Bloomberg Fracture of day: Asia 03/04/2024

This is DAYBREAK, Asia.We're counting down to Asia's major market opens.And Heidi, I don't want to discount Korea today, but my focus is very muchon what's happening in Japan, because we've been tracking that rapid ascent inthe Nikkei 2 to 5 and today looking to past that key 40,000 mark.Futures very much indicating that that's going to be happening.And I'm sure lots of investors in South Korean equities will be looking keenlyat this, hoping that this is a trajectory that, you know, the unlockingof value in Korea follows as well. But, of course, we're also watchingdevelopments when it comes to what's.

Going on in Beijing with the politicalpageantry and also, of course, the twin sessions, the CPPCC and NPC takingplace. But 40,000.Yeah, certainly at that level. We're going to be watching closely here.You've got the open for Japan and as we said, that Nikkei 2 to 5 taking a lookat the level that we've got today within a whisker or rather just passing that40,000 marks. So that's a key psychological level thatwe've been tracking here at really defying concerns for investors becausethey're seeing that big ascent that advance from the 1989 peak from lastmonth and then on would, of course, pass.

That 40,000 mark.Defying those concerns, as we say, investors thinking perhaps the gainshave been too rapid. You've got that RSI hitting above 80 atthis point in time, but it's been it's been above 70 for almost three weeksnow. So certainly in in overbought territory,perhaps just from that indicator, but still we're above that 40,000 mark forthe first time. So very much raising and taking it allthe way back to the to the levels that we're at.As we said, the early nineties when they had that bubble bursting.So Japan, those gains that you're seeing.

Here in the session today, you've gotthe Nikkei up around 8/10 a per percent. And broadly we're we're going to bewatching that one. The Japanese yen there still continuingto hold around the 150 mark and we know that yen weakness again has been one ofthe factors. It's been really supporting Japaneseequities given the large number of exporters.Some data to note we just had company profits.They were up around 13% on the year sales as well.Increasing that is another positive indicator lending into to Japaneseequities.

But let's change on not to forget Korea,of course, because yes, as you said, Heidi, Japan, that focus on corporategovernance reform. Korea wants some of the same becausethey were also getting really focused on that as well.And we are seeing the cost here are continuing its gains and the Korean onea little bit firmer as well. So just a signal of that level of ofrisk tolerance that we have in markets right now.But let's bring in Kristi Tan. She's a bank investment strategist atFrankel, Franklin Templeton Institute. And and, Kristie, I'm interested foryour views here.

As we say, the Nikkei 2 to 5 breachingthe key 40,000 mark for the first time ever.What do you think about the gains we've seen so far?Are you concerned, as we say, that it's been too far, too fast?It is amazing how Japan actually went from the most unloved and now I thinkone of the most loved equity indexes across globally and, of course, AsiaPacific. And I think this has to do with a lot ofthe positive developments that has happened and keeps happening.And we saw how, you know, profit levels of Japanese companies have been on theup and of going from strength to.

Strength as well.And manufacturing activities are also more upbeat.And at the same time, I think if we look at some of the developments that hasstarted to manifest and this includes the increase in wages, the corporatereforms, development and also I think, you know, sustainable inflation thatcould support the overall policy change, a policy shift from a negative interestrate policy to normalization. I think these are continuing as positivefactors for the Japanese equity markets. Now, at the same time, I think if youlook at externally, right, so there is also the relative attractiveness of, forinstance, the Chinese markets and also I.

Think there is that flows of investmentfunds that are looking for opportunities across the space.And this fear of missing out, given the irrational exuberance in the US equitymarkets is probably widening across to the Asia-Pacific region.Yeah, And how long do you think that that would sort of the system?I'm curious as well when you take a look at the inflation outlook, we just hadlocal media in Japan saying that that Japan could consider calling an end todeflation. That could alsofactor, of course, into the BOJ's thinking.So how do you think central bank policy.

Shifts are likely to play into thatmarket dynamic? Absolutely.So we're definitely looking at a potential shift and this is going to be,again, a structural possibility. So in that case, you know, timing is is,of course, a big issue. But I think, you know, sometime thisyear and this is largely within a lot of investmentanalysts expectations that, you know, the build will at some point this yearactually shift towards removing the negative interest rate policy.And what is then important is that whether or not this is priced in andfrom what we have seen across the.

