China's Private Sector Pressuring Xi For Open Economy (Podcast)

we want to turn our focus to China. Ongoing discussions between the US and the world's second biggest economy as to how they are going to deal with trade going forward. Joining us now, Andy Brown, editorial director for the Bloomberg New Economy Forum, Joining us here in the Bloomberg Interactive Broker's Studios. Andy, thank you so much for being here. You want a really compelling piece about how the US may have some allies behind China lines, who are these

people and why? Yeah? Well, thanks, Lesa's great to be here. Um. The the argument is a is A is a pretty simple. What China should throw open its economy. It should level the playing field. It should dismantle state monopolies. It should stop giving preference to state players in terms of subsidies, cheap loans, policy advantages, in terms of licensing, standards setting

and so on. And it should do all this not because Donald Trump is asking for it, but because the private sector in China is demanding it, and in acceding to that internal pressure rather than external pressure, China can get its economy out of the funk that it's now in. And it's actually in a much much worse funk than people imagine. So you don't buy the six GDP growth. I don't care what the numbers say. I mean, China's economy is slowing, and I think it's stunning the Chinese leadership.

I think they've been surprised at the extent to which Trump's pressure are on trade has exacerbated all of these issues structural issues in the Chinese economy. But any some of what you're talking about is adopting more Western values when it comes to markets in China. And how much of that is actually on the table with these trade negotiations, I mean, how much is this ultimately going to come down to bushels of soybeans? Well, you see, I don't really see it as a clash of values between China

and the United States. You have to remember that all of the things that Trump as many of the things that Trump is pushing for and the private sector in China were promised by C. Jim Ping himself. Don't forget he came in five years ago, right he came. He had a long career as a bureaucrat in coastal provinces, which is really where the private sector in China is is concentrated. He comes in, he calls a big has buddies, Jack mar you know who runs Ali Baba. He's on

first name terms with Hank Polson. You know, the business community know him. He throws this big Communist party meeting Third Planet, and he says we're moving towards markets, and he lays it all out, sixty point agenda for opening up the economy. And basically this whole plan has been gathering dust ever since. Not just that the economy has flipped backwards. All of the trade and trends that were pointing in it towards markets have gone in the opposite direction.

He's doubled down on the state. That's right, That's what it might The point I was gonna make you. You lay at a very intelligent argument in your piece about what the Chinese economy should do, what the states should do. It appears just from my perspective that they're actually, as you said, going the opposite way over the last several years. So does the private sector have any influence to really

push for these reforms? Well, to the extent that these status reforms, which are ideologically politically driven, not driven by economics, are killing the economy. I mean, the facts are very very clear. The state enterprise is not just bad, it's shockingly bad. I mean, private businesses on average have a three time is the return on assets as their state competitors, right, and yet they suck up fift of all the credit

in the economy. I don't understand what the problem is then, I mean, if there's a pressure and if understands the need for some of these reforms, and this could actually play into what the U S is arguing for why hasn't there been an agreement? Well, well, you know, I mean the key here is id is ideology, and that she Jimping simply can't bring himself to dismantle a system which he believes is going to protect the Communist Party

and keep it in power. Don't forget the Chinese are constantly looking for lessons to the collapse of the Soviet Union and then what happened after the Soviet Union collapsed. Isn't the same kind of communism as Russia. It's a very different one now it's not. But they are very determined. The Communist Party of China will not go the same way as the Communist Party and Russia, which essentially gave up. And they see stay it own enterprises being a bullwark

uh to communist party rule. So is there any scenario let's go to let's go to the trade negotiations. Do you have how optimistic, if at all, are you about the U. S And China reaching any kind of meaningful trade agreement. Um, let's just go there and start there. Look, I think it's really it's gonna be relatively simple to get an agreement which does something about the trade deficits. I mean, China can instructed state companies to buy more

soy beings by US natural gas. Um. You know, we saw this big import expo in Shanghai and November see jumping instructs. You know, state on ENTERBRASO out. But by bye for this type of But this is kind of nibbling around, this playing around at the edges there talking about structural Now, the incentive, the real incentive for him to give ground is this slowing economy. He's got to pick the economy up and and so just going forward in thirty seconds, how bad will this be the landing

