go along with the budget and
the first spending review. Cabinet ministers are promising to be tough at this time and say if the Chancellor tries it again and you know cuts my budget, I'm not going to put up with it this time. It's a huge problem because if the fiscal situation isn't any better, you know, we'll see what the ABR says in the spring.
You know, it is ultimately going to be spending cuts that are what pay for the government's program, because she has said she doesn't want to put taxes up in the spring, So that is is going to create a massive route in the government that could be existential for particularly Reeves's chancellor. She's not popular in the cabinet. Chancellor's are never popular in the cabinet because chancellor's job is
to say no to minister's spending proposals. So you know it's not particularly radical that thing that the Chancellor isn't popular, but nonetheless she's got a really difficult challenge to keep cabinet on side, keep the Labor Party unified. So I would say that is the main immediate threat to Labor in the new year.
That's our UK Political editor, Alex Wickham. I'm Stephen Caroen in London. You can catch us every weekday morning here for Bloomberg Daybreak Europe, beginning at six am in London and one am on Wall Streets.
Tom, thank you Steven, and coming up on Bloomberg Daybreak weekend, we look at some of the potential themes for Asian markets in the year ahead. I'm Tom Busby, and this is Bloomberg. I'm Tom Busby in New York with your global look ahead at the top stories for investors in the coming week. We move next to the ere's apecific region. With twenty twenty four largely in the rear view. We want to look at some of the potential themes for
Asian markets in the year ahead. Let's get to the host of the Daybreak Asia podcast, Doug Krisner.
Tom.
Twenty twenty four proved to be an eventful year for markets right across Asia. There was China's stock market route and subsequent rally. There was the unwind of Japanese n carry trades, and let's not forget that political crisis recently in South Korea. To get a sense of what twenty twenty five may look like, I'm joined now by Bloomberg opinion columnist Shuley Wren. Shirley joins us from our studios
in Hong Kong. It's always a pleasure. I wish you the best for this holiday season, and I was really curious to get your take on some of the things that you've been writing about.
In your latest.
Column, you highlight five unlikely but not improbable events we might want to consider for the new year. Let's talk about the Hong Kong property market. This is kind of interesting because when I think of property in Asia, the first thing that comes to mind is mainline China, not Hong Kong. What's happening here.
Well, Hong Kong's property developers. I mean, we always know that they are very wealthy, right, but that hypothesis is being questioned in recent months. What's happening now is that the some Hong Kong is experiencing a pretty severe commercial real estate downturn, just like a lot of other places like San Francisco for instance, and some of the developers
they are quite leveraged and indebted. And then investors are questioning whether the tycoon families will come out and the rescue their subsidiaries.
Who is most exposed here? Is it bondholders? Is it banks?
All of them? I mean, let's just take a new World Development as an example. It's run by the Chin family and they have made a lot of money selling properties and the jewelry to mainland Chinese. Right. And then like they have a a lot of bank longs Uh. In fact, HSBC is their biggest banker, and they have a billion about eight billion worth of the US dollar bounds outstanding. And of course they are also publicly listed on Hong Kong Stock Exchanged, so they're also shareholders.
Let's talk a.
Little bit about luck and Coffee next. This is a name that I've forgotten entirely about because of it's delisting here in the US.
Right, Yes, so they came to get listed in the US within two years after their funding, and then they were founded to have committed accounting fraud in twenty twenty and they were forced to delist from Nestack back then. But the luckin Coffee has had quite a comeback. They sell pretty chea coffee and then their services are more streamlined, and in the last few years they suddenly became China's biggest coffee chain and they were outnumbering Starbucks in terms
of a number of stores and in terms sales. And to make matters worse for Starbucks. They're actually planning to enter the US market because they think that you know, Americans are just tired of a seven dollars partake from Starbucks.
So what about Luckin's financials? Will the financials really allow the company to relist in New York?
Well, to their credit, I mean, the majority shareholders are very keen to have a redemption and comeback story, so they paid all the fines. I think they paid one hundreds and millions of dollars fines to the SEC. They just want to have a clean slate, and at one point they were hoping to relist with the basically a redemption story.
So you're also looking at what may take place in twenty twenty five, unlikely as it may be, and you're writing about Chinese century bonds.
Explain this to me.
Well, Century bonds were very popular in the Eurozone during the you know, like when the European countries they were having their deflation, right, Like Austria issued a central bound in twenty twenty and it was doing very well. I mean like at one point it was trading at one hundred and forty cents on the dollar. So that was quite popular because investors they just wanted to get any fixed income assets that give you any yield, and I
think that's what China should do. They have been issuing ultra long bounds, but they have been quite shy, you know, twenty year, thirty year or even once more fifty year. But they shouldn't be. I mean, like the Communist Party thinks they will be around for another century, right, so why not? Yeah, they will be around forever.
And it looks as though Chinese officials will need a lot of money to dig themselves out of what appears to be a.
Very big hole, right, absolutely, So what's happening in China is that, you know, because the PBOC, the Central Bank keeps on cutting interest rates on the short end, investors keep on buying long and bounce like into ten year twenty year, right, and the ten year bound has has kept on testing record loads. And I think what they should do is just to is you even ultra along bounds and and so that the benchmark tag ye is not just solo.
You're writing also about the great state of Vietnam. And when I read this, I thought immediately of the consequences of the trade war, right, that it's likely to unfold between the US and China. That's a big part of the story, is it not.