Equities complex in Japan, you know, apossibly, you know, 40,000 being breached for the first time.And potentially, you know, going from strength to strength is still apossibility, especially when we see that the policy shift and the BOJ actuallysignaling that has already started to to happen and late part of this year isdefinitely a possibility for that. Christine, It's interesting because ifyou take a look at what's driving this rally, the momentum factor for Japan hasjust been getting stronger and stronger. Right.This winning strategy of buying stocks that are doing well.Are we starting to look at a more.

Polarised market, though, because thereis going to be this pretty big gap when it comes to stocks that have rallied,continue to rally and underperformers are really starting to lag.We are definitely looking at that, not just within Japan itself but across theregion. And if you look at how India, Vietnamand also now Japan, you know, these have shown that relative strength that APECand the attractiveness of emerging markets versus perhaps, you know, someof the opportunities in the developed markets.So going ahead, you know, this divergence is a reflection of how themarket sentiments are placing out.

And with regards to the US, where thereis narrow leadership, I think in the U.S., there is the Magnificent Seven.And in Japan, increasingly, you know, investors are actually talking about thesummarized seven. So there is also that momentum that isstill continuing to build up across Asia-Pacific region.And we are seeing investment opportunities and this is from thesurvey that we are doing across our Franklin Templeton Complex.And we have actually surveyed and we've received survey results from 300 of theinvestment professionals in within the company that shows that going ahead.Well, we are expecting that, you know,.

Some of this narrow leadership tobroaden out and as well as not just in terms of equities given, you know, wherewe think the Fed policy and the rate cuts will be and will happen.So this we do expect global growth to be slower than consensus across all majorregions, but at the same time, recessions will be avoided and inflationin the US will continue to moderate. So some of thesefactors are actually driving investment flows potentially to fixed income.Kristie. We're watching South Korea very closelybecause obviously regulators there want that market, the reforms to follow thetrajectory that we've seen for Japan.

But the response from investors to thecorporate value up program has been lackluster.Do you see South Korea being able to replicate insofar as it's taken over adecade for Japan, this level of success? Well, there are opportunities withinSouth Korea that are also very I would say that to within the techspace, in the technology space. And this continues to be, I think, a keysupport and pillar for these South Korea investments and opportunities and alsoasset classes. But at the same time, I think thatyou're right in mentioning that, you know, the gap between Korea and Japancould be widening and could get wider.

I think this has to do a lot with alsothe challenges that South Korea is facing.And I think, you know, with the with the US elections that's happening this year,there's going to be a lot of geopolitics concerns that will also drive a lot ofselectivity in terms of whether or not, you know, Korea will actually outperformin this case. And with what's happening across theheadlines, of course, that was the situation within the medical professionthat is also manifesting. I think that is going to be a drag onsentiment somewhat. But we we don't expect any kind of astructural,.

I think, negativity that will actuallyaffect South Korean assets significantly.I think there is still a lot of that tech possibilities and potentially, Ithink, you know, the continued maneuvering of the South Korean techcompanies towards the tech sector will be a key driver that will support Koreanassets. And Christy, I've got to get your sortof assessment when it comes to where we go from now from China.What are investors, do you think, keen to hear from the leadership this week aswe kick off the twin to the two sessions?Is there anything that can really.

Try and consolidate a bit moreconfidence, including that GDP target? Well, China is definitely at a juncturewhere the policy authorities will have to send the right communication messagesacross, and I think they will. I think the base case is that these NPCin two sessions that is happening this week and will probably end by the middleof this month will see that, you know, the baseline growth of around 5% targetand also at the same time to achieve that, I think that not only shows theconviction of Chinese authorities to maintain that growthpolicy, but at the same time there will have to be more growth, a supportivepolicy and measures that will have to be.

Implemented.So I think that in this in its case, is a vote of confidence for investors thatthe Chinese authorities will do more. And we are starting to see that alreadyhappening since January. And so the pivot that the policy pivotthat we are expecting and I think markets are looking for that around 5%growth target, around 3% inflation expectations, and also at the same time,more fiscal policy measures that will support the overall growth momentum.I think that will be in place. And what markets will then or investorswill then look out for is that these policies actually get implemented moresupportive fiscal and monetary policy.

Directions.That has to be communicated and we think that will be.And at the same time, I think if we look at the and, you know, the kind of fiscalspending that needs for that needs for this growth, growth targets to be tomaterialise is probably around 3 to 4 trillion worth of policy measures thatwill be in place. Mm hmm.Dan, thanks so much for your time this morning.That was the APAC investment strategist at Franklin Franklin TempletonInstitute. And as we just mentioning there, Chinaset to announce its 2024 growth target.

