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This is Bloomberg day Break Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world, and straight ahead on the program, a look at US retail sales and what that data point may mean for Federal reserve policy moving forward. I'm Tom Busby in New York.
I'm Stephen Carolyn London. But we're looking ahead to the UK's new Prime minister hosting his neighbors for a meeting of the European political community.
And I'm Brian Curtis in Hong Kong. We look ahead to China's Third Plan of and whether it's steady as she goes on policy or surprising new developments.
That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg Eleve Them three Own New York, Bloomberg ninety nine to one, Washington, DC, Bloomberg one O six one, Boston, Bloomberg nine sixty, San Francisco, DAB Digital Radio, London, Sirius XM one nineteen and around the world on Bloemberg Radio dot com and via the Bloomberg Business App.
Good day to you. I'm Tom Busby, and we begin today's program with US retail sales for June. That data out on Tuesday morning, eight thirty am Wall Street Time. And after more signs that inflation is cooling, how might that move the needle for FED policy going forward? Well, for more, we're joined by Estello, us economist with Bloomberg Economics. Well, Estelle, after two months in a row of pretty lackluster retail spending, what is your outlook for retail sales in June.
We're actually expecting another month of very weak retail sales for June. We're expecting the headline retails print to print at negative zero point three percent. We're expecting the more important control group retail sales figure, that's the retail sales figure that strips out more of the volatile components of the retail sales data, to print at zero percent. So
that's flat reading of retail sales. Now, the negative zero point three percent headline retail sales reading we're expecting partially reflects a really sharp decline in auto sales in the month of June. Now, part of this is reflective of the fact that a lot of auto dealers in the month of June saw a cyber attack on the software that they use to process sales, so that affected the top line sales figures we saw in June for automobiles and may not actually be reflective of a sharp pullback
in consumer spending, but that's in the data. So that's why we're forecasting a negative numbering you mentioned that we've already had two consecutive months of week retail sales prints. If our forecast for the June retail sales is correct, it's going to show that consumer spending is very much a slowing trend. And what that mainly is reflecting is that consumers are very much feeling the pressure from the
Federal Reserve's high interest rates. The Fed is very much waiting to have more confidence that inflation is going towards this two percent target. And how consumer spending plays into that is that as we see consumers being stressed about by high interest rates, they're pulling back spending and a lot of retailers are reacting to that by lowering prices.
Why don't we talk about the prices, because we have seen airfares go down, we have seen used car prices go down. Auto insurance of course still you know significantly higher, but we did see there is some hope for consumers. We saw a significant slow down in inflation in June. Now most of that on housing costs and rents, but that's a big part of household budgets. How will that impact people spending?
As health process come down, that's going to free up a little more disposable income for consumers. It's going to ease off the pressure on consumers, but overall, it's not going to change the fact that consumers are feeling a little less flushed compared to prior to the pandemic. So over the past you know, six months, consumers have been
spending more than their incomes have been growing. And as the label market cools further, we're expected to consumers to feel a little more cautious about their spending, even if their other household costs are coming down.
But at least there is hope.
There is hope and a lot of talk now, especially after last week's inflation data, that in September, when we have a lot of back to schools spending, we have a lot of new cars coming on dealership lots that if there is a rate cut from the FED, and it was a pretty dubbish tone last week in annual testimony by Chairman Powell to Congress that we really could you know, signal a real boost for the US consumer through the end of this year.
Though, well, that's not how we're looking at things right now.
So basically we still have expectations for our VET cut in September. But usually if you look at his historical data, it takes time for consumers to feel confident again. If you look at the underlying drivers of consumer spending, consumers usually spend when they feel like their income can support it, and income growth is supported by a strong labor market.
Right now, even if the FED cuts in September, we're still expecting labor market to slow and consumers to not feel at support from a FED cut until late twenty.
Okay, Well, June retail sales data out Tuesday morning. That's ahead of Wall Street's opening bell and our thanks to Estello, us economist with Bloomberg Economics. All right, we move next to corporate earnings and streaming giant Netflix posting its latest quarterly results this Thursday. Key for investors how the companies multiple growth levers like live comedy shows, live sporting events. It's ad supported tier and subscription price hikes has impacted
revenue and for all that and more. We're joined by Githa ragenathin Bloomberg Intelligence analyst on US media. Well, getha, what are you expecting to see from Netflix?