that people have feared for China. Well, we were already looking at something that looks a bit like a hard landing. Growth is growth has come off very badly. Um. The the the real key is going to be whether she Jimping can use the pressure from the United States uh in or rather use the pressure that's coming from his private sector as an excuse as cover to implement the type of reforms that are needed to get the economy back on track. Andy Brown, thank you so much for

being with us and your insights. A great article, uh and create comments. Andy Brown is editorial director for The Bloom New Economy. For him, he was formerly China editor senior corresponding a columnist for The Wall Street Journal. The swing has been notable This morning before markets open, City Group shares were down two percent immediately after reporting earnings.

Now shares up by more than three percent as an earnings call seems to bolster optimism among investors joining us now in our Bloomberg Interactive Broker Studios to discuss is Yellmen Iran. He's senior finance writer for Bloomberg News. So, y'ellmen, what happened here on the earnings call? Um, Well, you know, the earnings numbers aren't aren't bad either. There's there there's

good stuff to to see in cities earnings. Um. You know, fixed income numbers are bad, and everybody initially focused on that, but you look at other stuff. Actually it's okay. Um, loans are up, deposits are up, NIM, the net interest margin is up. So on the banking side, the bank is still really doing fine. Markets, as we know, have been all over the place and and they have they have heard um and so that has hurt the investment banking side, the trading side. But the other part of

the banking is doing well. So the numbers are good. And and on the calls, there was a media call with the CFO, the outgoing CFO GARSPAC and then the annals call is continuing with with CEO started to make comments and the CFO is talking now and and there's there. They kept saying, both of them kept saying the economy in the US and worldwide is not doing bad. The real economy has not been impacted. Everything is still on four cylinders. It's all really chugging along, and we're not

seeing client demand go down. So I think that all those things maybe you know, people are more optimistic that banks are are continuing to do the business for a few more quarters. I mean there was one point where where the outgoing CFO said, well, you know, if we start seeing impact of this, only real economy might be towards the end of two thousand nineteen. Okay, so that's a few quarters away. You know, there's still time until then.

Maybe we should be happy. And it's probably what's going on. Well, you know, we can't really push that fixed income performance under the rug as much as I'm sure management would like to. I mean, it's a it's a huge part of their capital markets business, and it was the you know, the worst quarter they've had in fixed for several years. What did they claim as the drivers of that underperformance

and what is their outlook for twenty nineteen? Like I you know, having been on a trading desk, volatilities, my friend, that's how I can generate alpha. That clearly wasn't the case for city here in the fourth quarter. Well, you know, the the commentary on whether volatility is good or bad changes according to the numbers they were quarter by every

bank official. Um so when when volatility helps the bottom line, everybody loves it and it's a friend, but but it doesn't always and and actually in the same quarter, Uh, some banks are aided by it and some aren't. Which is part of the game of fixed income market making. When you're when you're really buying and selling and the spread is where you're making the money, you know you can you can get caught in the wrong positions so easily.

And markets are going down for three days and then going up for three days, so you think it's going to go down for three more days and it and it doesn't. So it's it's tough for these banks. And even even if clients and and the typical commentary they give is while clients stayed on the sidelines because of a lottilty, I don't know if that's really the case.

It's just again market making in fixed income you and you can lose money as well as make bray and you just add up those days where you lost sources gain. One thing that I'm struck by the Okay, so putting market making aside, I'm struck in the first quarter that trading volumes are down in credit markets, particularly the risk your credit markets, and debt issuance is also way down, especially on the risk your tiers, which is actually where these banks make a lot of the money, right, I mean,

risk your deals tend to offer bigger premiums. I'm just wondering what gives them confidence that things are turning up, since, I mean, from all other empirical data, things are slower than the first quarter. The issues is going down, and that actually comes to hur r trading as well as you said, so so it's normal. I mean, trading can be can be better while issuance starts slowing down, but

