The China Connection - 18-May-26

Added: 2026-05-19

[00:00:05]A very good morning. We have Chinese data breaking across the wires here [music] and retail sales for the month of October of 0.2%.

[00:00:12]This is much lower than what the market had been looking for a 2% rise and the 1.7% gain in the month of March.

[00:00:20]Industrial output up 4.1% and that also slower than expected and slower than the 5.7% registered in the month of March.

[00:00:28]Fixed asset investment up 1.6% that is in line with forecast and just a touch weaker than the 1.7% reading in the previous month and unemployment at 5.2%.

[00:00:40]That's just a touch lower than a 5.4% than that was last recorded. Uh, we are looking at a K-shaped divide in the Chinese economy and a fixed asset investment for the first four months of this year if you exclude real estate, it was up 1.3% year-over-year for the January to April period. Real estate investment down 13.7% infrastructure at 4.3% manufacturing up 1.2%. I just want to clarify here. Fixed asset investment for the January to April period was a decline of 1.6%. So, that was my mistake and that of course is against a reading of 1.7% in the previous three months.

[00:01:26]Urban unemployment rate at 5.2%. So, this is just a quick look at some of the key uh, headline numbers that had come through just at uh, the top of the hour and we're looking at a K-shaped divide in the Chinese economy. A resilient industrial sector driven by surging exports 14.1%.

[00:01:45]Uh, we're seeing global demand for artificial intelligence technology semiconductors and corporate stockpiling of course really trying to get ahead of those tariffs. Uh, we're seeing stabilized trade trade ties though on the back of the Trump Xi summit at the weekend and now reinforced by President Trump and President Xi. Now they're going to be establishing a board of trade and a board of investment. In terms of retail sales, they're coming in a lot weaker than expected. So growth remains tepid and reflecting a lack of domestic consumer confidence. And we're going to be talking more about this when we get to our analyst in just a bit. But uh let's get back out to Beijing as a We have been watching some outcomes of the deliverables from the summit at the weekend. China agreeing to ramp up its purchase of US agricultural products after President Trump his long-awaited trip to Beijing last week. Our China reporter Elaine Yu is on the ground in Beijing and has has more details on the summit. Elaine.

[00:02:46]Yeah, [snorts] Emily. So we've heard uh the US side, but over the weekend Beijing has outlined the preliminary outcomes from the summit as well, including uh they have agreed to continue implementing earlier agreements, but the two new things are the Council of Trade and Investment, which the US side calls the Board of Trade and Board of Investment, which uh China's Commerce Ministry says is to discuss respective concerns of two sides and to address issues like uh lowering the reciprocal tariffs on various goods of quote equivalent scale. Uh the Ministry also said that both sides have agreed to tackle market access issues and also highlighted plans to expand two-way trade. Uh now, what's really interesting to me is this interview that I read over the weekend uh with Wu Xinbo, who is uh a Fudan University professor, but he's also known to be an advisor to China's Foreign Ministry. And he said the biggest change from this summit is really within China itself. He said China is now more confident, more experienced in handling US-China relationships. And he said with uh President Xi touting a constructive strategic stability, this phrase he's coined as a new paradigm for US-China relations. He said that if things between the two countries are more stable for the remainder of Trump's term in the next 3 years, then this will win time and space for China's development.

[00:04:07]So, this is uh in the interest of Beijing to have this stability. And also, uh John Hopkins State Department said that the summit has achieved, quote, "Just enough to keep the process going, but the real big challenge is really what's ahead, which is whether the two sides can build a durable framework for peaceful coexistence, especially between a rising superpower and an existing one." Emily?

[00:04:34]Elaine, I know you were in Beijing for the visitation by President Trump, and now another big visitor is a coming through, and uh if my memory is correct, these are friends of steel.

[00:04:48]Yes, uh so, yeah, very good timing for me to be on the ground here, but it's been a very busy diplomatic calendar for Beijing, as you know. We've had a string of leaders from Korea, from Europe, from the Middle East, but now, like with back-to-back summits between US and China and US with Russia, that's really next level. So, Vladimir Putin is expected to visit from tomorrow to Wednesday, and they could talk about a number of issues from energy and economic cooperation to the situation in Ukraine, uh Iran, of course, but also the outcomes of the Trump-Xi summit. And on energy, it's really interesting because uh we've heard from the US side uh saying that China has expressed interest in buying more US energy and oil to reduce their dependence on the Middle East, but of course, we know that China has been diversifying its energy source, especially uh with sources from Russia. So, I'm sure they'll talk about uh uh agreements and cooperation on the energy front uh especially uh with now China having to engage in this complex balancing act uh with its relationship with the US wanting to keep that stable, but also uh with this a long-time partnership and relationship with Russia and specifically with Vladimir Putin. Uh so, a lot to watch there and that could present some diplomatic opportunity uh well, it has some opportunities for Putin and such as to uh hear firsthand and the intel from this Trump-Xi summit, but also challenges especially in terms of diplomatic cooperation with the US if China-US ties are indeed stabilizing.

