YouSaid · the spoken record

Aidan Garrib

lines on the record: 90
first: 2023-10-23
most recent: 2023-10-23
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It's an odd question. It's more like a stable crawl where the government just wants to make sure that the moves aren't abrupt, let's say, right? And so they set a fix, which is basically telling the bank, hey, we don't want the currency to move more than this. And more recently, that really hasn't been enough and the currency has been weakening a little bit more. And really, I think that just comes down to the fact that On paper, China has a closed capital account, let's say, but, you know, they do want.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I mean, yeah, look, if you're a hedge fund and you were buying some speculative grade dollar bonds and China trying to pick up a yield, then you're clearly not going to like the defaults. But I think that's maybe a small price to pay if you're the Chinese authorities in your cost-benefit analysis.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So China is trying to shelter the domestic Chinese financial system from defaults, but all of that is sort of pushing the wastewater out to the rest of the world. I respect that as if Chinese, they want to protect their national financial system, but the rest of the world probably doesn't like that, right?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“That's China's high yield in US, so the USD bonds basically. And so you can see that historically there's been, well, at least over the last couple of years, in terms of prices, they've been very correlated until very recently, when the local government financing vehicle bonds have been performing much better than traditional high yield. And this speaks to the fact that the authorities are really trying to ring fence the domestic financial system and pull a lot of that debt back onto the balance sheet of the government using the bank.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and so there were some other slides where you could see the PBOC's balance sheet, where essentially what they're doing is claims on banks or depository institutions are increasing. So they're basically PBOC's printing money, giving that to the banks. The banks are then...”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Over a little bit on the top right, you'll see net financing of corporate and government bonds. So the financial system is essentially helping to finance the issuance of the red line there, which is government bonds, largely the provinces. And then in turn, who's my?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Most of the defaults that you've seen have been on the offshore bonds in China. So for example, on the bottom right, you can see this Chinese bond default rates onshore and offshore. So there were kind of foreigners that were buying largely FX denominated debt. What the authorities have been trying to do is ring fence the domestic economy and the banks from that. And you can see this in kind of a number of ways. So this is actually a great page for the slide decks because what you're seeing on the top left is the local government bond issuance. So that is basically surged, right? And so the local governments are now issuing bonds backed by the banks. And you can see this on the top right.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Tell me about the systemic effect to the Chinese financial system of the failure of several or potential failure of several large real estate firms. The most conspicuous one has Evergrand, which over two years ago was teetering on collapse. And I thought of as bankrupt and it unofficially was bankrupt, but it's actually taken two years for it to officially default. So, you know, just shows how long these things can take. In America, you have collapse of something like Lehman Brothers and that has a cascade because it's a counterparty evergreen real estate firm, not a bank, although it had its hands in many different types of areas. But what is sort of the systemic risk within the real estate and banking sector? Because real estate and banking are very related.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So the one, I guess, portion of aspect of nuance, I would say, in that is if you were a real estate developer who needs some financing to complete a project that's already been sold, then I think the government and the banks are accommodative of that. But to your point, yes, they have realized that the turning on the spigot full way into the real estate pocket of the economy, that was the growth model that China employed over the last 20 years. But actually credit to this kind of newer or higher value added pockets of the economy, that's where the credit's going to start going from now on.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“A good segue from what China's growth model has been to where it's kind of going is if you look at the top left-hand chart on this page, you'll see that when you look at credit growth in China, so for, you know, from 2012 to, let's say, COVID, that green line was where you saw all the growth, so real estate. So most of the credit growth in China was going to the real estate sector. And then since COVID and the crackdown on property, that's actually slowed quite dramatically. And you're seeing the industrial capex actually take the lead. So this is, again, helping to build out that the electricity grid, better water distribution. So water distribution and electricity, building out the factories and making those more efficient. Industrial robots, all those things that had kind of highlighted in some earlier slides with you.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So I think it's a couple of things. So, the government, as it pertains to real estate, what the government has tried to do right now is essentially just get the property developers to build what they have sold but not yet started or not yet finished because in China, the way the property market there works is once you sign the contract you start paying the mortgage and a lot of the Chinese were protesting because they were paying mortgages for projects that just weren't getting built. And so I have some shorts in this slide that shows if you look at the real estate activity that's taking place, you can see China's residential floor space and you can see again that that blue line completions. That's all that they're really doing. You're not really seeing much new construction. You're not seeing many sales. You're not seeing actually projects being started. More to the point. And this kind of”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“And so tell me about the crackdown on credit. I know, I think it was called the three red lines. Has that been rolled back and how successful when we showed the chart of medium-term household debt has growth has sharply fell? How much of that is due to regulation and the crackdown on credit? The government sort of incentivizing banks not to lend or companies not to lend versus just the economy is weak, so banks are not going to lend.