China's Country Garden Gets Winding Up Petition

Published Feb 28, 2024, 3:53 AM

Featuring:

Lulu Chen, Bloomberg Asia Investing and Real Estate Team Leader joins the program to discuss how Country Garden's winding up petition fits into the larger picture of China's property crisis.
Vlad Savov, Bloomberg Tech Editor, sits down to discuss Apple's decision to cancel development of the apple electric vehicle. Plus, what Alibaba's AI investment means for its future.
Catherine Yeung, Investment Director at Fidelity International, joins the show to discuss her perspective on APAC markets. 

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Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner. You can join Brian Curtis and myself for the stories, making news and moving markets in the Apec region. You can subscribe to the show anywhere you get your podcast and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

Joining us see in our studios is Luluchen Bloomberg Asia Investing in real Estate Team leader. So I mentioned a little bit of the backstory there so you don't have to go back and dwell on it. I think what a lot of investors would be curious about here is what comes next for Country Garden. Will it now restructure and satisfy creditors.

Country Gardens is still trying to push off the liquidation the fate of liquidation, which means that it's still trying to proceed with a restructuring plan and negotiating with creditors. Now has said that this petitioner who filed the winding up order is a single creditor and only holds a very small amount of debt and its ten billion offshore total debt, so it will still proceed with its restructuring negotiations and also its home deliveries and its business operations. It says is still operating as normal.

So what makes the Country Garden situation different from what we saw unfold with China Evergrand?

They are very similar in terms of what Evergrand was experiencing a few years ago. Now you know that Evergrand's winding up petition was this very protracted negotiation that actually in the end failed to achieve the consensus. They failed to achieve the consensus with creditors, which led to the running out of patients by the Hong Kong judge and they were ordered for liquidation offshore in Hong Kong late January. Now, this is the early start of that process for Country Garden, and it could take a very long time before we see any significant progress for the next step.

And when you see a company that is designated to do this winding up, let's say eventually this happens with Country Garden, you know they don't really have much clout in China. How difficult is it for let's say a liquidator in Hong Kong to order the selling of assets in local jurisdictions.

In China it will be very difficult even for Everground. Right now, the question of whether their creditors can get any assets on shore is a huge question mark because you have also local governments and all these homeowners and different different regulatory bodies that are all trying to seize assets from Evergrand on shores, So offshore creditors remain an afterthought in the process of all of this, and they have very few assets offshore.

Or do you think it's possible that creditors could avoid what happened in the Evergrand case, Maybe and work to I don't know that they would be willing to take haircuts, but maybe you could split the baby, so to speak, and not go to the extreme case of liquidation. Do you think that there's the possibility of something like that.

I think the founders how willing they are to come to the negotiation table, and also their sincerity is very important. If you look at the only large developer that's managed to pull this off with Sunak, and the founder took haircuts and treated everyone equally, treated himself equally as creditors, which people say was part of the reason that they managed to pull it off, and Evergrand was more dismissive towards offshore creditors, so their attitude is going to be key here.

Let's talk a little bit about how Country Garden used to be kind of a model. I mean, it was almost a favored son, or perhaps we should say favorite daughter, since it was run for much of the past ten years or so by a woman.

Yeah, so the dad founded the business and then built it into an empire that had one hundred and thirty thousand employees, tens of thousands of homeowners living in their apartments, and he gave the reins to his daughter Yan hu Yan, who at one point was the richest woman in China. And you know, they really seen as a local hero. The father was seen like a local hero entrepreneur that was worshiped in China before things started falling apart and the property crackdown piled on since twenty twenty.

So, one of the things that I'm curious about you mentioned the fact that the Hong Kong Court back in January kind of ruled on liquidation for China. Evergrand, do we have any indication of how that decision has landed in on the mainland, how Beijing is viewing that.

Rulely So far, very little impact for on shore assets. I think the whole uh process for how on shore evergrand assets are going to be dealt with is completely handled now by a committee that the government has taken over Hui Kayan himself. His fate is unknown ever since he was taken away by police in late last year, and I'm still under police custody, so is his son as well. Yesterday, very interestingly, the wife actually sued the son in custody for for failing to pay make payments on loans, and some alice are saying this might be a way for for for her to fend off creditors and protect their family assets.

All right, Lulu, thanks so much for joining us. Lulu Chen, Bloomberg Asia Investing and real Estate team leader. We hear that Apple is canceling its plans to build an electric car after some ten years. Joining us now is flat Salvo Bloomberg Tech Editor, to get into the teeth of this story a little bit, so Lad, this is a massive decision by Apple.

I mean, this is a.

Multi billion dollar project running for ten years. It would have put Apple into an entire new industry. But my question for you, and I think it's a tough one, is should we see this as a white flag for Apple or as some sort of warning to the industry.

That's a good way to look at it, actually, Brian. But for Apple, I can't imagine Apple ever putting up a white flag.

If Apple really.