[00:06:29]Emily?

[00:06:32]Elaine, uh the last time Vladimir Putin was in Beijing was uh September for the Victory Day parade. So, about half year uh of time and he's back in Beijing come tomorrow. Thank you very much, Elaine you for your reporting. A quick check now on markets across Asia as we get up and running for this Monday morning and it's looking largely mixed. Uh the weak spots in the market are the Nikkei 225, the Hang Seng Index, and the Taiex all pulling back more than 1 and 1/4%. The Kospi is higher by just ever so fractionally a quarter of 1% 7,512.

[00:07:10]Shanghai also better on the day a positive bias at 4,138.

[00:07:16]Let's talk more about the data that just came through with a Sitau Shu. He is a chief economist at Deloitte China and uh joins me on the set this morning. Sitau, it's good to see you. Good seeing you.

[00:07:26]Welcome back to Hong Kong and now all these data points uh all coming in weaker than expected. Your reaction? Uh my reaction is um well, um real estate sector, you know, double-digit decline. So, that brought down uh fixed asset investment. Um otherwise, you would have seen uh a bigger increase in fixed asset investment. Uh not much to say on consumers. In fact, if you look at sales at a pump in March, we began to see, you know, 7 to 10% decline.

[00:07:58]That's due to Iran shock. So, that would continue.

[00:08:03]Exports story is well known. I mean, China is simply just very, very competitive double-digit growth. Even double-digit growth, I think months of April to the US market. So, I think this year's growth target 4.5 to 5, I think remains on track, maybe around 4.5. So, there's no need to unveil major stimulus at this juncture.

[00:08:29]Do you expect the numbers to to stabilize or is this kind of the beginning of a slope?

[00:08:37]>> Okay. Now, I think that the 13% decline in real estate investment was a mild surprise because, you know, after falling, you know, 3 4 years, I do expect property investment to have a diminishing impact in terms of drag on overall growth going forward. Will exports continue to be the engine of a Chinese economy now that we've had the Trump Xi summit and it has been reinforced that there is a way there's progress that has been made in this regard?

[00:09:10]>> Yeah. I think exports are expected to do well. At the same time, we began to see more backlash against China's export, not just in developed countries, also in global south countries such as Indonesia.

[00:09:25]That would continue, but meanwhile, you know, we have this uh um global jitters in fixed income market and with affordability becoming a much bigger issue for developed countries, maybe that backlash against Chinese exports will temporarily subside.

[00:09:47]As we're looking to how the Strait of Hormuz the developments there pan out, we're looking at the Iran conflict. It is still ongoing. How much of a risk is this to the Chinese economy?

[00:10:00]>> Well, I don't have a crystal ball, but the my baseline scenario is both US and Iran may get exhausted, you know, next few weeks. So, that will be a relatively good scenario. Of course, no one is naive to anticipate any permanent peace solution. You know, for China, any imports of crude oil is around 300 billion US dollars. So, 30% increase, it's a it's a it is more than a mild irritant. But, having said that, if you compare China with most Asian economies, you know, China doesn't have to limit the car usage, China doesn't have to encourage people from working from home. I mean, China doesn't have to resort to all these knee-jerk reactions as you see in most countries in our region. Trump and Xi both want to see the Strait of Hormuz open. Both do not want tolls in the Strait of Hormuz, either. In terms of the other outcomes from the Trump-Xi summit, what were what was most important for you?

[00:11:09]>> I think most important for me is this September 24th. You know, that was being crystallized because otherwise, logistically, G20 meeting early December, uh APEC meeting, Shenzhen, uh uh late November, that may create some logistic issues. So, September is a visit by President Xi may bring more clarity on some of this Uh economic negotiations.

[00:11:37]So, for example, when you look at all these big Ts from Wall Street visiting China, and you see these two committees on trade and investment, and ultimately what we want to see is more Chinese investment into the United States in exchange for eased restrictions from the US. So, that would be the ultimate outcome. The Board of Trade and the Board of Investment of say both that is used to manage the relationship without reopening tariff negotiations.