Tom?
We are really expecting a blockbuster quarter. So if you just look at Netflix's performance over the past few months, I would say Netflix is firing on all cylinders. The company is in the strongest position that it's ever been, I think fundamentally, I think competitively as well as financially. We continue to see very good subscriber momentum. Remember they added something like nine point three million subscribers in the
first quarter. Obviously, we don't expect the same level of subscriber gains in the second quarter, but we think it's going to be fairly strong. We think it's going to be close to almost six million. And that's on the back of a lot of initiatives that the company has introduced. So they have this widespread password crackdown, and of course they have this new ad supported tier, which we think has been working really well for them.
And are the subscriber adds global? How are they doing in the US and how are they doing elsewhere?
They're actually surprisingly strong tom in the US. And remember the US is a fairly saturated market, and we're still seeing pretty pretty good growth. Remember Netflix now actually at about eighty million subscribers, actually has more subscribers than the traditional TV bundles. So Netflix has very much become the go to option, and if you're thinking about TV viewing, Netflix really is the first choice and is the anchor I would say for most consumers when it comes to
the living room. So we're seeing very good growth in the US, given that it's a saturated market, but obviously majority of the growth still comes from the international markets.
And let's talk about some of these newer initiatives from Netflix. Christmas Day may never be the same again, right with this deal to stream live NFL games, And we saw this John Mulaney, Everyone's in LA five or six live shows, comedy shows. It's all about something Netflix has never done before, right, Advertising revenue.
Oh absolutely, I mean this is where I think investors are getting really really excited about the future potential for this company, because we know subscription growth, we know they've really kind of delivered on subscription growth, but advertising is a whole new area for them, and they are really doing things to kind of really boost that revenue. So they've moved into live event sports programming.
In a huge way, obviously with this NFL deal.
Obviously that's going to be something very very attractive to advertisers, especially since the advertising subscription tier is priced very economically, very competitively at seven dollars a month, So we think a lot of people will sign on. And they're doing lots of different things, as you just pointed out, obviously the comedy shows.
You had the Tom Brady roast.
You know, we have a Mike Tyson Versus Jake Paul event that is coming up sometime in November. So they're doing a lot of things in terms of content, really kind of broadening their content appeal quite aggressively.
And when I turn on Netflix, which I have at home, I see a lot more international shows and some of them have been tremendous hits here in the US, whatever language they're in. It's incredible how this growth is everywhere.
Oh absolutely, And you know that is translating into revenue growth, that is translating into subscriber growth, but most importantly, Tom, that is translating into engagement. And really this is something that Netflix has been driving home now for so many quarters, so many years. They want to see people come to their platform and then never leave the platform, because that is how they can get to upsell so many more you know, new products, whether it's gaming, whether it's advertising,
as they kind of expand into new categories. And we're seeing that engagement is very very strong for Netflix, and of course a lot of local language content is definitely helping. So just in the second quarter, we saw you know, of course, Bridgerton was the most watched show, but we also saw some of you know, the Korean language dramas Queen of Tears for instance, performing very very well, and we're probably going to see more of that as Quid Game.
The second season of Squid Game comes out a little bit later this year.
Now, also, Netflix, the success of all these shows, the success you know, the revenue streams they have, it has forced other streamers to look for partnerships just to compete even close to the level of Netflix.
Yeah, and that actually works so well for for Netflix, tom because you know, obviously, originally they were investing very very heavily in you know, their own content, with what we call original content. But now we're seeing a much more kind of balanced mix, and when they go for more licensed content, we see the effects in terms of the bottom line because it's it's much cheaper, you know,
it's it's content that kind of travels well. It is time tested content, and obviously we're seeing free cash flow and operating profit get a huge boost from them being far more rational when it comes to content costs. So it's really kind of not only helping them kind of build their competitive mode getting all these content titles from other producers of content, but it is also kind of helping them actually strengthen their bottom line.
It's big in a bottom line. Those shares of Netflix up about forty percent so far this year. Where do you think it heads for the remainder of twenty twenty four.
So I think, you know, we're going to see continued momentum and we're seeing.
That with on the subscriber side.