And outline its strategy for supportingthe slowing economy at the country's top annual political gathering this week.Our chief North Asia correspondent, Stephen Engle joins us live fromBeijing. And we heard that we know it's going tobe around that 5%, perhaps steep, but still it means that we're going to needto see a lot more supportive policies coming through.Yeah. Are we going to see a lot of supportivepolicies coming through? I think they're going to talk a goodgame, obviously, over the next ten days or so of the National People's Congress,which begins tomorrow.

Runs probably through about the 11th.We don't have the final date yet, but of course, today also is the CPPCC, whichis the advisory body to the National People's Congress, colloquially known asLeon, where the two sessions. That's why we're out here previewingthis, because, again, as the last guest just rightfully said, it's it's youknow, the world really and investors are looking at China to see what kind offorceful measures might come out of this.You know, two sessions to stimulate and to restore confidence.And I agree with the guest who said implementation will be key as well.But so far, Xi Jinping and the.

Collective leadership in Beijing hasavoided the big bazooka approach. Yes, we've had some, you know, thenational team come in and support the stock market when it was wobbling at thebeginning part of this year. February was a fairly decent month forequities here in China because of the state support and also the propertymarket. We saw banks, you know, essentially cutthe loan prime rate, the five year tied to mortgages.So that was a good step. But collectively, it's not a big bang.And that's what we're wondering whether there could be more property measures tosupport and put a floor on this sinking.

Confidence and, you know, the situationfor developers and also restore confidence in the private sector.It's been absolutely battered. Obviously, if you go back to 2020 withJack Ma and the collapse, of course, of the ant IPO and then the restructuringof Alibaba, keep in mind, the private sector in China essentially accounts forabout 60% of national GDP and 80% essentially of urban jobs.And that is a key component. You got to keep the the the young andrecent graduates employed, and that's a struggle going forward.So there's there's a whole list of problems in the Chinese economy rightnow.

And we're looking for signals thatthey're going to. Be at least supportive in both fiscalpolicy, perhaps even more monetary easing, as well as just confidencemeasures going forward. Yeah, you know, investors are lookingfor fiscal expansion, fiscal easing, but at the same time, you've got theseheavily indebted provinces. Right.What does that mean for, I guess, the discomfort of of looking at to try andsupport the flagging economy versus what these local governments do?Yeah. I mean, that's why we're going to bereally looking at the work report.

Tomorrow at the beginning of theNational People's Congress, from the Premier Li Chung, his marching orders tothe provinces. Now, so far, of course, you know, inyears past there would be in times of economic pain, there would be stimulusgoing forward in the form of shovel ready project projects at the municipaland provincial level to really stimulate growth in that form on the fiscal side.But again, it's incurred a lot of debt at the local governments, and the localgovernments are in fiscal distress in many cases or strained, I should say.I'm not saying that they're necessarily going to default.But again, keep in mind that property.

Troubles in China really exacerbates thefiscal situations that the at the provincial level because land sales havefallen off the cliff. And that is a huge part of how they getto refill their coffers. So what we're hearing essentially thatXi Jinping, he mentioned it 128 times last year, he wants high qualitydevelopment that is essentially sustainable.And this boom bust cycle of of incurring high debt at the local level is notsomething that he wants to exacerbate further.So they are constrained and the central government is trying to remainconstrained in adding to that debt load.

But at the same time, you know,everyone's saying we need something. Yeah, that's right.Certainly a lot of calls for more stimulus that was out.Bloomberg chief North Asia correspondent Stephen Engle in Beijing there.And stay tuned for the very first edition of Bloomberg's The China Showcoming up in the next hour. It's your definitive source for news andanalysis on Asia's largest economy. From politics and policy to tech andtrends, we'll have in-depth discussions with the newsmakers who matter.The China Show premieres today at 9 a.m. in Hong Kong, Shanghai and Singapore.Plenty more to come on DAYBREAK.

Asia.This is Bloomberg. So many people say the only way toreally deal with climate change is kind of eliminate oil and gas and then havemore clean energy. Is it realistic to eliminate oil and gasin the foreseeable future? You actually have to at least mitigateit, and then you have to bring a lot of it down and replace a lot of it.But you also have to. You can also have a huge impact bytrying to do things like carbon capture and so forth around it.And it's going to take both approaches. Even today, greater than 80 plus percentof the ways the world operates around.