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah. So it's that within the context of an overall crackdown on credit and property sector credit, which is the main way that these politicians know how to drive growth because that's what they've been doing for the last 15, 20 years.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Is there also sort of a feedback loop where if I'm doing really well, my GDP is at 10%, you're not satisfied with 8%. You're going to go to 12%. And then I got to go to 14%. Whereas if I'm at 2%, you could beat me by going to 3%.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“You're not going to grow GDP in China by giving people vouchers to go get haircuts. It might work to support some local economy stuff at the margin, but in aggregate, it's not going to have a pretty sizable impact.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“And so, what would happen is if they gave, let's say, Jack, you and I, our two regional governments in China, and maybe I'm an export-oriented one and you're one that makes kind of like electronics for the local market. Well, you know, global goods demand is pretty weak right now. So if we gave everybody cash stimulus, then people in my region wouldn't buy products that are made in my region. They would buy some of the products that are made in your region. So it kind of be like a intra-country import imbalance, let's say. And that would make you look really good because your economic growth is growing, but it would make me look not so good because, you know, my economic growth in my region is not growing. And so that's why you've seen some of these rather like lackluster and ineffective policies like vouchers for haircuts. So, you know.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“By that, the central government doesn't really have a track record of direct fiscal transfers to households in much the same way we've seen in the US through COVID and Canada and in Europe. And kind of on top of that, G's come out recently and his remarks seem to suggest that he doesn't really favor that approach because it would make like the Chinese people soft, quote unquote, to kind of paraphrase what he said. So he doesn't want to go through.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Households have been delevering, right? You can see very clearly that mid and long term household debt, that's actually been slowing quite dramatically because what do you do when we've locked down the economy? We're not giving fiscal stimulus. And, you know, your house prices, which are 37% of your assets, are going down in value. Well, you're going to delever. And so that's broadly what you've seen. More recently, you've seen a little bit of an uptick here in short-term household loans. So really what I think is happening is the government just needs to effectively come in and help butress some of the stabilization that it looks like you're seeing in the Chinese households. The problem for the central government and the regional governments is one of inexperience and one of incentives. So what I would say”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I can imagine what the consumer confidence would be here if house prices were falling by 5, 10 or 15 percent per year, they'd be pretty diminished as well. And what's actually interesting on the screen that you're showing there is on the top right, I break down Chinese loans to households and non-financial corporates. And so again, this highlights exactly this fact. If you look at the, I know it's a bit maybe messy. So the dark blue line are short-term loans. The light blue line is mid and long-term household loans. And then the red and green are short and long-term loans to non-financial corporates. So most of the loan growth that we've seen really since COVID has been going towards the non-financial corporate sector, again, to help them roll over the debt amid the shutdown economy. In contrast, how”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, you know, the big tier one cities like Shanghai, for example, you've seen the house prices there slow. The smaller regional kind of rural tier three cities, that's where the price depreciation has been the most acute. And what you've also seen has been the government destroying some of the overcapacity. And so as house prices have moderated or in the case of tier two and tier three cities outright decline, that's actually been one of the major drags on the animal spirits in China and consumption. We'd mentioned that Chinese real estate is the largest asset class in the world. It also comprises about 37% of household assets. So, you know, I'm sitting here in Canada, which is also a country that has, let's call it a love affair of real estate. And so”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Those proceeds will go into kind of urban redevelopment. So I don't know, maybe they're building a train station or a port or a shopping mall or something. And once they finish that urban redevelopment project, it ends up lifting the land values of the land surrounding that redevelopment project, which just that land happens to be owned by the provincial governments. So then the provincial governments take that land that's increased in value, sell that to the property developers, the property developers will go and build apartment buildings, houses, condos, et cetera, pay the provinces, and then the provinces will then funnel the money back into the local government financing vehicles to pay off that debt. So it's just basically this financing arm where the local governments will redevelop land, which increases land values, the provinces can then sell that land for elevated.