But I think the real big catalyst that could potentially happen in the second half of the year is a price increase. So we have not seen Netflix increase their prices on the standard tier, which is the fifteen dollars fifty cent standard product that they offer in the United States. We haven't seen them increased prices on that tier now for almost about two years, so they're definitely due for a price increase. And we've seen price increases across the board.
We've seen it at Spotify, We've seen it, you know, at Max, a lot of the rival services are increasing you know, prices. So just kind of given Netflix's low rates of churn, we definitely think that they are going to raise their prices very soon. And as we see you know, those price increases returned to kind of the normal cadence. Netflix obviously then has ample room to sustain double digit annual revenue growth and obviously huge levels of operating margin expansion.
Well.
Earnings for second quarter out this Thursday for Netflix. Our thanks to Getha raghanoffin Bloomberg Intelligence analysts on US media. Coming up on Bloomberg day Break weekend, we look ahead to the UK's new Prime Minister hosting his neighbors for a meeting of the European political community. 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 on our program, we look ahead to a major policy meeting for top officials in China, but first, the European Political Community Meeting takes place in the UK this week, as Keir Starmer, the country's newly elected Prime Minister, brings dozens of high level lawmakers from across Europe together discussing shared challenges like Russia's war against Ukraine illegal immigration, even as many of those leaders face political challenges in
their own countries. For more, let's go to London and bring in Bloomberg Daybreak Europe anchor Stephen Carroll.
Tom In only his second week as Prime Minister, Keir Starmer will host European leaders at Blenham Palace for the fourth European Political Community Meeting. The EPCs a forum for European Union countries and their neighbors to meet. It's twice yearly gatherings are hosted alternately by a country that's in the EU and one that isn't. Choosing the Oxfordshire stately home as the backdrop for these discussions may itself be
an indication of Starmer's in tensions. Known as the birthplace of Winston Churchill, the Prime Minister may be hoping to draw inspiration from Britain's revered wartime leader. The plight of Ukraine is likely to be high on the agenda in discussions, especially following the Russian bombing of a children's hospital in Kiev, but domestic tensions in other countries may overshadow these talks.
In France, President Macron remains in a vulnerable position after his Centrist alliance lost its relative majority in the country's recent parliamentary elections. In Germany, Chancellor Olaf Schultz's position has been weakened by a bruising defeat in last months European Parliament vote. In fact, Kirs Starmer cuts a rare figure in Europe as a leader with a clear mandate and
majority ready to implement his agenda. The UK Prime Minister's approach to foreign and defense policy is something that we've been discussing with Jamie She, associate fellow at Chatham House and a former NATO official. He started by offering his thoughts on Kiir Starmer's assertion that Ukraine can use British missiles to strike targets inside Russia.
Well, I think it's obviously good news for President's Vilenski because clearly at the time when Theussians have been massing their forces just on their side of the border for their offensives which have been taking place as you can
see in the Dombas region up near Kharkiv. If Ukraine is going to really be able to defend itself, it has to be able to strike the Russian fuel dumps, the Russian storage facilities, their command and control, their communications, their headquarters on Russian territory to disrupt their offensive preparations. Ukraine has also had some success in attacking Russian airfields, taking out some Russian strategic bombers very far away from the Russian Ukraine border, and also those Russian fuel and
energy facilities that I was referring to earlier. So I think Kairstarma has given President of Lanski a shot of the arms to the extent and obviously, if Russia believes it has full license from Russia to attack anything it likes in Ukraine, the Ukrainian's cause of self defense have to be able to strike back against the significant Russian
military targets, but obviously not Russian civilian targets. I think Kiyostarma and other NATO leaders will draw a redline on that the strikes have to be against the genuine military targets.
Does this though, on the question of striking military targets open up divisions between the US and what France and the UK are now saying about the use of weapons to strike military targets inside Russia.
Well, since the beginning of the war, the Europeans have often been out ahead of the United States in minery space. For example, they decided the UK to provide tanks first, a long time before the United States decided to do the same. Similarly, with these long range artillery, these cruise missilesy storm Shadows or the French scalps that we're talking about now, the Europeans, with the Dutch and Danes, were the first two across the Rubican when it came to
S sixteen aircraft, and the United States followed. So there is often in NATO perception that it's always the Americans who are out in front and the Europeans sort of follow willy nilly sooner or later. But this time it is the other way. But the fact of the matter is that Biden has also recently shown a little bit of flexibility, allowing the Ukrainians to use the long range US attackers artillery shells against the targets on Russian territory, but Biden has said that he doesn't want these to
go too deep into Russia. He wants them really to be restricted to places like Crimea and just those Russian facilities over the border preparing for the offensive which I was referring to earlier. So the United States is sort of halfway there, but it tends to sort of follow where the Europeans lead on this.