Really believed in evs, and this gets a let a part of your question, it will plow on, no matter the cost, no matter the challenges ahead of it. It is a signal to say maybe that there are developmental challenges around this technology. Because I say technology and we talk can cause Apple was not trying to just build any old car. It was going to build a connected EV probably self driving, make it more advanced sort of thing that Tessa has been doing for a long time but at a higher level, and is decided to quit.

Yeah.

I think the autonomous point is a key one here because I can imagine Apple trying to create you know, a mobile workspace. Right, you move into your car, you have all the Apple hardware with you. It's self driving, and you can use this as basically, you know, an office on wheels. And so they must be feeling as though the infrastructure that's required to support that kind of vehicle is too far in the future, and they're going to focus on something else. That's just my speculation, but I'm just getting that from the stories that I'm reading about that that seems to be the vibe. Am I right or wrong?

No?

Exactly right. I mean, if you want to paint the rosiest picture of Apple's future before this news that came out, and let's give credit to our own Mark German, who broke the news. Apple didn't announce this officially. The Apple guy has never been officially announced. We've been talking about it for years and years. It's never been officially announced. But we're talking about, first of all, two thousand staff engineers, designers alreassigned most of them to Generative AI, which you can pick up on. But the vision of Apple's future before this might have been think about the vision pro headset and this whole idea that Tim Cook talks about start kickstarting the era of spatial computing where I'm not touching a keyboard, I'm not touching a screen. I'm kind of waving and gesticulating in the air and the computer understands me. There was a way where you could have the vision pro on you when you're moving around, when you're at home, and then have the same sort of environment without the headset in the car. That would have been the ideal scenario. But there are technical challenges, and when you look around the industry more broadly, autonomous driving getting to that level four, level five autonomy seems to be truly challenging and no one's really achieving it. Think about either Musk as far back as twenty seventeen, he was saying full self driving is around the corner, and it's not around the corner today in twenty twenty four, I have to imagine Apple has faced very similar challenges.

So nearly two thousand employees have been working on this project Titan. What's next for them?

So, as I say generative AI, it's a new focus for Apple, it's a new focus with the entire industry, and you can think about it in very simple terms. Look at Meta for example. When Meta was heavily invested in the metaverse, Mark Zuckerberg changed Facebook's business name to do that. The stock market did not Investors didn't not reac very positively. His share price was down in the dumps. Now Zuckerberg made a really hot pivot into AI. He's buying up all of Nvidia's AI accelerators. And now Meta is hitting records. So if Apple wants to do likewise, just signaling that it's making AI priority is going to be well received by investors.

You know.

Elizabeth Warren made an interesting point today. She was calling on new restrictions on AI from major cloud companies like Microsoft, Amazon, and Alphabet. She's of the opinion here that big firms have the potential really to crush smaller competitors in a lot of the more advanced AI technology areas, I mean large language models. Yeah, we know that we know chat, GPT, but there are other things I'm sure that these startups are are looking at. And it comes on a day when we find out that Ali Baba is leading a funding ground into a new AI startup, Moonshot Ai. Do you think that it's necessarily the smaller firms the startups that are really going to drive a lot of the innovation when it comes to AI or and is worn by extension accurate or right or it is? Do we have to look to companies like Microsoft? Do we have to look to Alphabet to really kind of be the drivers of this space?

Yeah? I'm inclined to agree with her, And the issue here is that it's an incredibly capital intensive undertaking. And actually, going back to Apple, it could have been a choice as simple as do we invest billions of dollars into developing this car or do we put that money and that engineering talent towards developing AI. Like I'm talking two thousand people who just overnight are switching to AI on top of what already Apple had a good example again going back to Meta and Mark Zuckerberg, he expects to have three hundred and fifty thousand of nvidiaus AX by the end of the year. Each one of those costs thirty thousand dollars or more. You do the mathematics, there's billions of dollars of investment. So small companies are going to have quite an uphill struggle.

So you're telling me I should buy Nvidio now you know they're going to have a big buyer, or would Apple develop its own chips for that? And then I want to sneak in a quick question about Ali Baba. Let me just throw it real fast. I mean, is this a good sign Ali Baba's now spending again, It's getting involved.

It's back, that's right.

It's still comparative to speaking on a smaller scale than everybody else. But it is a signal Joe's side from Ali Baba. He did an interview recently he.

Said we're back.

I'm not sure what he means by that other than he's fully focused on Ali Baba rather than his NBA team, which is fair enough. I think Ali Baba and Chinese companies more broadly, they have the challenge of not being able to get those in video parts the same way that American companies can do. That's going to be a big advantage going forward.

All right, glad out of time. Unfortunately, I have some sympathies for Doug Krisner and for you two guys. I think that I would like to see a car where you can spend all your time working while you're getting from point A to point B. You guys are multitaskers.

That's impressive.

Ladsav Off, Bloomberg Tech editor with us live here on Bloomberg Day Break Asia. For me, I still want to stick my head out to window like a dog.

Lad This is Bloomberg.

