Sam Radwan is in Beijing again, speaking with the executives he works with there as CEO of Enhance International LLC, a consultancy established 15 years ago to focus on Greater China - the mainland, Hong Kong and Taiwan - and bring best practices from the U.S to the Healthcare, Insurance & Financial Services in the region.
As such he necessarily has a firm grasp and up-to-date macro view of China’s economy on top of a timely micro view based on what he hears in conversations with clients and observes on the ground in his many business trips there.
So, when I ask Sam how China’s economy looks now, with a battered real estate sector on one hand, and a still solid export sector on the other, his answer resonates.
”I’ve been doing this for 15 years here in China and one thing that I can attest to is the economic outlook is probably the most negative I’ve heard from the executives I’ve been speaking to over the past 15 years,” he said.
”Real estate is at the heart of it,” he added. “Will there be friendly new laws and regulations being put into place? Moving forward will the real estate problem be solved?”
”And also will trade relations improve which is going to be critical now given the direction that the Chinese economy is heading into right now.”
During Sam’s trip a lot has happened. The People’s Bank of China made a surprise cut in a key interest rate right after the The Third Plenum of the 20th Party Congress too place This is where members of the Central Committee of the Communist Party meet roughly every five years to officially set and announce the party’s most important policies and personnel rosters - which many experts is mostly a rubber stamping of President Xi’s policies. This Plenum failed to announce any big, new bold plans to put a floor under the nation’s battered real estate sector.
Sam and others have said the Plenum confirmed that Xi and his team are reversing the previous plan to move China away from a export-driven economy to one that government policy will help turn into a consumer-driven economy.
”They’re now trying to go back to being an export-based economy…not a low cost provider but more of an export-based economy in new technology.”
Sam definitely caught my Central Bank Central ear when he said that as soon as the Fed starts cutting rates, the PBOC will cut each time they do, moving in 10 bp moves.
He also explained how and why the real estate meltdown continues to pressure life insurers and bankers, underscoring why the Chinese economy why will be under pressure until this is resolved. And much more.
So, here’s the transcript with some of his key points underscored. I learned a lot from this discussion. Let me know if you do too.
00:00:00:00 - 00:00:08:11
HAYS
Welcome to Central Bank Central. I'm Kathleen Hays. So much focus on China these days, the world's second largest economy.
HAYS
How strong is it? How weak is it? So many big events that affect the economy have just occurred. The the plenum that occurs every few years concluded last week and it seems that even some people in China are disappointed that there are not bigger steps announced by the Chinese government to move the economy forward, especially after it's suffered under the weight of a housing market crisis.
00:00:33:05 - 00:01:01:05
HAYS
So I'm joined now by Sam Redwan. He's the CEO of Enhance International. It's a consultancy that focuses on markets, investors in Greater China. That means China itself, along with Taiwan and Hong Kong. So, Sam, first time on Citibank Central, a very happy to have you for you. Let's see, for me, it's about it's almost 8:00 at night, so I hope you've had your breakfast or at least your cup of coffee.
00:01:01:07 - 00:01:26:20
RADWAN
Certainly a cup of tea here. That's what you do in China. That's right. What am I saying? Well, of course, you're you know, your company. You're based in Chicago. You have offices. I could if I've got it right. Beijing, Shanghai, Chicago, New York and Taipei. You work for AIG. Years ago, you moved on to create this company with other people who were kind of involved in the same kind of work you were.
00:01:26:22 - 00:01:54:08
HAYS
So what? Where do you see China now? The big question I said the economy. And by the way, I forgot to mention the surprise rate cut this past Sunday, Monday in in Asia. That didn't exactly get people overly excited, even though they didn't expect it. So where do you want to start? I just I guess I'd like to say for all the people you talk to, your potential, your customers, the people you're consulting.
What sense do you get from them about how they feel about the economy, how the economy looks now?
RADWAN
00:01:54:10 - 00:02:25:09 WORST ECONOMIC OUTLOOK IN 15 YEARS
Okay. Well, thank you very much for having me. And what I'd like to mention is I've been doing this now for 15 years here in China. And one thing that I can attest to is the economic outlook is probably the most negative I've heard from the executives that I've been speaking to over the past 15 years.