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“In China, the central government dictates the priorities and it's up to the regional governments to essentially carry those priorities out in the way that they kind of see fit for them. So if the central government says, hey, region A, we need you to growing regional GDP is important. Okay. Well, what the central government does is it gives bond quotas to the provincial government, so the amount of debt that the provincial governments can raise. Well, oftentimes that debt isn't sufficient to drive growth in that region. But the local governments can't issue more debt than what that quota tells them they can do. So how do they get around this? Well, they set up a local government financing vehicle, so kind of an arm's length entity that will issue bonds.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the leverage, I would say in this sense isn't the banks necessarily, it's corporate, so it's firms specifically over the last couple of years trying to roll over debt, but it's just large and small firms that have been taking out debt from the banks and then also the local government financing vehicles, which are the shadow entities of the provincial governments that have, I would argue, and it's a bit opaque, but I would argue that's where the lion's share of that corporate debt isn't the LGFE's local government financing vehicle.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“What are the types of companies that are borrowing? Is it a lot of banks and that borrowing is counted as deposits, I guess? I don't know, as liabilities? Or is it Alibaba? Is all these companies, where is the leverage?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Corporate, quote unquote, and putting that back onto the government balance sheet via the provinces and also the local government balance sheets and using the banks as an intermediary to do that”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Well, the way it's showing up here, yeah, a little bit of Baghdad at the top, but really the lion's share of debt in China is that dark blue space, which is the corporate. Section there And that's really due to the fact of from a definitional perspective. The way that the structure of debt has kind of laid out in China puts it on the corporate balance sheet, both on the in terms of the traditionally kind of overlevered corporates that you're seeing right now with some of the property developers. But then also if you look at the local government financing vehicles, technically those are kind of like distinct from the provinces. So that's where those portions of the debt are. And so in aggregate, yes, China has more debt than the US. It's just the composition is slightly different.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Got these four charts here. And when I was growing up, I would always hear and I was think because you think what you hear, that the US has a ton of debt and China has no debt at all. And we owe China a ton of money, which is true. China owns a lot of US treasuries. But I love your just decomposition of these top charts of the leverage in GDP sense of China on the left in the top versus US in the right. And so China has a lot less government debt, but a lot more corporate debt or bank debt. Let's zoom in.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So, what's happening in this kind of plays back into the structural kind of changes that you're seeing in China is a lot of the banks, the finance companies, the state-owned enterprises, they haven't necessarily been run for profit reasons, right? They don't have necessarily a strong profit motive. They are run at the direction of policymakers there. When you add massive debt increase that's largely been in the corporate sector via the local government financing vehicles, which we can get into because they actually play an important part here, I think that's where a lot of the kind of that debt overhead has been. And then now what you're having is central bank and government policy to basically take that corporate debt, take that local government financing vehicle debt, and pull it back onto the official provincial or central government balance sheet or actually the PBOC balance sheet.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So that's a good point on the flows. Let's talk about the fundamentals. You've also got this fantastic chart showing decomposing the returns of MSCI China. As I said for close to a decade, the returns now are close to zero. So the total return is 4%. The market is down a little over 10%, but you're getting 16% in dividends. So that's how that plays out. But earnings contractions, EPS, that is negative. So, I mean, U.S. stocks, and I imagine even Europe, they've had earnings growth. I mean, it's normal companies grow their earnings. That's what they're supposed to do. But the Chinese MSCI index is, their earnings are 26% lower than close to a decade ago. If the Chinese economy is, you know, so what is going on here?”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Andor holding the Chinese equities, but the active managers who are looking to perform the benchmarks have been kind of chasing returns first in LAD-M and then now in India.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Equities, for example, because there was a pretty good substitutability. The substitutability between the commodity components and LADM equities and then Russia. And then kind of following that, you had investment start to come back into Chinese equities over the last year, let's say, but then that was disappointed with the reopening. And so then those types of benchmark hugging investment managers then went and looked for Alpha elsewhere. And actually, one of the places that you're seeing, the active flows go is actually India. So if you, for example, I have a chart that I'd sent you that shows the net equity flows going between India and China and the relative performance that's driving between MSEI, India, relative to MSEI, China. And so, you know, I can, I think that helps explain some of the divergence you're seeing where the passive managers are still buying.