One, right, So the big takeaway so far is that these NATA allies have promised those five long range air defense systems for Ukraine. But is NATO actually doing enough for Ukraine to win the war?
Well, maybe not enough in the past, because the effort was largely left to individual allies acting bilaterally, signing bilateral agreements with Ukraine like the one that Rishie sunakas very early on with a Kiev and basically giving the Ukrainians what they have in their stocks, not always what the
Ukrainians need on a priority basis. But NATO is now stepping up, and I think the big headline from this Washington summit is that maybe too late, but still NATO is now going to set up a command in Wisbaden in Germany with about eight hundred NATO military planners whose job it will be now to make this a much more coordinated, organized, planned effort. For example, Ukraine is currently operating about one hundred and forty different types of weapons
systems supplied by the West. This doesn't make sense because it means one hundred and forty different supply chains, maintenance systems and so on doesn't help the Ukrainian war effort. So I think what NATO is going to do now is organized this better in terms of what Ukraine needs, ensure that the delivery is more timely and more consistent, reduced these one hundred and forty different systems to say twenty or thirty which Ukraine could actually maintain and operate.
And what NATO says also is that this effort is going to be a bridge to a future Ukrainian membership of the Alliance, because it's not just going to be about the short term provision of weapons to Ukraine. It's going to also be about the long term restructuring of the Ukrainian army to look less like an old Soviet army and more like a modern Western army able to integrate into NATO in the fullness of time.
That was Jamie shaef Fro Chatham House speaking to Jamani Brassacci and me on Bloomberg Radio. So what's in store at this upcoming European political community meeting and will ker Starmer be able to charm his EU counterparts into a closer relationship. I've been discussing this and more with Bloomberg's UK Politics editor Alex morales. I started by asking him what Kir Starmer may be hoping to achieve during this event.
Well, mindful that he's just coming back from the NATO summit where he's met a lot of the same people. I mean, this really is about sort of meeting a lot of the European leaders who will be working with he hopes for the next five or ten years, but head to head, face to face, discussing some of the issues that they have in common, so you know, some
of their points of divergence. And he really wants to change the tone in the way that the UK develops its relationship with the European Union and other more wider European countries.
How much of a test there's going to be for him in his new job as Prime Minister it's his first time hosting such an international summer and it's quite a lot of you know, as you say, friends and neighbors, it's.
Quite a lot of leaders. But it's also a sort of quite fairly informal summit. They don't have a set communicate that they want to agree, so he doesn't have a piece of paper that he needs to achieve by the end of it.
It really is just.
About, you know, getting that time to speak face to face with other leaders and to discuss all these different issues that they need to address.
And this is one of the things that of course we know as a priority for the new Labor government. They want better ties with the European Union versus what there was under the Conservatives. Does this perhaps provide an opening for care Starmor to make progress on some key issues.
Yeah, I mean definitely think. I don't think we'll be getting any sort of firm agreements out of it, but clearly so one of the big things he wants to talk about. We know that he's going there with this sort of proposal for fence and security packed with the European Union, so yes, he wants to tighten those ties. But obviously there are a lot of issues like immigration he wants to talk about. It's not free movement, but he wants to help, for instance, British performing artists to
be able to tour more freely in Europe. There are all these sort of issues which have risen up since Brexit where the relationship could just be a lot easier and better flowing.
And how much does there has there been sort of a tone shift or could there be a tone shift from the other side of the channel from the closer European partners towards a new government given that it is a different party and sort of a fairly significant step on from Braxit as well.
I mean, it's a tough question because certainly Kissed Arm wants to set this different tone and I'm sure his European counterparts will welcome that change of tone. But at the same time Starmer is going to face the same issues that the outgoing Conservative government did, which is, for instance, one of the things he wants is a veterany agreement to ease the flow of fresh foods across the borders.