00:02:25:11 - 00:02:57:10 REAL ESTATE AT HEART OF ECONOMIC PESSIMISM
RADWAN
Right. And certainly the real estate is at the heart of it. But there is a concern that will there be a business friendly new laws and regulations being put in place moving forward? Will the real estate problem be solved? And also will trade relations improve, which is going to be critical given the direction that the Chinese economy is heading into right now?
00:02:57:12 - 00:03:19:17
HAYS
Well, so let's start I guess, with that. You said you've been doing this for 15 years and hey, remember how China had, what, 14% GDP target then? You know all of that? Oh, we could. And now they're back kind of a in a place that would have seen weak at one time. But something like like 4 to 5% on their GDP.
00:03:19:19 - 00:03:41:20
HAYS
When you step back, what happened to China? Is this just sort of natural? You can't grow double digits forever. You obviously have to get bigger. Your economy gets you know, you got to have a slower rate of growth. But you're slow. You're you know, you're going off a bigger base. But what are the issues now? What is the big issue you think that's weighing on me, on the Chinese economy so much?
00:03:41:22 - 00:04:06:14
RADWAN — REAL ESTATE MELTDOWN HITTING CONSUMER CONFIDENCE
Well, I would say it's the consumer at the heart rate. And basically there are multiple elements to the consumer that we need to take a close look at. Right. One is consumer confidence, which is what we spoke about. Right. And it's just not there. Right. So, for example, we're having lunch with some of the executives and the entire conversation was around the fact that they want to pay off their homes.
00:04:06:16 - 00:04:34:04
RADWAN -
Right. Because they're not very confident about what the future looks like. Right in the in the U.S. and other places for example, you when you think of retirement, you're thinking of your 41k as your safety net in China, when you have investable assets, Right. You have a tendency to buy a second and a third. All right. That is your 41k more or less.
00:04:34:06 - 00:05:03:07
RADWAN -
Right. And they're watching the values of those safety nets continue to go down. Right. So one is certainly the whole topic of consumer confidence and how that's dampening spend in multiple areas. So the example that I would like to give is online sales is a very good indicator of what's where the mood is. It's down 7% year over year.
00:05:03:09 - 00:05:35:10
RADWAN - FALLING HOME PRICES HITS CONSUMERS’ RETIREMENT SAFETY NET
Right. Domestically, car sales, you know, is China's leading the world when it comes to easy production, etc.. But when it comes to domestic car sales, it's down 6% year over year. Right. And it is not just a question of the fact that the population is aging. It is more related to two factors. One is one thing COVID taught them is they need the social safety net and it's not there.
00:05:35:12 - 00:06:01:14
RADWAN
Right. And not only that, but what they relied on in terms of investments is going down in value. And the second factor is more politically focused, Right. Which is they're seeing the tension around trade relations, not just with the U.S., but with Europe as well. And they're wondering whether these are solvable or not. You know, given the tense situation that you have in place, right.
00:06:01:16 - 00:06:28:10
HAYS
Well, yes. And of course, this this question, as I mentioned, you know, Janet Yellen going to Brazil for the the G-7 meetings. And we know that that's one of the things everybody wants to discuss. You know, China with China doing and overcapacity, too much excess inventory, so trying to send overseas, etc.. But, you know, I think another point you make is interesting, that China is still at this point, it's a tale of two cities.
00:06:28:10 - 00:06:49:14
HAYS
I love it. You've got a roaring supply side, especially a new technology. Right. But then, as you said, this this demand, I think it first started going south during the pandemic. Right. That was a such a tough time for the Chinese people. And then next thing you know, the government wants to go it wants to crack down on the property developers because they're indebted.
00:06:49:14 - 00:07:07:23
HAYS
And of course, they seem to help kind of throw more fuel on that fire. So how is that going to play out? I mean, and if people want to try to offload their homes and they can't do things, China is just going to be stuck in a low gear for a long time. Again, the plenum where they were, I think people were waiting for some.