eventually the issuance will make a difference. And they do make a lot of money on the issuance as well, and the issuance um debt and equity are down, so so that's being reflected and um so so they kept I mean they they're talking about the financial economy not doing as well. That's what markets are reflecting, but the real economy still going well. Um. But those cannot be in in diverging paths. For too long, right, they catch up. I mean, the real economy does get impacted by what

the financial economy is doing. Um and and it's a sign too. I mean, as as companies are selling less dead, that means they're they're not going to invest in new things, and they're not. The economy is not going in a great direction. So it's maybe a matter of time. But this is you know, markets can be very short term oriented, so you know, they could be looking for the next couple of weeks instead of a couple of months. Right, just real, quickly fifteen seconds. When I think City Bank,

I think a huge consumer franchise. Did they have any commentary about how the consumers doing both here in US and outside? They were pretty positive. They said they have not felt the consumers pulling back at all in the US or other places. Interesting. That is interesting. We'll see whether the rest of the banks say this, yeah, exactly, and honestly, in very early trading, the rest of the

banks were declining in sympathy with City Group. It'll be interesting to see whether city groups sets odd momentum after disappointing earnings. Go figure, and it's rare that City Bank leads off the bank earnings week. Usually that's left for JP Morgan. That's right, Well, let's see how they do. Yalman, owner, and so far they're doing okay. Y'alman, owner and senior finance writer for Bloomberg. Thank you so much for being

with us. Well, the world of sports has transformed from hitting a ball to directing a ball on a computer screen. Joining us now, Chris Russo, managing director and ahead of sports practice at Hula. He and Loki joining us here in our Bloomberg directive broker's studios. Chris, let's get a lay of the land for as you prepare for mergers and as you try to get a sense of where the eyeballs are going. Has ears e sports peaked or are we just getting started with the adoption of this trend.

I think we're just getting started with the sports, in part because the amount of people playing e sports games, attending events, watching and streaming on Twitch has just continued

to grow. And so over the past eighteen to twenty four months, you've seen these new e sports teams created by the big publishers like Riot and Activision, and those teams have been bought by professional sports team owners and some of those valuations are now a hundred and fifty million, two hundred million dollars for these teams, and I see them continuing to grow because of the audience, passion and the great demographics we have any sports. I just can't

imagine a sport watching other people play games. But I've been told time and time again, and I've seen the numbers, and I've seen Jeff Wilson, as you mentioned, to make an investment. But let's go back to maybe you know, the next big m and a trade involving sports might just be the regional sports networks that the Walt Disney Company acquired from twenty one century Fox. Big numbers, big markets,

big companies involved. What do you expect that to happen and what do you how do you expect that to play out? Well, I think there's kind of two ways of looking at that opportunity, and these are twenty two regional sports networks with great teams that they broadcast and great rights. The sort of negative view would be Cable going forward is going to be a diminishing place because of cord cutting and challenges on subscribers. The positive outlook

would be there's gonna be streaming opportunities. There's going to be gambling potentially incorporated into these broadcasts. So I'm actually more bullish on the rs AN opportunity than some other folks are. Where the bidding ends up may depend upon how many finalists are there and how they drive the price, but actually this is a quite uh interesting asset and

I think ultimately will be be a good one. You know, let's see about a little bit, because what you're just talking about, and Paul's really good question, and the concept of the sports kind of comes together with this idea that more people are cutting the cord and that big sports companies aren't going with them. They're staying in cable and as a result, they're losing some viewers. And perhaps this is allowing the sports to take off more because

that's what's available to people can use. To foresee a time in the near future where big teams move to online streaming services as well. I do believe that teams and leagues will rely more on streaming rights over time than they are today. I think you see some of that happening now with Amazon having a Thursday Night package from the NFL. Other leagues have licensed parts of their their packages to the major streaming companies and video companies.