You might still insist on the oversight of the European Court Justice over the regulations underpinning that, so you know, there are these things which have come to be seen as toxic in the UK which he will have to overcome and try and work out a compromise.
And whether the EU.
Is willing to give him more than they were willing to give the previous Conservative government. You know, it's an open.
An open question. Indeed, the review of the Trade and Cooperation Agreement, the Post brags that trade deal not due until twenty twenty six, so this would be sort of a speeding up of that process if they were able to make these these side agreements. The European political community itself was an interesting idea, was something that was a
brainchild of Emmanuel Macron in France. It's only been around since twenty twenty two, and it was sort of meant to bridge the gap in relations with countries like the UK, the nearest neighbors in the community as well. I mean, what are the other sorts of things that are expected to be under discussion at this event, apart from kars Armor trying to make new friends.
Well, I mean, so we've mentioned security defense that seems to be the main thing that the government wants to talk about. I would imagine immigration would come up. I'd be very surprised if it didn't, because it's a shared problem. You know, you've got these sort of flows of immigrants moving across the continent, and you know, in the UK's case they come from France, but obviously they've got to France somehow through other countries. So immigration's a big topic
of discussion. Ukraine is clearly a matter of huge importance to the continent and how they cooperate on those things, and then shared problems like energy, security, cybersecurity, climate change, you know, all of those issues I'm sure will.
Come up and high level discussions on that as well. This is also going to be a test of care Starmery's government's foreign policy too. It's so first, you know, so the second doubting after the nature, so much for them to have a chance to talk about that and perhaps in a range of subjects broader than just defense and security as well. What else do we know as a priority for the new UK government when it comes to foreign policy, Well.
I would say that the main one is climate change that they want to change tone on. So I think there's a there's a perception, and I don't know how international this perception is that the UK sort of stepped back a bit from its climate change policies under Rishi Sunax administration, and the incoming Labor government want to change that, and so they want to say the UK is back at the table. You know, we're going to be leading on this for the next years and decades to come.
So cutting emissions is obviously going to be one of the big things that he brings to.
Yeah, and look, it's this is also a chance to for as you say, there's more face to face conversations with some of those European counterparts perhaps and as you pointed out, a less structured way than we would have seen it the likes of the NATO some blen And Palace being chosen as the venue for this event as well. It's of course where the AI s it was too. Is this, you know, a chance for those those very chummy sort of conversations and corridors as well.
Yeah, I mean it's it's obviously a nice sort of country house setting. I think it's also a very unsubtle message that that security is big. It's Winston Winston Church's birth place, so that's perhaps a message to putin of you know, here at these forty seven countries We're all discussing security and Ukraine and all these matters. This country has all this history attached to it.
Thanks to Bloomberg's UK Politics editor Alex Morales, We'll have more coverage of the European political community meeting on Bloomberg Radio and television in the coming days. I'm Stephen Carroll 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 Street. Tom.
Thank you, Stephen, And coming up on Bloomberg day Break weekend, we look ahead to a major policy meeting for China's top officials. 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. Top officials in China gathering this week for a major policy meeting known as the Third Play For more, let's get to Bloomberg Daybreak Asia hosts Brian Curtis and Doug Krisner.
Tom. The Third Plenum is a chance for China to enact far reaching and pivotal policy actions. I think Dungshaoping's reform and opening up back in nineteen seventy eight. That's when China essentially opened up to the outside world.
This time, though, it's more likely the party re embraces the recent policy guidelines of Chiechen Ping, and specifically his call for new productive forces.
At the core of that strategy are high tech industries and high end manufacturing. We're expecting to learn more about how China plans to cultivate new long term growth drivers.
So how does the government implement more stimulus and how does it address the country's major challenges, challenges that include a property crisis, access to foreign markets, and demographics.
We approached a number of leading economists and policy advisors for their thoughts on what comes next.
For the wishless within is basically more or like market friendly or market biases policies, for example, like if they could further elevation the role of the market for allocate resources, or to emphasize the importance of more supported policies for the private sectors.
It's kind of a consensus right now. I think the major problem in the economy is low sentiment, a loss of animal spirit. So I think the third planet first and foremost provided government a rare opportunity to tackle the lack of confidence by rekindling the gross friendly.