00:07:08:00 - 00:07:37:01
HAYS
Okay, we're going to move ahead. We're going to come up with things, new steps based on the steps we've already put in place. And President Xi, of course, totally in control of this. Now, you know, there's none of the past presidents with their kind of policies so much affecting what he's doing. This is all his vision now. So what what didn't they do that they need to do or should do next?
00:07:37:03 - 00:08:05:24
RADWAN
Well, let me start with your first question in terms of where is this going? Right. In our view, it is now very, very difficult to tell where the bottom is. Right. So, for example, we track information around foreclosures. You know, there, Ali, Alibaba provides auctions for foreclosures. And what we're seeing is an actual acceleration in the rate of foreclosures.
00:08:05:24 - 00:08:39:16
RADWAN — CHINA NOWHERE NEAR SEEING BOTTOM IN REAL ESTATE MARKET AS FORECLOSURES KEEP RISING, HOME PRICES FALLING
And we're forecasting around 4 million foreclosures cumulative from now since 2009. So we're not seeing a bottom in any way in terms of where this situation of foreclosures is going. And same with home prices. Right? Home prices has, you know, ever since 2009 till now, is not finding a bottom. And the reduction in home prices is not decelerating in terms of rate.
00:08:39:18 - 00:08:57:20
RADWAN
Right. So it's very difficult for us to say, you know, this is when or we're going to see some sort of stability or the light at the end of the tunnel. I think we're going to continue on like this, at least for a year. And then the question is, a year from now, will you start seeing some stability?
00:08:57:22 - 00:09:20:15
RADWAN
So that in a way, try to gives you a sense of where the where the pessimism comes from. Right. Is nobody nobody's able to see the light at the end of the tunnel. And given that real estate is at the heart of the economy. Right. Not just from a retail perspective. We can take the example of the insurance industry, for example.
00:09:20:19 - 00:09:47:10
RADWAN ON IMPACT OF FALLING REAL ETATE ON INSURANCE INDUSTRY
Right. Even though the insurance insurance industry is a major financial and investor institutional investor in China. Right. Even though if you look at their balance sheet, you're going to find that 2% is directly invested in the real estate market. When you start looking at indirect investment, i.e. loans associated with real estate, you're looking at 10 to 15% of their assets that are in that space.
00:09:47:10 - 00:10:17:03
HAYS
Right. So everybody's aware of how this is kind of at the heart of the issue. Right. And nobody's seeing the light at the end of the tunnel. Right. Which kind of gives you a sense of why, you know, so much pessimism is in the market right now. Now, back to what I was going to ask you to tell us more than or finish that thought and then go to the next thought, I guess, which is so what about the the roaring supply side that you mentioned?
00:10:17:05 - 00:10:46:03
HAYS
You know, where is that and how is that driving the economy at this point? And to what extent is that, as you just said, also, that's another thing that worries people because they know that there's a lot of pushback against Chinese exports. And with a presidential race, you know, in full swing now in the U.S., you know, Biden already put tariffs on chips and Trump has of course, he's not running close to Kamala Harris, but she's part of that team.
00:10:46:05 - 00:10:51:04
HAYS
And Trump has threatened to put tariffs on just about everything.
00:10:51:06 - 00:11:22:15
RADWAN ON CHINA EXPORTS VS U.S., EUROPE TRADE POLICIES
Yes. And that's a very good point. And if you look at the export numbers, you know, they are pretty front loaded with the idea that they're looking to see to it that they can get the most out of the export side before terrorists start kicking in. And the focus right now is on Europe. And the EV market is a big driver of all of these numbers that you're seeing.
00:11:22:16 - 00:12:13:13
RADWAN
So, for example, EV production is up 34% by far a key driver of the numbers that you're seeing in terms of GDP growth is in that particular area. And Europe is in an interesting situation where they have outsourced a lot of the production of these type of vehicles to China. Right. So there is a tremendous PR effort right now going on from the Chinese side to see to it that they're able to tamp down a little bit of the rhetoric that is taking place in European countries on a different scale to see to it that they continue to see to it that this is a market that accepts this overproduction, if you want to call
00:12:13:13 - 00:12:44:15
RADWAN
it, of these type of new technologies, and that they're importers of that. The second part is, as you can see, how aggressive the PBOC is in cutting rates. You're going to see them be even more aggressive once the Federal Reserve starts getting cutting and they will play along very quickly and very swiftly to see to it that now you can make the argument that this whole shift to a consumer driven economy is not working.