But I think until the big rights are available, which will happen in the next three to five years, you're still seeing things around the edges. But with the younger viewers spending more time online with mobile devices, I think the league's will have to go there and have to be robust in those offerings. Let's you know. I know Joe Uh Chris worked at the NFL prior to Landlogate and nobody uh slices and dices broadcast rites better than

the NFL. So I suspect, as you mentioned in one or whenever that is um that the NFL that I'm sure the technology companies will be at the table. Is that your thought, it is my thought, And I think at the end of the day, people that have our companies that have great content will still do well. They will just find new ways to exploit the content through new platforms doing digital media, and I think it will be an opportunity to reach new audiences as this next

generation of fans evolves. So what do you expect in terms of the overall M and A volumes in sports media this year? Well, I think that we there will be a lot of m and A this year in the sports space, in part because warts gambling has emerged and that creates a disruption, and that creates new kinds of opportunity. We already saw a lot of them and a last year around the sports gambling space, fan Duel did a transaction, sport Radar, a sport data company, did

a transaction Genus Sports and other sports data company. You see a lot of companies getting prepared for the advent of gambling, and as a result, you'll see combinations, new investments, and new configurations of companies. So we've seen the league's most notably Major League Baseball, but all the professional leagues really really kept the gambling at a a you know, more than an arms length for generations. Now they seem to be embracing it. So can you give us a

sense of where gambling is in this country? Now? I know I live in New Jersey and it's legal linew Jersey sports books. Where are we and how do you think that's gonna play out? Right now, sports gambling is only legal in six or seven states, but many experts believe that will increase to twenty to twenty five states over the next couple of years. I think initially, as you mentioned, the sports leagues were very hesitant and reluctant

about sports gambling. But now that it is going to be legal, they are trying to figure out how they can make money but be keep the integrity of the games and make sure that gambling is done in a responsible way so they preserve the authenticity and integrity of these sports. Do either of you gamble to sports gambling? Do you actually have occasion? When I'm in Las Vegas? Occasion? Yeah? Would you? I mean, but my question is, you know, how much would this with the appetite widen or is

the field already there? Well? You know, in my opinion, there are there are a lot of reports out there that say the offshore the illegal amount of gambling is about a hundred and fifty billion dollars. No one knows if that's really true. I think what could happen over time is that number gets even bigger because people who didn't want to bet on an offshore book or go to some website, they didn't know if their money was going to come back, now feel it's safe, it's comfortable.

You've got brands like Fando on DraftKings which people now trust and and understand, I think you have potential to have this thing get get even bigger than anticipated. And what did the um? The ratings I guess for the NFL were up a little bit this year so far, but they've been a you know, kind of a downward trend. How concerned is the NFL in particular about their ratings or do they feel like there there are incillary businesses, whether it's red zone and other things that might be

making up for it. Yeah, you know, in my view, um, the NFL is doing just fine. Uh. Again, they had a good year in terms of ratings, but as you mentioned earlier, they're continuing to experiment and look at new platforms, new ways to distribute content, and I think they'll continue to be very shrewd about how they slice and dice

rights to let them maximize the opportunity. I think the key, though, for the NFL and all of these sort of major leagues is to make sure they're serving the next generation of fans with the kind of content and on the platforms that that those fans want to want to consume it. All Right, Chris, I'm gonna put you on the spot fifteen seconds. What's the one surprise deal that you think will get done in this space this year. Oh boy, the one surprise deal. I don't have necessarily one surprise

a deal. I do think you're going to see a lot more sports team activity this year. The last three or four years that activity has been pretty slow, only two WISH deals a year. I think this year you could see four or five deals, in part because I think some owners want to take some chips off the table with the markets being as strong as they are. All right, so so Hedge fun billionaires, get your purses ready because you can go buy a sports team. Thank you so much for being with us. Chris Russo at