Energy right now is still fossil fuels.You know, when you kind of look at it and probably was more striking is thefact that the demand for it is going up every year, things like solar or wind.It's nice and environmentally friendly, but really is not going to be producingenough energy to really replace oil and gas in my lifetime, I assume, right?Well, not by itself. So let me just say so.Solar and wind and critical components you need, This is going to be sort of acollective effort with a lot of different technologies that are going tocome in and take their piece. But we do have breakthrough.We look at technologies that could.

Produce half a gigaton, remove halfgigaton of carbon a year. And the way to think about that numberis we have to remove, say, 100 half of gigatons, you know, a year in terms ofwhat we have to replace. Opec+ is extending its oil supplycutbacks to the middle of the year in a bid to avert a global surplus and sharpprices. Let's get more from our energy andcommodities editor Andrew Jane. So Andrew took us through what was sortof jumped out to you and I guess a difficult environment that this group isfacing when it comes to try and predict the market dynamics for this year.Hi, Heidi.

Yes.So the cuts, which amount to about 2 million barrels of oil a day, wereextended through to the end of June, pretty much widely expected by themarket. Couple of interesting points.First, the Saudis account for about half of that cat.They're under quite a lot of pressure or self-imposed pressure to keep the oilprice high, given that they need a price of around an average price of around $90a year for this year to balance their budget Fetch came out with an estimate afew weeks ago and that's as they build futuristic cities, hosts sports,tournament pay top footballers a lot of.

Money.So yeah, they're going to have to sort of work quite hard to try and get theoil price up there to to balance the budget.The other interesting point is that Russia, which has been given a specialexemption, gets to the exemption, allows it to mixproduction cuts, any export cuts with its quotas,and that they've said they'll be focusing more on production cuts whichwill allow them to keep exporting more to fund the war in Ukraine.But we haven't exactly seen very good compliance from Russia and some otherproducers as well.

So do you think that we're going to seebetter compliance moving forward and and how is that likely to play into broaderoil markets, especially if we do see those cuts being extended perhaps evenlonger? Well, compliance is always an issue.The smaller members have have a history of not complying that well.I think the bigger issue for Opec+ is that we've got surging production fromoutside the cartel, from the Americas, particularly the US, but also Brazil andGuyana. And that's although oil prices have beenon a slow but sort of steady as seen this year, that extra production hasreally kept the gains.

We've also still got a bit of amiddle East war premium and the price transport costs have gone up as tankersget diverted away from the Red Sea and the Suez Canal and have to go aroundAfrica. So those are sort of pushing the priceup a bit. The surging production outside Opec+ ispushing it down and also the demand outlook is not looking that great,particularly in China. So all those things mean that,you know, it's going to be tough for Opec+ topush up prices. And there's a trade off here becauseas they keep reducing production and.

Production from other places, surges,they're going to lose market share with that already are losing market share,but they're going to lose more market share.So I think that's going to come to more of a head at the next meeting in Junewhen they decide, you know, what they're doing for the rest of the year.There's going to be pressure from particularly the smaller members whodon't want to keep on cutting output. But at the same time, you have theSaudis under this sort of self-imposed budgetary pressure.That was Energy and Commodities editor Andrew James.There will have more to come on.

DAYBREAK.Asia. This is going back.You know, I don't know who the leaders of nine South-East Asian nations inAustralia are gathering in Melbourne today for a three day meeting.Bloomberg's Paul Allen joins us for more.And China looming large, I'd imagine. Yeah, very much so.And this forum in many respects is about countering China in the region and Ithink you'll probably put the agenda into a couple of buckets.On the one hand you've got the economic and on the other the strategic.And in terms of the economic side,.

There's always an interest in growing.Trade's taken as a bloc. ASEAN is Australia's second largesttrade partner, $178 billion worth of two way trade there.And there's sort of an opportunity here for Australia to participate in thegreen energy transition in ASEAN as well.The strategic side of things, perhaps a little bit more nuanced.We've had the Philippines President, Ferdinand Marcos Junior arrive in thecountry a little bit earlier. Australia and Philippines signed a pacton maritime cooperation, and this is obviously with an eye towards the SouthChina Sea.

And Vietnam is also looking to sign astrategic relationship with Australia as well.And Paul, there's a lot of different countries that are represented, butMyanmar is not going to be one of them. Yeah, that's right.On Myanmar, obviously a very repressive military regime.It's been three years since the military seized power there and the short liveddemocratic experiment in Myanmar ended. Australia didn't invite Myanmar, butit's going to be represented by a diplomatic embassy staff instead of somehuman rights groups are still pretty critical of that.But of course Australia is not a member.