00:12:44:17 - 00:13:09:23
RADWAN
Now they are placing big bets on going back to what they used to do before, which is to be the exporter to the world. And the focus is on newer technologies. Well, that's a that's a that's a lot of a lot to absorb in so many ways for the Chinese economy. I think it's very interesting that you point out that and that's true for a lot of emerging markets.
00:13:09:23 - 00:13:26:20
HAYS
Well, that's a that's a that's a lot of a lot to absorb in so many ways for the Chinese economy. I think it's very interesting that you point out that and that's true for a lot of emerging markets.
Always are always have a hard time calling China an emerging market because of such a big, you know, in so many ways strong economy. But that that once the Fed starts cutting, that opens the door for a lot of other countries to cut, too. How about the banks? How about the financial sector? How what kind of shape are they in?
00:13:26:22 - 00:14:01:23
RADWAN ON BANK STRESSES
Well, we talked a little bit about the insurance companies. I like to talk about banks. All right. So banks are certainly in a situation where they are sitting on a good amount of bad loans. Right. The amount is obviously kept close to the vest. But you can make the argument, though, that with rates being cut, that you may start seeing growth in loans to businesses and growth to loans as it relates to mortgages and reviving the real estate market.
00:14:02:00 - 00:14:52:00
RADWAN
But you're actually seeing an interesting trend that's slightly different than that. You're actually seeing a flattening out of the growth of mortgages and a growth of business loans. And the reason being is as rates go down, you're seeing more and more payments take place that are offsetting any new loans that may take place associated with buying new. So as mentioned with the anecdotal example that I gave you, it is actually translating into what we're seeing in terms of banks, which is, you know, as rates are getting cut, there is more and more prepayments of the old loans and there are more and more attempts to pay off your home mortgage.
00:14:52:02 - 00:15:24:21
RADWAN -CHINA’S INSURANCE INDUSTRY - LIFE INSURANCE SIDE WHERE MORE THAN 90% OF PRODUCTS ARE INTEREST RATE SENSIIVE
That is a definitely a trend that you're seeing in that area. Now, if you look at the insurance industry, it is a slightly more difficult or challenging situation that they're running into where let's start with the life insurance business, because by far their assets that they hold are significantly larger than the property casualty side, the life insurance business of products in China, more than 90% of it are interest rate sensitive.
00:15:24:23 - 00:15:52:03
RADWAN
In other words, they're guaranteeing you a rate. And as rates drop, you know, their investment returns are not able to keep up with what's our guarantee, Right. So, I mean, compare this to the U.S. where 40% or so of their books of business are interest rate sensitive. So they're definitely going to go through into a very challenging time as rates get cut with them watching their investment income dwindle.
00:15:52:05 - 00:16:19:09
RADWAN
Similarly with the property and casualty side, where they're relying less on operational income and more on investment income, that is getting eroded. Okay. So you're going to start seeing some tough times for the insurance industry in China. And that has a ripple effect because these are companies that are holding on to key assets in the Chinese economy.
00:16:19:11 - 00:16:49:15
HAYS
So what when you advise people, enhance international consultancy Greater China focused, what kind of questions are they asking and what are you advising them to do in an economy Now that seems it's in a tough spot in a lot of ways with with demand, with supply. And again, what can you say? When would you say it's a tale of two economies in a way?
00:16:49:17 - 00:17:17:22
HAYS
Is it is it the case that, well, you know, go for the go for the export part of the economy, you know, go for the like you say, the electric vehicles and the and and the and I guess that's another thing that the plenum the big meeting the government has every few years to make plans revise updated its economic and growth plan etc..
00:17:17:24 - 00:17:39:19
HAYS
How what what do you hear and what do you see in terms of how much that is going to work? That is going to take time. Chinese are patient, right? They think long term. How how what was that going to mean? What is it going to mean for people watching China? What people thinking of investing in China? Is that an area they should be looking at?