Hula and Loki's Sports practice. Here with us, we are in New York City in our cozy when we're gonna active Broker's studios. David Coudla is in a brisk in Detroit where it's twenty six degrees and sunny at the auto show. And this is the last North American International Auto Show that's going to be held in January. They're kind of upping their game move thing to a warmer month in June. David, thank you so much for being with us. David Coudla is founder and chief executive officer

of Mainstay Capital Management. Before we get into what is actually being announced and discussed at the auto show, can you just set the tone for us, how how pessimistic are different automakers given the overall sort of bleak sales

picture for for the car industry. Well, there had been a lot of pessimism coming into with the slowing global economy and fears by some of a recession and a possible recession in the US in twenty nineteen, or at least a slowing economy in the auto industry is as cyclical as they come, and that's sent a lot of fears for slowing sales in twenty nineteen, which which we do expect UH in the U s and globally. We've

already seen that slowing sales in China. China had their UH first sales decline in over two decades, falling six percent last year. We expected to slow this year. That's the largest market in the world, and after the four best years for US sales ever from we expect sales to slow here. And then on Friday, of course, Mary Bara, the CEO of GM, came out with some very good expectations for Wall Street on what they expect in terms of sales and profitability this year. So a very good

picture out of GM. Uh So what we've heard from a lot of the CEOs they expect good. We'll see. So, David, you know, the automobile industry has really evolved into a technology industry, I mean essentially taken over the CS Consumer Electronics Show in Las Vegas every year. Um, what what is really the near term realistic technological innovations that are creating the most buzz there at the auto show this year? Well, it is about electric It is about electrification, It is

about electric vehicles, and it is about autonomous. But you know those still electric vehicles still represent less than one percent of the market globally and in the US. Uh, those are still products yet to come. A lot coming over the next few model years, but still yet to come. Uh. You know that what's happening in cars. We see this at CS and and we've seen a lot of the introductions.

I T is playing a bigger, bigger and bigger role in terms of the new introductions and in technology, uh, in in automotive and in terms of what's new and vehicles each year. Design is still is still a big deal. Improvements in fuel economy, horsepower, uh, transmission, suspension, all those things. But what's happening in terms of I T is becoming

a bigger, bigger deal and is evolving very rapidly. Uh. You know, the cars and the technology we see today are our leaps and bounds from just five or seven years ago. So David, I know you're big on Michigan since that's where you live, but I really and and and it rightly, rightfully so, Um, Detroit's Auto Show has kind of lost some of its relevance. Paul is mentioning the Consumer Electronics Show in Las Vegas, and that really is kind of taken on a more dominant role in

the auto industry. Do you think what is the role for the Detroit Auto Show these days? Well, you know that the heritage from you know, from where it comes from, and um, you know it is you know, probably the move to June makes sense from the standpoint of warmer weather, being able to actually drive some vehicles, along with coming to see them and moving away from h C e s which now kind of steals its thunder a week

ahead of time. Um. The German automakers, except for VW, are noticeably absent this year, so it's hopefully that will bringe some new life into the Detroit Auto Show, the North American International Auto Show. We hope and UH will will will help with the resurgence of the show. So David, as the automakers continue to ramp up their investment in technology, is it too early to maybe gauge who are some winners or losers. Who's doing a better job than than

others of some of the majors. It's it's interesting to see the partnerships that are that are coming together Honda with General Motors UH the announcement, we expect further announcements of Ford and VW UM, you know VW or. We've seen UH that really I think General Motors has been in a leadership role in both autonomous and UH E v UH. We've seen UH for word, you know, when we're talking about here in the US, has has has

been a little bit behind in that game. UM and those partnerships that we're seeing because of the cost to move from I, I, C, D E v UH and the cost for a Thomas significant cost to make that transition from what we call what some people call auto one point out auto two point oh we call it from the legacy business to the future of mobility. Uh, it's a very expensive transformation. So these partnerships are going

to going to be very important. But that's where we're seeing the synergies like that is I think that's going to be most what will be most important. David Coudla, thank you so much for being with us as always. David Coudler is chief executive in chief investments tragist at Mainstay Capital Management with two and a half billion dollars under management. Coming to us from the North American International Auto Show in Detroit, it is going to be the last one where it's going to be a brisk twenty

five degrees. Since this is the last one being held in January, it is now going to be moving to June where it's going to be sunny and people can drive through the town with a breeze going through their hair. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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