Reforms, there's not much of expectation going into the third Planum. If you look at the title of the Third Planum, it has this continuation sort of in it furthering reforms, but it's a continuation of the things the party has already told us, whether it's on the technology front or some of the balancing the local government finances.
The start of Planum. I think in enterprise business they hope the government could actually start to reprotize the economic growth because over the past several years, the government actually come into a new policy region where they try to balance multiple policy goals, right, so it's no longer just about economic growth, but also about financial stability, security, a
bunch of other objectives. But on the other hand, I think the private sector they are really looking for the government to they could actually reprodize economic growths or at a list step away from some of the regulatory titaning.
Gracetam there from BNP, parabol Wealth Management, Ding Schwang at Standard Chartered Bank, Hoi Shan from Goldman Sachs, and Xian Wang from the Vanguard Group for more. Now we're joined in our studios by Rebecca Choan Wilkins, Bloomberg Asia Government and Politics correspondent and Jenny Marsh, Bloomberg Team Leader on Economics and Government. Rebecca, let me go to you first. A common theme there is it cantinuation of She's productive forces and then also hopes for improving prospects for the
private sector. I'd say the former is likely. The latter, well, what a bit of hope.
Maybe, I think there will be something for the markets. I would caution any sense of, you know, reforms that go into reviving animal spirits. As one of those economists referenced, I think there is a desire to sort of use the private sector, use the entrepreneurial class to advance some of those key objectives in under the so called New Three, for example, high tech domains, advanced technology. They want to be able to use the private sector to achieve those goals.
I don't really see any signals that they want to actually unleash animal spirits, either among the entrepreneurial class or among markets to sort of fire power that transition. And we also have seen over the years it sort of hes since from she warnings over quote unquote barbaric capital, disorderly capital There is quite still this emphasis on having capital markets be quite ordered and structured in China today.
So, Jenny, it would appear then if we do not get kind of a big bang initiative, there's going to be a lot of disappointment.
Yeah, And you know, I think disappointment is sort of priced in. You know, leading up to the planet we've been hearing from investors and economists that they actually don't have high expectations for this, And there's a tradition actually for Chinese sucks to sort of react to sort of quite mutedly after a third penant, like it isn't something which historically has sort of really had like a big
sort of positive effect afterwards. I think it's important to bear in mind that, you know, she's going to be speaking from sort of a thirty thousand foot view at this event, and the communicator get afterwards isn't going to have policy specifics, but it's going to have sort of language which gives you an idea of the kind of policies that she wants to see the bodies and organizations underneath him and the Central Committee sort of roll out in the months to come.
It's always the case in China, it seems that social and political objectives come first, their positioned ahead of business. That's actually probably true in most countries. However, the lines are drawn slightly differently in China. It seems much more palpable in China journey.
Why, I think because of the way that the government is set up, and you know, I think what's interesting about the third Panem is this is the first one of these sort of major, you know, twice a decade events on reform since she consolidated power in twenty twenty two. Previously, when he went into these events, he was sort of having much more sort of balanced different factions, and you know, at the beginning, when he had his first plane in twenty thirteen, he was sort of, you know, the first
among equals on the standing committee. He goes into this event having consolidated power, and now maybe what will be different about this event is that we will see what she's sort of raw vision for the economy is when he gets to do exactly what he wants to do. So I think, you know, that's something that we might see differently because of how the balance of power in China has shifted even more in recent years towards she sort of personalizing power around his rule.
Rebecca, what about measures to reduce things like inequality and tackle even the demographic challenges that we've been talking about with respect to China.
Yeah, I think that's a really important one that people are looking out for. You know, we hear a lot of stories about people on the ground worried about sort of financial security, worried about job cuts, pay cuts. We hear anecdotes about, you know, civil servants having to repay their bonuses that they were given from the past five years. So for some in China, you know, prospects are looking
pretty grim. And while incomes are still growing, they're growing at their slowest pace under she Jimping since the late nineteen eighties, So the landscape has really changed quite fundamentally. I don't think there are enormous expectations though, that we are going to see sort of some kind of grand reform. I do think there is some expectation we might see something in, for example, reform for the welfare system, something in the Hookoh registration system, something in public services to
help local governments improve their public services. But in terms of sort of big bang changes that address or of fundamental issues of social inequality. I think probably expectations are relatively muted. It's a really interesting survey released by CSIS as well as academics from Harvard and Stanford recently that show in twenty twenty three, essentially more people are attributing declines in the ability to get rich or in fact the reasons to get poor in sort of economic structural reasons.