00:17:39:21 - 00:18:10:24
RADWAN — CHINA’S LOW INTEREST RATE ENVIRONMENT IS HERE TO STAY, BUSINESSES MUST ADJUST
Well, let me start by saying that, you know, the first thing that is clear and I basically make clear to my clients is these low interest rate environment that you're looking at in China is here to stay. And we're talking not just, you know, this year or next, but maybe even decades. Right. So the question is, how do you start managing your business in a low interest rate environment is by far the key element that the risk management group needs to look at.
00:18:10:24 - 00:18:42:21
RADWAN
And at least in the financial services and insurance industry that we're looking at, this is not new. You know, for example, Europe has gone through something very similar and that is but that is something that definitely now needs to be the focus of of these organizations, of managing their businesses as the days of, you know, 30 to 40% growth in the in the financial services market, especially in the insurance market, etc., is gone.
00:18:42:23 - 00:19:06:00
RADWAN
And the high rates that they were able to high investment returns of 5% and 4% I think are gone for a very, very long time. And now they need to look at shoring up their operations and focusing more on operating costs. The market that regardless of what slowdown will occur in China, that will be resilient in our view.
00:19:06:00 - 00:19:29:12
RADWAN
You mentioned, for example, the easy market. Looking at the market and talking to some of the players, you can make the argument that yes, there is a lot of potential and opportunity in that particular area. But keep in mind that a lot of these companies that I'm talking to are very, very cash strapped. Right? They're burning through a lot of cash.
00:19:29:14 - 00:20:00:08
RADWAN — CHINA DEMOGRAPHICS, AGING POPULATION SEEN BOOSTING HEATH INSURANCE, HEALTH CARE INDUSTRIES
So the point is, once again, they are making very big bets that their overproduction or their rate of production is going to be absorbed by the rest of the world. So there's some risk there. The other market that I would like to point out to is, you know, back to the you know, the consumer is the number of retirees in China by 2050 are going to exceed the entire population of the United States.
00:20:00:10 - 00:20:41:05
RADWAN
Right. Over 300 million. So that market is going to grow in a very orderly way. And that's where the big opportunity is for the China market. Right. I mean, you take a look at, for example, Japan, where I just visited. Right. Despite the slowdown in the economy, you're definitely seeing the health insurance and health care sector part of the economy, still a key focus and growing steadily and there are ways to take advantage of that particular growth area.
00:20:41:07 - 00:21:05:14
HAYS
So, you know, we watch, you know, the US economy can be a big driver for the rest of the world. Right. And China, certainly in Asia, has been often a big driver for growth. Right? I mean, a lot of South Asian nations, many emerging market nations work work with China. Right. They sell exports to China. I mean, China exports a lot.
00:21:05:14 - 00:21:26:02
HAYS
But, you know, this is is a big market for those countries as well. So I'm thinking, you know, we saw China again growing so fast. Second, you know, the second biggest economy in the world and such a powerhouse. How would you describe what China is now and what it's going to be in this context of a global economy?
00:21:26:04 - 00:21:57:03
RADWAN
Well, I think China right now, given its nationalist government. Right, is going to have a very hard time getting consumer confidence or consumer optimism to where it is. They're going to need some sort of a miracle politically speaking, in terms of better relations with the U.S. and Europe, because really what you're seeing is if you were to if I were to look at the 15 years that I've been in China.
00:21:57:03 - 00:22:24:01
RADWAN
Right. It was a situation where they were slowly trying to move from a, you know, an export based economy to a consumer based economy. I think what the platinum has made it clear is now they're reversing this again. Right. And they're now trying to go back to being an export based economy. Right. Maybe not a low cost provider, but more of an export based economy in new technology.
00:22:24:03 - 00:22:56:04
RADWAN
Right. But it's clear to say that moving to a consumer based economy, it's just not there and it's not going to be there for a while. Right. So it's almost like they're doing a reverse in terms of where the focus is going to be. Right. With a slight caveat of focusing on new technology. So that's what, you know, in my view, what the next five years hold in terms of the shift in the Chinese economy.