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So, the stock connect is basically the platform that allows foreigners to use kind of Hong Kong as a base to then buy mainland listed shares in China. And they just do that because of the dual currency CNH versus CNY and the closed capital account. So they've just tried to manage how investors can go in and buy Chinese equities. When you look at that headline number, the passive flows haven't really diminished all that much, but what's happened is kind of a couple of things. So when Russia went and invaded Ukraine, a lot of investors said, well, okay, this is going to be bad for Russian equities. We can't invest in those anymore, but also commodities are becoming more important. What do we do? So they shifted out of China, out of EM Asia, out of Russia, and they went and they bought like...”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I wouldn't say it's the insiders are necessarily selling stocks. I think there's just been some compositional shifts with respect to how foreigners purchase stocks and the type of foreigners by asset class, I guess, or by investor type that are buying and selling. So for example, the foreign holdings in Chinese equities there that you'd seen via the MSCI China Index. So for the passive investors, because China is such a big weight in the EM index, about 30% or 27%, they've not sold. What's happened is you've seen two things. One, the China stock connect flows have diminished significantly. So foreign institutional money managers have been selling out of Chinese names.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Is Western governments by agencies kind of security agencies have been surprised by the Huawei, the new Huawei smartphone and the seven micron nanometer chip that's in there that is essentially on par with an iPhone 12, which isn't that old. And so even though we've been pushing these trade restrictions and sanctions on China, you've just seen how much how quickly they've actually developed in this regard. So I hope that answers your question.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“2021 and highlighted the market share of Chinese firms in China and in the rest of the world across a variety of high value added products. So you take electric vehicles, for example. In 2020, the market share of Chinese firms in China was 95% for EVs. Globally, it was about 5%. You fast forward to today, and I kind of sent you these news links where China has overtaken Japan as the world's top car exporter. There was an article from the Wall Street Journal titled Your Next Electric Vehicle Could Be Made in China, where they highlight that around 35% of EVs exported globally come from China. So you're seeing, you know, just from 2020, when they had a 5% market share to today where that's grown to 35%, right? Or even something perhaps more visceral that's made the headlines more recent.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“2025 plan by saying the plan seeks to raise the domestic content of core components and materials to 40% by 2020 and 70% by 2025 across a variety of high value added products like aviation and aerospace, electric power, new energy automotive, high-end robotics, etc. And so what I would then say is, well, look at some of the progress that China's made in that regard. The number of industrial robots that China puts out every single month is just continued to grow. Last month, they put out 33,000 robots that were hovering around 40,000. But just to kind of put things back into perspective, McKinsey Global Institute, so kind of the think tank for the McKinsey consulting company, had come out in 2020.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“So the transition isn't going to be smooth. And I think if you're an investor in Chinese equities or you're looking at Chinese growth, you're seeing kind of the frictions in that approach currently and how difficult it can be. But there have been quite a number of green shoots showing that China can come up the value chain, diversify its economy, and produce higher value added exports that allow China to become a more consumption-driven economy. For example, one of the things I point at is if you look back to 2015, China came out with its made in China 2025 plan. And so if you look at what the experts were telling you, if you look at what the experts were telling you about that plan, so for example, a quote by the Center for Strategic and International Studies basically summarized to try to”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“2030 will decline by 10 million people per year. So, all to say, unlike a decade ago when China's working age population was growing and the CCP needed jobs, jobs, jobs, jobs at any cost, empty apartment buildings, sure, roads and bridges to nowhere, just do it, create any of those jobs in the context of a declining working age population. They need fewer jobs, but they need higher value added, higher paying jobs so that they can restructure and reorient their economy towards consumption as opposed to, you know, lower value added exports and capex that's not really accretive to growth.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“I think a lot of investors have expected that China's growth would, you know, in the reopening would take place in similar fashion to how it did in the West. So, for example, that you would see pretty big fiscal transfers to household to kind of buttress them through the pandemic. You would see a return to the dirty fixed asset investment, the roads and bridges to nowhere, the empty apartment buildings that we've all come to know and love out of China over the last call it 15 to 20 years. However, I think the structural features of China's economy have changed, right? The notable one has been China has gone from having a working age population that's growing by 5, 10 million people per year to now an overall population in decline. And perhaps more importantly, a working age population that's declining by about 5 million people per year and that by”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT
“Sure. Well, I think, first of all, I would say the Chinese economy is, I think, pretty misunderstood by Western investors who, you know, the biggest disappointment, I would say, in financial markets over the last few years has been the disappointment of China's reopening trade. However, if you paid attention to what the Chinese policymakers were telling you and where they were allocating capital and their growth plans, then I think investors wouldn't have been disappointed because there would have been investing along with the PBOC and the CCP were telling you they were going to do.”
2023-10-23 · Forward Guidance · A Deep Dive On China's Financial System | Aidan Garrib · IDENTIFIED FROM THE TRANSCRIPT