Yes, absolutely, I mean, like, so what's happening since the Trump trade war is that Northern Vietnam and a lot a lot of Americans are very familiar with that, right, Like in the past, Northern Vietnam was not as economically prosperous at Southern Vietnam, like a sigone, et cetera. But in the past four or five years, a lot of Chinese companies they've been moving their supply chain to North
Vietnam because it's in a way close to China. Like whatever the industrial catalog items that they are missing, they will just go back to you know, Guangxi to fetch it.
Right, So.
I'm worried that Trump is going to see that, and let's hope not surely.
Before I let you go, tell me a little bit about what you expect in the new year when it comes to European luxury manufacturers and the business they may end up doing in Asia.
So, the European luxury houses, they are having a very tough time in Asia this year because I mean they've been raising prices like crazy. One Chanel back, I'm sorry, I have been shopping shopper for twenty years. One Chanell Classic Chanel back hosts like over ten thousand US dollars and yeah, just like seven eight years ago, it was not even half as much, you know, And then people are asking, I think Americans are starting to realize that as well, like what am I paying for?
Right?
And then the Chinese consumers there the economy is not so great that there is a wealth effect, and they also have shopped for twenty years as well, and they're just saying, Okay, we want to see a bit of a value for money. So I think for next year, the European luxury houses they have to come up with something that's new and interesting or just stop raising prices and you know, like just provide better value for their luxury goods.
Surely it's always a pleasure.
Thank you so much for sharing your views on what may happen in twenty twenty five. Bloomberg opinion columnist Shuley Wren joining us from Hong Kong. We want to stay in China. The country appears to be at a crossroads, and Beijing is acting as though it's acutely aware of that fact. The challenges are many, although I think It's fair to say a lack of confidence appears to be
the most significant hurdle. We've seen the effects of some recent economic stimulus fade, and officials have been signaling stronger stimulus to boost consumption. This is a major shift in the government's thinking. Let's take a closer look now with where things stand in China with Joe Nie. He is Greater China Chairman at McKinsey and Company. Mister Ni joins us from our studios in Hong Kong. Thank you for taking the time to chat with us. I'm curious about
your analysis given the dynamics in the Chinese economy. If you had to pinpoint one thing that really needs to change in order for China to thrive.
What would it be.
Well, first of all, thank you for having me here. I think that confidence in China definitely is the number one topic, and I think that that has been praying
for the last two years. I do think that we are moving from a you know, I would say, the last two decades of you know, kind of breakneck growth right into all of a sudden in the last two three years, there seems to be the recognition and maybe a you know, a acceptance that growth going forward, it's going to be very different from the context from before.
But what you have is that in the past couple of years that actually has been quite a lot of supply, right, whether this is going to be industrial production, whether these are you know, flats being built. I think that the engine that have powered China in the past two decades
didn't actually stop until quite recently. So all of a sudden you have this massive I would say, I demand that needs to be recalibrated and there needs to be an expectation management from corporates right into citizens in the government that we're going into a period of much more moderate growth like the rest of the world has been seeing.
When you hear the term over capacity, is that app does it help describe a little bit of what's happening on the industrial side?
Well, I think that, you know, we actually have been you know, in seeing in China in the past two decades where they feel like if I actually have the capacity to build and I have the you know, efficiency to do something that is you know more more more valuable money in the rest of the world, I can export my products. I think that that equation have changed a little bit now that there has been a lot more I would say industrial protectionism around the world. That
will change that equation. Now, when you change it, I think that you know, you know, the factories in China need to you know, get used to that. But unfortunately, in the past two years, they actually have been building to cater for that demand. And I think that what you're seeing right now is there's not a lot of new capacity being put on right now, but you're seeing a little bit of digestion of the past two years
of capacity has been built. So I do think that it is a oversupply in the sense of a slowing demand what you see around the world and in China. But at the same time, the saving grace is that I would say that the investment has been really really melted in the past twelve to eighteen months, so the new capacity is going to be much slower.
So you alluded to this idea of protectionism, and I want to explore this a little bit if I can. The threats here being made by the incoming Trump administration in the US tariffs on imported Chinese goods, and I'm aware of how many of the companies doing business in
China have already begun to reconfigure their supply chains. Do you think the tension between Washington and Beijing that we're likely to see after the first of the year is going to begin to shift trade flows in a major way or is this something that will probably get worked out through negotiation. How would you evaluate that?
Well, this is not news, right, this has been going on for the last few years. If you are a Chinese manufacturer, right, or anyone who's the export business, you have been dealing with actually a shifting trade in the past few years. In fact, I would say that three or four years ago they were much less. I would say, ready for the tariffs and for all the you know, trade shifts that's going on.
Right.
China plus one is a well documented strategy by both multinationals as well as Chinese companies. So what you see when China, you know, exports the US have dropped from you know, until now only fifteen percent of US imports are from China, you see. You know, correspondingly, the Chinese trade is going to Southeast Asia. R GM right now is the largest trading partner right to China. You see, actually a lot more Chinese we called the global self
trade that's going on. So I absolutely think that the trade patterns are being reconfigured and that has been going on. So I would say with a new and strigon coming in, you know, I think it's a continuation of what we're seeing. Would that be a celebration a concis, I don't know, but I think that it is certainly not news, and I think at this time, I think that everyone is in some ways much more prepared, you know, for the uncertainty of this will happened.
Mister and I thank you so much for your time, Joe and I is Greater China Chairman at Mackenzie and Company. I'm deg Krisner and you can catch us weekdays right here for the Daybreak Asia podcast. It's available on Apple, Spotify or wherever you get your podcast.
Tom, thank you, Doug.
And that does it for this edition of Bloomberg day Break Weekend. Join us again Monday morning at five am Wall Street Time for the latest on markets overseas and the news you need to start your day.
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