00:22:56:06 - 00:23:21:11
HAYS
Hmm. So in terms of, again, dealing with the West, dealing with the U.S., what do people say there? I mean, do they think, well, gosh, if if Trump gets elected, he's going to just put tariffs on everything we? Do is there going to be order? He's saying we think there's a way to work with him if the Democrats get elected.
00:23:21:11 - 00:23:47:16
HAYS - IMPACT OF POSSIBLE HARRIS, TRUMP TARIFFS ON CHINA
Kamala Harris And, you know, people, you know, maybe they have more power in the House of Representatives and the Senate, again, are they thinking, well, maybe they will be much better than Trump because, you know, President Biden was, you know, has also used tariffs, certainly on chips as a kind of a kind of a weapon. Right. Kind of an economic weapon with China.
00:23:47:18 - 00:24:21:07
RADWAN
Yeah, it's more of the latter. Right. I mean, there was no question about it that China is following the elections in the U.S. very, very closely. They're also following what's happening in Europe very closely as well. Right. And certainly when it was a situation before Biden decided not to run, he knew more prior to that. You know, they were almost succumbing to the fact that, you know, it's going to be Trump and it's going to be tough times moving forward.
00:24:21:09 - 00:24:52:00
RADWAN
So we really need to start thinking about plan B in terms of where else can we build relationships. You know, are there pockets in Europe that we can look at, etc., the Global South, etc.. So there is definitely a very, very diplomatic element associated with this effort of reviving the economy that you're going to see a lot of a lot more emphasis on.
00:24:52:02 - 00:25:20:06
RADWAN
Right. Will Kamala Harris be a better alternative? They're not banking big on that, but certainly they are banking on the fact that it'll be a much better situation than a Trump situation. Yes. So they're definitely bracing themselves for the fact that when Trump comes into power. Right. That it's going to be tough times, especially as it relates to trade with America.
00:25:20:08 - 00:26:00:09
RADWAN
But I just want to reemphasize the point that I made earlier about why am I claiming that the pessimism is the most that I've seen over the past 15 years? Yeah.
HAYS
Well, and as we as you walk us through all of this and you talk about how the weak consumer sentiment, the consumption, how hard it's going to be to pump it up, and that's a problem because you could say, well, look at the world's getting more compartmentalized and, you know, there won't be so much trade and it will be more, you know, near shoring or all the things that people have been talking about
00:26:00:09 - 00:26:31:22
HAYS
the past few years. You would be naturally the best time to say, hey, you've got 1.4 billion people. Just get your own people spending. Right. And and you could meet their demands and you could say how well China would probably do fine. But your point is that right now, after there's just people are more concerned about, hey, I want to see if I can sell on these houses I purchased thinking that was going to, you know, carry will carry me over into a comfortable old age that they're they're they're looking at ways around that.
00:26:31:22 - 00:26:54:07
HAYS
And we know that a lot of the local governments are still they're still loaded down with debt. Right. And they're unable to climb out very quickly for that. I've been reading a couple of stories about how much businesses have cut back. One manager whose salary was cut by 35% and he can no longer meet his mortgage. So, wow, it's a hit.
00:26:54:09 - 00:27:12:11
HAYS
So what? So what happens next then? Is it we're just going to say it's going to be low growth in China. They're going to hope that the export side, they develop markets that that work and keep them going. Is there going to be a big recession in China? Is it going to be bumping along? What what do you think?
00:27:12:13 - 00:27:43:12
RADWAN
Well, let me tell you about the two indicators that we follow very closely. Right. One is the ten year bond rate, and it is a very good indicator of what the sentiment is for China in, the long term. And insurance companies and bankrupts rely very heavily on that type of asset be to invest in it or to look at it as a collateral and once the cut.
00:27:43:14 - 00:28:17:13
RADWAN — 10-YEAR CHINESE TREASURY BOND IS KEY INDICATOR , ALONG WITH FORECLOSURES
So ever since January of year, right, that rate has been falling from 3% and now it's at 2.2%. Right. The reason the recent cut that the PBOC made barely made any difference, which is a good indicator. The other indicator that we look at closely is we're looking at this acceleration in foreclosures. Right. The real estate and the housing market is a key pillar that has to be fixed.