Of ASEAN, so it can't really dictatethat one member can't come. So this is kind of a compromise really,but this is sort of emblematic of the whole way that ASEAN works.You know, these binary outcomes tend to be avoided.There's a culture of consensus is very multipolar and non-aligned in itsoutlook. And another example of this might beBrunei. Brunei has been operating under a stateof emergency for 62 years now, but nobody really talks about that.So that's pretty much ASEAN tends to function.All right.

Bloomberg's Paul Allen there.And let's take a quick check on how markets are faring so far.About half an hour into the session for Japan and Korean equities.But the headline we're tracking today is the Nikkei 2 to 5 breaching the key40,000 level for the first time ever. Very, very strong momentum that we'reseeing in Japanese equities. It is opening the door to further gainsin the historic rally. Even then, when you take a look at RSInow around the 80 level, also a signal that we are looking pretty overbought.But when markets reach a record, then they tend to be stuck in a range tosomething else.

So we could be tracking as well. South Korea's PMI numbers that have justdropped here. You're seeing for the latest reading.This is the February one, but coming in at 50.7.So the prior survey had shown PMI 51.2. So we are just seeing it dropping alittle bit to 50.7 in the latest reading.But South Korea was shot for a public holiday on Friday, so we didn't actuallyget those numbers dropping when we saw the rest of the PMI gauges beingdelivered for North and South Asia as well.And on balance, we actually did see a.

Slight deterioration that sort of trackswhat we'd seen from other economies in the region as well Heidi.Yeah, we are just getting some data coming through from Australia as well.These are building approvals month on month.We're seeing actually contraction of 1%. Very interesting given the survey landedat about a 4% gain. It certainly now is a contraction ofnine and a half percent that we saw in December.But January's reading still seeing contractionary territory at a time.What we're seeing home prices continuing to accelerate in Australia, extendinggains even in the sort of environment of.

Very elevated interest rates.We have seen, of course, population growth spiking, new housingconstruction, construction continuing to slow down and that is really what we'reseeing in those building approvals. Private sector houses also seeing a fallof about half a percent there as well. And in fact, if you take a look at theDecember numbers for building approvals, it was actually revised lower to over10%. So potentially this supply situation isgoing to create even more of a momentum play when it comes to home prices inAustralia. This is what we're watching when itcomes to broader trading.

Down, of course, is all about Japantoday as we see that advance over that 40,000 level for the first time.It really didn't take us very long to get there when we were starting to sortof eye that gauge sort of in the latter half of last week.But this potentially opens the door to further gains in what has really been ahistoric rally here. Tech in particular chip making producesas well as some of those adjacent names have really been helping those gainsover the past year. And still some of the best performers inthis session as well. The broader topics index also advancing,but that is still about 6% below its.

Record high.That is from more than three decades ago before the asset bubble bursting inJapan. So we have some ways to go before we getthere yet. But take a look at some of theoutperformers that we see in the session.High says Samsung Electronics in Korea. And of course, we are watching Koreanstocks as well as it tries to really replicate the governance reforms thathave really finally begin to pay off in Japan.Investors will be very cautious going into the start of trading in GreaterChina as well, given it is a big week.

CPPCC and NPC global markets watchingfor any kind of policy delivery, fresh policy direction for the Chineseeconomy, which is continuing to face property market turmoil, weak consumerconfidence, persistent deflationary pressures and of course the overlay ofgeopolitical tensions. Bloomberg's chief North Asiacorrespondent Stephen Engle outlining the priorities at this year's twosessions. Early spring's crosscurrents in Beijingcan be tough to read as China faces a host of economic headwinds ahead of theannual session of parliament, the National People's Congress.With property market turmoil, poor.

Consumer confidence, persistentdeflation destabilise geopolitical ties, along with plummeting FDI and a rockystock market. Simply put, it's not been a good firstyear for President Xi Jinping since taking a presidents busting thirdconsecutive term last March. The economy is still tough, is slowlyrecovering, but the confidence has not come back.So far, state directed funds have mobilised to stabilize wobbly markets,while Beijing replaced the head of the securities regulator and cracked down onso-called malicious short selling banks to eased a loan prime rate tied tomortgages.

And consumers came back and spentmightily during the weeklong Lunar New Year holiday.The best set of Spring Festival numbers since pre-COVID.But was it all enough to turn the Winter Bears into spring bulls?2023 has been an unfortunate confluence in China of deflation and de-risking.I think this year the policymakers want to go back into reflation and hopefullyreform in terms of the ability of these measures to really change the marketsentiment. We are slightly more cautious becausewhat's really needed is a change in the inflation outlook for the country andthe overall sentiment in the private.