So they put it down to things like you can get rich if you come from a wealthy family or if you have connections. That's a big change from two decades ago, when the emphasis was more on your talent, your ability, and a higher education. So we've seen that actual sort of perception of inequality and who's to blame really change over the past thirty years.
In China.
It's interesting because when we look at the private sector, we understand that there's huge competition between or among different players there. The competition is ferce in artificial intelligence, for instance, we hear that some companies are just not going to be able to easily get ahead, even a company like Baidu, which is one of the early movers in that space. And yet we hear when we talk to economists about, you know, trying to stimulate the private sector that people
are calling for a more level playing field. How do we reconcile those two notions.
Well, I think there is a sort of contradiction here in terms of which part of the private sector are you really talking about vamping up, right? And I think the sort of era where entrepreneurs believe that, you know, a whole wider range of opportunities could create wealth and in fact that was something desirable has probably that sentiment is still really dented by the fallout of the crackdown on the tech sector, for example, on the education sector.
People who crude enormous amounts of wealth, we're essentially targeted for that, right, And so that we are sort of seeing a shift away from that type of sort of entrepreneurialism into these very targeted areas that align with government objectives. And in some of those areas, you know things like AI as well as evs. More obviously, those green tech areas do receive support, extraditional support, policy support, in some cases funding support to.
Grow Jenny, I'm curious when we use the term new productive forces, how much of that is reliant on a change in the way China has been thinking about research and development. Does a lot more energy need to be applied into.
R and D.
Yeah, I think this is an area where you know, she has clearly signaled that he wants China to sort of really focus its efforts on and it's allo sort of to do with this big sort of rivalry that China has now with the US. You know, New Productive forces is a big sort of catual term. Essentially, what she really wants is for trying to become a huge tech superpower which can be self sufficient if it needs to, but also lead the world in many of these technologies,
and they've really been investing in that. You know, they have a long way to catch up when it does come to some areas like AI. But then you know, you have seen how trying to has sort of steamed ahead in the EV sector and in terms of you know, the way that they have sort of led the world
really in green technologies. You know, I think the interesting thing is how that sort of then affects kind of geopolitical relationships and standing in the world, because it seems that the farther they do pull ahead in these kind of areas, the more they sort of run into frictions of their major trading partners, so they have to also find sort of new markets for these kinds of innovations
that they are seeking to find. And also it sort of comes back to this idea of all the emphasis in the economy right now is on the supply side rather than trying to create domestic demand.
If you want free, willing innovation, don't you sort of need more freedom. And also in the the particular predicament that they're in now, we wonder whether it's an inflection point between this sort of step by step stimulation and something that approaches shock and all.
I think that is a really interesting question because the assumption is that if you want innovation yet, you need this sort of free kind of environment where people can sort of like you know, experiment and everything. But then you know, if you look at China and look at the green sectors or they have innovated, they've done all that within a communist party system, which has just been
tightening over the past sort of twelve years. I think like China actually is sort of the way it is innovating is kind of challenging some of those assumptions about the kind of environment that you do need to innovate.
I mean, the Chinese model has been to sort of identify the areas you really want to grow, put like a ton of government support behind it, let all of these companies sort of go out and pile them and the strongest will survive and the weakest will die off, and you'll be left with really, really strong companies that can lead sectors. So it's kind of interesting to see China do that and sort of confound some of those sort of stereotypes out what you do need to sort of innovate.
Thanks to the two of you for helping us preview the third Planum, which gets underway next week. Rebecca Chung Wilkins, Bloomberg Asia Government and Politics correspondent and Bloomberg's Jenny Marsh, team leader for Greater China ECO GOV. I'm Doug Krisner along with Brian Curtis in Hong Kong. You can catch us weekdays here for Bloomberg Daybreak Asia beginning at eight am in Hong Kong eight pm on Wall Street.
Tom.
Thank you, Doug, and thank you Brian. 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. I'm Tom Buzby. Stay with US. Top stories and global business headlines are coming up right now.