00:28:17:15 - 00:28:37:07
RADWAN
If you want to have any chance of getting consumer confidence back up, you know, given how central it is, we're looking at that closely and we're we're trying to see is it going to start to decelerate at some point? It's not looking like it's going to be the case here in the near future, certainly not in the next six months or so.
00:28:37:08 - 00:29:07:17
RADWAN
Right. But that's another very good indicator of trying to see once we start seeing some kind of bottom in the real estate market, then maybe we can start saying that, okay, China is out of the woods. Right. And ready to look at the consumer again and see a pickup in consumer confidence. Certainly, the social safety net is another factor, but I believe the real estate market is a key indicator there.
00:29:07:19 - 00:29:46:21
RADWAN
And then last but not least, is the Chinese economy is now so vulnerable or more vulnerable to the geopolitical situation that any GOP political shock. Right. Is bad news for China.
HAYS
If people in China more much about the fact that the Ukraine, Russia war continues and that China, to whatever extent you want to call it, is aligned with Russia, and is that when you're talking about being vulnerable to the geopolitics at China, is that is that one of the things that's on people's minds?
00:29:46:23 - 00:30:07:14
RADWAN
Well, I'd like to share with you a rumor, and I don't think it has any basis to it, But, you know, the rumor that's going around in China, which I found it to be odd, is they view that if Trump gets elected. Right, that he is going to ally with Putin against China. Right. Which is a factor. Right.
00:30:07:16 - 00:30:54:20
RADWAN
I don't necessarily see that. But to answer your question, they are concerned about what's happening in Ukraine from a standpoint of what kind of ripple effect will it have in terms of either having the U.S. continue to look at China negatively because of the relationship with Russia? Will that mean sanctions, more tariffs, etc., so and so forth? So it's all within a relationship of, you know, why what is their relationship with Russia going to do to them as it relates to how the rest of the West will look at Russia and the relationship between Russia and China and Taiwan?
00:30:54:22 - 00:31:27:05
HAYS
The picture you paint of the vulnerability of the Chinese economy right now, a housing market that is still going down right, that has not been resolved and is going to weigh on so many aspects of sentiment and spending, so many things like that. What is China really in a position where Xi Jinping would seriously consider doing anything more than sort of rattling sabers and, you know, you know, sending ships close to the areas where they're not supposed to be in.
00:31:27:06 - 00:31:53:19
RADWAN ON TAIWAN VS CHINA’S NATIONALIST GOVERNMENT, CITIZENS
I mean, it seems like there it would make a tough situation tougher if the Chinese were to take any steps, serious steps in that direction at this point. And I don't think they will. Right. I mean, I think, you know, the the the general approach you're seeing right now is more of a reconciliatory approach. Right. But having said that, though, you have to keep in mind that you're dealing with a nationalist government.
00:31:53:21 - 00:32:16:17
RADWAN
Right. One thing I've learned and, you know, maybe this is something new to your viewers, you know, but given that I spend time in Taiwan, China, I used to think that the Taiwan issue was a sensitive issue for the government. It's actually a sensitive issue for every Chinese citizen. Right. So it's a it's not just a nationalist issue for the government.
00:32:16:17 - 00:32:49:20
RADWAN
It's for every citizen in China that I've spoken to at least. Right. Both from the senior executives down to the gardener in the Hotel Durham that likes to talk to me every once in a while. Right. So they I don't think you're going to see any provocation on their part. But at the end of the day, they have to react to anything that they believe that is tarnishing to their reputation or their, you know, position in in the in the region.
00:32:49:22 - 00:33:12:06
RADWAN
Yes. So they react. But I believe now that they're in the mode of how can we find a way out of this tit for tat. Right. And really try to see to it that we are able to now refocus on building economic ties.
HAYS
Well, as we wrap this up, we've had a tremendous conversation. Thank you. We've covered so much ground, Very illuminating.
00:33:12:08 - 00:33:33:23
HAYS
And again, you've been you you've run this the consultancy SEO Enhanced International for 15 years. You spent a lot of time in Asia. Certainly a lot of time in China. What is the question or the thought that you would like to leave us with? What should we be watching? What should we be thinking when it comes to China?