Sector.You've got sentiment which is rock bottom and at the same time, I think theissues of policy credibility in the market, the growth engine remains onewhere it's more that's a government led infrastructure led, manufacturing andinvestment led, and those might help to get to the growth target.But in terms of the more dynamism and the more sustainable type of growth, wethink it's still need some work. So the attention now, as we're here inBeijing, turns to Premier Li Chang's work report on day one of the NationalPeople's Congress. He's out looking for more candy from thegovernment.

We really want to say, can we actuallygo back to more like what child started You need to reform back in the 1980s ismore, you know, allow the private enterprises and companies to deviseincentives to we need to do things to freedom.Wishful thinking, perhaps for global investors who got burned by multiplestresses on China's private sector, including Covid zero.And a regulatory takedown of big tech. We've been out of China for a long time.We essentially started getting nervous about China when Jack Ma was hauled in.So that wasn't 2020 very long time ago. And for the past year and a half or two,we've had no exposure to none.

Whatsoever.The world is watching Beijing's next policy move, perhaps at the NPC withgreat interest. Stephen Engle Bloomberg News, Beijing.Let's bring in now Thomas, who is a fellow with the Center for ChinaAnalysis at the Asia Society Policy Institute.Always great to have you with us. Was it was Alix Steel who said thatthese structural reforms could be painful, right?Like taking a knife to one's own flesh? Are we to believe that a painfulstructural slowdown is what China needs ultimately?It's a great question because I think.

It's clear from what stage in pain theoverall leader is doing is that he recognizes that China needs to changeits growth model. You know, the Chinese government itselfthat started this property wobble of the last few years through its three redlines policy, they know that too much of the economy focused on property, focusedon highly leveraged debt activities. And he's trying to change that.But it's a slow road. And the danger is that you blow up thebroader economy, the financial market, overall confidence while you're tryingto do that. And, of course, you know, there's a bigquestion about can he policies that.

She's being put forth, putting forward.Can he actually solve these problems? Because investors, the private sector,have been burned by sudden, unpredictable and frankly, unfriendlypolicies over the last few years. And it wouldn't take much for that blowup. Right.Because sentiment is just so horrible right now.So how how careful do they have to balance the GDP target issue?I mean, around 5% is consensus. If they set it too high, they could missit. And they also have to follow it up withfiscal support.

So which which doesn't ultimately, asyou say, play into the kind of longer term goals.So what's the best approach here? Another great question.I think. I mean, 5% is the consensus.It's the same as last year. But if that is what is announced, thatwould be a more ambitious target than last year, given that 2023 was arecovery year after be, you know, quite very poor performance of the economy in2022 at the height of the Covid lockdowns.So that does suggest if it's 5%, there will be a bit of a bump to fiscalstimulus, maybe some slight monetary.

Easing as well.But, you know, if it's a more ambitious target, if it is 5.5%, I mean, thatwould be hard to make. But it would suggest somewhat of achange in thinking in terms of how much stimulus the central government iswilling to tolerate compared to its drive to simultaneously reduce debt.So that would be a positive sign for at least, you know, short term growth.But also if there's, you know, the possibility of a lower target aroundfour and a half percent, then, you know, that suggests that keeping this longterm debt situation under control and advancing other regulatory priorities isgoing to be more of a theme in what will.

Be a more belt tightening year thanexpected. Given the base effects that are in playhere, which does make any GDP target even at 4.5%, perhaps really difficultto make as well, because the assessment so far is that they're going to avoidany sort of bazooka style stimulus. Do you think social instability issomething we're going to be discussing a lot more over the coming 12 months?I think the potential for more social instability is certainly increasing.But I also think that, you know, like the years and decades past, we can'tunderestimate the effectiveness of China's security state.I mean, it's something that is a high.

Priority for the regime leadership,especially under the Xi Jinping era. And, you know, the security services,the Ministry of Public Security and state security, they are also gettingbetter and better at what they do. And they're learning how to use newtechnologies, you know, like the Internet, but also artificialintelligence to improve their techniques for first pressing, but also resolvingsocial tensions. So I don't think we're likely to see ahuge kind of a national international news type level of social instability.So something become more of a headache for President Xi to manage.When you talk about tension, of course,.

There's always the cross-strait tensionsthat what are we likely to hear around Taiwan?Independence, do you think? So the two sessions and the governmentwork report that the Premier delivers is usually not a setting to announce anynew policies on Taiwan or even foreign policy more broadly.I mean, that's kind of more the business of the Communist Party and see Jinping,who leads foreign policy. But there is always a few lines on theseissues. And I think a watch point for this iswhether Premier Li Keqiang repeats what Wang, who named who's the top Taiwanofficial, said at a recent Taiwan policy.