Our guest is Katherine Young, this investment director at Fidelity International, for a look at markets. Not sure where you want to start, Catherine, Perhaps you start with China because you've got the NPC coming up next week, and definitely people will be looking at that. We had a little bounce here of late. There's been some projections from policymakers that they want to do more to try to rescue the markets, both the stock market and the property market. Is it enough to build any confidence in the marketplace at the moment.

There's definitely a messaging that seems to be coming from the regulators about, you know what they're going to see the NPC, But in reality it's probably going to be this continuation of tweaking of accommodation or accommodative measures. So areas of the economy that needs support, such as property, are likely to be key in terms of their focus, but really is about restoring confidence, especially with the consumer, and then the knock on effect would obviously be an impact on corporates in the overall market.

In terms of the parallels between what China is dealing with right now and what it had to overcome back in twenty fifteen, are you sealing any kind of parallels?

Are there a number of parallels that you know when we look at China across many many years. But what's clear is when you listen or take note of the senior government policy makers sort of wording, and what's key at the moment is to restore this confidence and to organically grow. So don't forget during COVID there was no such sort of artificial growth coming through. And for the Chinese government appears that they just want this stability of growth and domestically it's key. And it's quite interesting to note the flows when we look at the onshore market versus let's say foreigner is buying China CoA sentiment is still very low from a foreign perspective.

Let's talk a little bit about Hong Kong as well, and we can going back and forth a little bit. Confidence pretty low, pretty weak in Hong Kong. On prices are down to something like a seven year low. The stock market has really been in a very bad way for a number of years. China's growth slow down kind of weighs on the recovery here. But there is a little bit of interest in bottom fishing. Do you see Hong Kong as wholly separate or kind of tied.

To the China train? Now we very much few Hong Kong as part of the China story and You're absolutely right where there is sort of interest or pocket of interest. When it comes to the Chinese equities market, it tends to be more focused on the Asia, so the domestic market versus Hong Kong. So when you look at valuations across Chinese equities, you know, even across sectors, it's looking incredibly attractive still, both versus history as well as versus across the region also globally.

Are there themes or industries that you favor right now?

Again that domestic market, because valuations are looking so attractive and sentiment has been so dire. There are a number of names there, but really it's those areas where you're seeing Chinese companies really develop and their high barriers of entry. I know that the EV market and AI is very much momentum trade at the moment, but if we look at, for example, automation and robotics, Germany and Japan tends to dominate in this space and they've been doing robotics and automation for forty five years. The Chinese companies pivoted away from let's say doing the controls and lifts and those kind of motors to moving into the joints of robotics only ten years ago. And whilst global market share is significantly lobos, it's Japan and Germany. They're certainly looking to increase their market share. But from a revenue perspective, domestically it really does really come from China, so about ninety percent or more comes from domestic gas, and so those companies that have the earnings visibility in that edge plus paid good dividend, likely to do well.

Let's talk a little bit about the US and perhaps the lead that we see from the United States. So obviously the markets have been doing very well. We just had consumer confidence that weakened a bit. It's still at pretty high numbers though, one oh six point seven. That's down from one ten point nine, but anything over one hundred, you know, usually looking at the US, anything over one hundred is seen as pretty solid. Do you think that the US is at risk of recession or has that risk been more or less set aside.

I don't think we're completely out of the words in terms of a potential downturn, and I think that, as you rightly pointed out, the markets remain very buoyant. But I don't think that investors have necessarily factored in that sort of risk reward. It's a bit like India as well, very very buoyant in terms of the performance. But are we factoring in all the risk factors?

Well, put the Fed as being one of those risks. Mohammad al Aarian was saying earlier in the week, the Fed is not moving quickly enough to cut interest rates. Does he have a point there? Has the rate of disinflation been pretty surprising enough to say that the Fed can't be so data dependent. They have to be a little bit more forward looking.

Yeah, they have to be forward looking, but they also need the data to support the argument. And maybe the market was rushing ahead, especially towards the end of last year, with expectations of when the cut would be. It's been like when we face Japan at the moment in terms of a potential hike and consensus is what now from March April, and it's all going to be very much data dependent, especially with the spring wage and the coach.

But don't you want the Fed to be you know, they have more access to information than almost anyone. Don't you want them to be leading rather than following? I mean, we can all follow the data. There's no question about that, but shouldn't they be setting the tone.

No, they should be, and that's why there's an interesting parallel between the FED and the PBOC. And in fact, the argument is that the Chinese economy is probably least one cycle ahead of that of the US. And if anything, you know, this tweaking the way that the PBOC is going about policy management. Actually you could argue makes somewhat sense, even though we haven't seen that big boom that we're so used to in terms of China in the past.

Yeah, I don't know. It seems like the FEED is behind and the PBOC is even further behind. They're not doing enough to stimulate the Chinese economy. That's what we hear from investors any way out of time unfortunately, Katherine, But thanks very much for coming in to join us. Katherine Young, the investment director Fidelity International. This is Bloomberg.

This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.

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