00:33:34:00 - 00:34:02:02
RADWAN
Well, in terms of China, as mentioned, if your audiences are primarily in the investment side of the world. Right. As I mentioned, I'd watch very closely. You know, how the government is going to be able and will the government be able to resolve the real estate issue? Right. I can I can say that, number one, it's probably not solvable in the next year or two.
00:34:02:04 - 00:34:41:02
RADWAN
And it is something that, if solvable, you can start, you know, revisiting China and saying, yes, this is a market now where we can revisit the topic of consumer spending and consumer confidence in that market. But I don't see this in the next few years. Right. So I would like everybody is doing is, you know, you can watch this area closely, but you need to get a little bit more granular about it in terms of looking at this information and would be a very good indicator for you in terms of when will China start turning the corner?
00:34:41:04 - 00:35:00:03
RADWAN
And I'm hopeful that it will, but it's certainly not going to be in the near future from what I see.
HAYS
Well, then, I guess part two of this as we wrap things up. You did mention that as soon as the Fed Reserve starts cutting rates, we can see the People's Bank of China, its central bank, cutting rates as well.
00:35:00:07 - 00:35:35:07
HAYS — HOW MUCH WILL PBOC CUT RATES?
What kind of you know, what kind of rate cuts do you think we'll see in terms of where they are now and where they could get to?
RADWAN — PBOC WILL CUT RATES BY 10 BPS EVERY TIME THE FED CUTS ITS KEY RATE
Well, I mean, they're cutting them, you know, by ten basis points. Right. You know, so for the seven day, you know, it's down to 1.7. It is very, very difficult to say because unlike the U.S., where there's a lot of predictions in terms of where rates can go down, there is nothing nothing that you read in the news in terms of indicators, in terms of what the PBOC is planning to do.
00:35:35:09 - 00:36:03:22
RADWAN
But one thing I think I'm fairly confident about is that, you know, every time the Federal Reserve cuts, you will see a cut. The PBOC see, I believe you can say with high probability, probably over 50% that that will take place and will be just as you know, as the same rate as you saw in the recent cuts, you know, ten basis points, etc. may take place. So it's literally a question you tell me how low the U.S. go and I'll tell you how low the the the PBOC will go.
00:36:03:24 - 00:36:23:17
HAYS
Well, maybe we'll do that in our next conversation, huh? Sounds good to me. Okay. Sam Radwan, thank you so very much for your time here on Central Bank Central, CEO of ENHANCE International based in Chicago, working all over Asia, certainly China.
00:36:23:19 - 00:36:36:11
HAYS
Thank you so much for joining me.
RADWAN
Thank you. My pleasure.
HAYS
Thank you very much. Have a good day. This is Central bank Central. I'm Kathleen Hays.
Sam Radwan is the CEO of Enhance International LLC a consultancy established 15 years ago to serve the to the Healthcare, Insurance & Financial Services industries in Greater China. Headquartered in Chicago with offices in Beijing, Shanghai and Taipei the company looks to bring best practices from the US & Europe to Greater China. Sam has met and provided advise to several top health reform influencers in Greater China including the Director General of health reform at China’s Health Ministry , top healthcare reform scholars at the China think tank: China Academy of Social Sciences (CASS), the current and former Health Ministers of Taiwan, as well as the c-level executives at the top private health insurers including China Life and Taikang. Working closely with Dr. Ezekiel Emanuel, former White House advisor and Affordable Care Architect as well as former Biden Covid Adviser, Enhance International LLC looked to bring US best practices to China by facilitating the publication of Dr. Emanuel’s book “Prescriptions for the Future” in China as well as co-authoring the chapters on Mainland China & Taiwan’s healthcare trends, in Dr Emanuel’s recent book “Which Country has the World’s Best Healthcare”. Sam has been quoted and featured often on the topic on CNBC, The Economist, Financial Times, the Wall Street Journal, Bloomberg, amongst others.
China's Executives Most Pessimistic on Economy in 15 Years: Radwan