Conference about fighting rather thanjust curbing or opposing so-called Taiwan independence to use the party'sown language. And that wording of fighting used to bethe highest level that it would have been presented in any kind of partystate official context, which could signal a toughening of the coercive andintimidatory measures that Beijing is willing to use to try and ensure thatthe new incoming Taiwanese president, Lightning doesn't go beyond where Chinasees what Beijing sees the status quo to be.How much bandwidth is there for Xi Jinping when it comes to geopoliticalhawkishness, given the economy is.

Clearly a key priority domestically?And how much does that also depend on what we see from the US in terms ofwhether they continue supporting Ukraine, for example, on who wins theNovember election, on what Beijing's next moves towards Taiwan might be.I think for this year, China's foreign policy is very much in a wait and seemode. They certainly will lash out and reactif liking that goes beyond the current situation in cross-strait relations.In terms of the policies that its predecessor, Taiwan, has laid outbefore. I mean, Taiwan is the core of the core,the Communist Party, as they would put.

It.But in terms of the broader foreign policy settings, and especially if thatdoesn't happen in Taiwan, then the focus is on waiting and seeing until whathappens in November in the United States, because right now we're in amoment of stabilization in US-China relations, and that helps Beijing tohave a bit of a breather on the pace of US economic controls, piece of the tradeand investment and technology and the US-China relations, and helps to createa more positive atmosphere in general for foreign investment and domesticinvestment in China. So I think she and Lee Chang and the topleadership wants to keep that going for.

At least this year and then see whathappens in November and then, if needed, readjust to a new administration.I was named Thomas Fellow of Chinese Politics for the Center for ChinaAnalysis at Asia Society's Policy Institute.And the hottest weekend getaway destination for Hong Kongers has becomeShenzhen, the Chinese city just across the border.Big box retailers Costco and Sam's Club have been drawing up, have been aparticular drawcard. And many young people who once protestedagainst Beijing's influence over Hong Kong and now heading to the mainland forcheaper dining and entertainment.

Let's get more now without ChinaEconomy. Government editor Alan Wong joining us.And yeah, it's quite an incredible reversal change when you think about theprotests that started in 2019. What is it behind this sort of crossborder lifestyle that we're seeing? We're seeing a record number of HongKongers crossing the border on weekends and holidays, so much so that some HongKong bars and restaurants complain that I used to look forward to weekends andnow they're dread it because the bars are now empty and restaurant bookingsare down. It's happening partly because for anumber of Hong Kong, those who crossed.

The border, they used to protest China'sintegration of Hong Kong, the influence on Hong Kong's politics.And now they're not exactly embracing it.They've just had this profound sense of apathy and indifference after thecrackdown on security in Hong Kong that, in their view, eliminated all hopes ofreform. So they they just they told us that theymight as well go across the border to seek bargains, like many other HongKongers. And obviously, Shenzhen has always beencheaper than Hong Kong. There's obviously been great dealsacross the border, but it has to be.

Become more appealing because, first ofall, since it has developed make become more prosperous and a lot of itsshopping options have diversified. And also all the boom of infrastructurein the previous ten years is paying off because Go to Shenzhen now takes only 20or 30 minutes. It used to be an hour long trip thatthat requires taking the train and then maybe the ferry and maybe otherconnection transportations. But in what ways does this matter?Because obviously there are negative implications for Hong Kong.Yeah, we won. Economists estimate that Hong Kong andShenzhen are spending up to $84 billion.

On retail and services, and that isabout 15% of money they didn't spend in Hong Kong.Restaurants and bars, they don't like this for sure.And then there's some local politicians and economists suggesting imposing adepartures tax on Hong Kong residents leaving the city just to protect thelocal economy. And this has also been an urgent call totheir local leaders to think about how to better attract tourists, because asHong Kong tourism to Shenzhen and the rest of China hit record highs, thereverse hasn't been true. And we're seeing that the travel numbersfrom mainland China to Hong Kong is.

Still below the 2019 level before beforethe COVID isolation. All right.China economy, government and Alan Wong joining us.And you can get an insider's guide to the money and people shaking up thefinance hub in our new Hong Kong edition newsletter out every Thursday.You can sign up via bloomberg.com slash newsletters.We'll have plenty more to come on DAYBREAK.Asia. This is Bloomberg. The resilience of Asian demand forluxury brands will be in focus this.

Week, as Prada reports its fourthquarter earnings. Let's get more now from our breakingnews earnings specialist Harshita Swaminathan and Harshita.Yeah, I mean, big focus really on Prada. Hong Kong listed what it's going to tellus about demand, especially for mainland China.So Prada is expected to report earnings on Thursday and were expecting about a40% profit growth for the year. But this is, of course, coming fromAsia, as it has been in recent times, is because of some wealth creation going onin the region. And with that comes a whole new class ofpeople that are able to spend on things.

Like things like luxury handbags fromfrom Prada. But one interesting thing that we'reseeing is that a lot of the demand is coming specifically from Japan.This couple of reasons for this. One, of course, is that that is thatthere is very good underlying demand from a region like Japan, but alsobecause of the weaker yen that's made it cheaper for a lot of tourists to buyluxury goods from Japan as opposed to your brother.The price differential between buying stuff from Europe versus buying luxuryfrom Japan has really narrowed, and that's something that's reflected inother and other luxury houses earnings.

As well.Like when Omens or LVMH reported Japan was the fastest growing region that theyreported. And that's something we expect will playout with Prada as well. Do we take sort of broader signals fromthe performance out of Prada when it comes to consumption trends across Asia?And what we're seeing across those demographicswas Prada is, of course, a luxury brand. So it's not fair to really extrapolatethat to broader Asia. But we are seeing a fair bit ofdivergence this time around. For instance, JD Dotcom is also reportedto is also expected to report earnings.

Later this week and it's expected toreport its slowest revenue growth in about a decade, if not longer than that.And the reason for that is its pretty heavy exposure to China.And as we as you earlier spoke about in the show, there's been a lot of economictroubles going on there. And one of the side effects, of course,is the is the dampened consumer sentiment because of that.So we're seeing a pretty sharp divergence between how luxury retail hasbeen performing versus how the more mass market retail is expected to perform.A breaking news earnings specialist has returned from an offender.Well, ahead here on DAYBREAK, Asia.

This is Bloomberg. All right.Big milestone on Bloomberg Television this morning.Just in about 7 minutes from now, we're going to have a new show that's startinghere today. This is the very first edition of TheChina Show with Yvonne Man and David English.But Yvonne is here now. So, Yvonne, I mean, yet, as we said, newshow, but also what a week to start as well with the NPC opening.It's a crucial week, so why not launch on the week of MVC?Right.

I think it's interesting because Davidand I, along with Tom Mackenzie back in 2019 when we first launched the ChinaOpen, I still remember those days and how exciting it was, and we were stillbuilding up to that momentum still with this new show.And we're going bigger and we're going to be that better too, because we'regoing for full 2 hours now and it just gives us a chance to really breathe andlet the stories that we talk about really kind of let people digest andlook at more deeper dive into a lot of big conversations that we talk about.So it's not just the news of the day that we're going to target.It's going to be about parsing through.

Local media, the statements that comethrough what's trending on Weibo and the like.So it gives us a chance to really talk about some of the deeper issues here inChina and really kind of. Yeah, NBC and beyond, Heidi.Well, I mean, get that pulse check as well.Yeah. Yeah.And you know how excited I am when it comes to more things on all thingsChina. Right.But, you know, arguably, there's no more critical time than now to be spendingmore time getting this analysis to be.

Able to try and come up with some of theanswers to the big question, is the economy slowing?It's a structural slowdown. What does you know, what does this meanfor investors in China in the long term, The geopolitical tensions as we get intopotentially a different US presidency and all of those things that get thrownup? And yeah, there's a lot right.And I think we have some really keen newsmakers today and throughout the weekto kind of get through all of those themes.As you mentioned, it's not just the macro, it's also some of the domestickind of concerns that we're dealing with.

As well.The US-China relations, as you talk about the countdown to that U.S.election in November. So we've got a big lineup even justtoday kicking things off with us as George Stein joining us from PNB Burma,really just to talk us through what's really going to be the sentiment leadingup to the NPC. And then we have the best of the bestwhen it comes to China equity strategy. You got Kendra Lau from Goldman Sachs,Wendy Wu of B of A securities here. They have slightly different views onthis China equity market as well. So be interesting to put those twotogether to kind of talk through, of.

Course, what's to come this year.All right. The China show airing every weekday withYvonne and David. And as we said, that show launching justat the top of the next hour. That's it for this hour of BloombergDaybreak Asia. That new show airing just aheadof.

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