[00:12:10]What could those investments from China look like?

[00:12:14]Is the United States open for US investment in what industries? Well, I think auto industry is tricky because this is a this sector for the US is very emotional. It's also iconic, but ultimately and the Chinese vehicles will be in North America. It's just a matter of time.

[00:12:35]Other area, there is a national security issue and particularly these days in the West quite often people just link economic development with national security, but that that would be absurd. So, I I I think you know, one of the idea is just like for China to invest abroad, you you go through this qualified domestic investment scheme, right? So, same can be done into the United States. The idea is to weaken the direct control of Chinese investors in exchange for eased restrictions.

[00:13:13]I'm curious to know how the Trump summit was received on the mainland.

[00:13:18]People were very excited to see Air Force One flying into Beijing. Of course, the top CEOs also being in China. That's exciting for many to hear Elon Musk is there, Jensen Huang is there. What did you hear about the reception in terms of how the two-day summit was received? Well, I actually is a three-day visit because only you need three days to qualify state visit. So So it's a three-day visit. I think it's is a positive. I think it has exceeded arguably low expectation. I think most people in China felt quite good.

[00:13:59]And of course, people may say we don't see anything concrete other than agriculture energy and so on and and so on and so forth.

[00:14:08]But I do think there may be something more substantial in late September.

[00:14:15]What about constructive strategic stability? Is this policy or jargon? No, it's not jargon. It's not slogan. I think both side after Putin meeting last October, I think both sides felt very strongly we need to stop this tariff war. So So this is not a jargon. I think it's just realism.

[00:14:38]And now I'd like to get your take on Vladimir Putin. He's is set to return to Beijing tomorrow for a two-day visit.

[00:14:46]What could come of that? Well, what could come out because China is not the biggest actor in Middle East.

[00:14:53]You may even argue Russia has more influence over Iran geopolitically.

[00:15:00]So that's important. I think also Moscow needs some sort of assurance.

[00:15:06]This is a very complicated relationship.

[00:15:08]Russia is China's biggest neighbor and we have this long border. So if we do not have to worry about security along western flank, that would be huge relief for us. Do you expect any kind of announcements, deals or when Vladimir Putin goes to China, what are the outcomes? I think outcome will be mainly on energy.

[00:15:31]Uh also outcome will be um on China's investment into Russia and so far mainly the state sector.

[00:15:42]I want to get your take before we let you go on the CNY. I was talking to analysts last week. Uh they're calling for 6.5.

[00:15:49]>> Yeah. Uh do you expect further appreciation?

[00:15:51]>> Um I think the direction is to 6.5, but I'm not sure whether I'll be that aggressive because um I mean you look at the Japan right now, yen is 160 almost. So ideally you have all these Asian currencies to move up, uh not just having China shouldering the pain uh of adjustment. But uh I I think from 6.8 um is one-way bet. Okay, one-way bet for appreciation. We're just getting some lines from the uh National Bureau of Statistics, the spokesperson Sitau, foundation for stable economic growth still needs to be consolidated.

[00:16:30]China should implement more active fiscal policies, moderately loose monetary policies. The international situation remains grim and compli- complicated as of April and the world economic recovery facing greater headwinds. What is your take?

[00:16:45]>> So you want me to translate. So basically means there's no big fiscal stimulus, right? There will be subsidies here and there. Uh they will cut interest rate, but not massively um because for commercial banks uh interest rate differential is very important. And the three um there will be this grinding appreciation, but not one-off adjustment. Sitau, thank you very much for the chat today. It was great to see you. Let's do it again. Thank you. We've been speaking with Sitau Xu from Deloitte China.

[00:17:18]Oil prices rising this morning sitting at a 2-week high after Iran accelerated attacks on its neighbors over the weekend. The UAE reported a fire near a Bakara, excuse me, Barakah nuclear power plant while Saudi Arabia said it intercepted three drone attacks.

[00:17:35]Meantime, President Trump warning that the clock is ticking for Iran pressuring Tehran to make progress on a peace deal.

[00:17:42]His threat comes amid reports that Trump will meet his top national security team on Tuesday to discuss nuclear options.

[00:17:49]Those reports coming from Axios citing US officials.

[00:17:53]Meantime, Cuba says the US is lying to justify economic sanctions and military intervention in the country. Foreign Minister Bruno Rodriguez saying, quote, Cuba neither threatens nor desires war.

[00:18:06]His social media post coming just hours after reports that Cuba had acquired over 300 military drones to attack US military vessels and the US naval base at Guantanamo Bay.

[00:18:18]Closer to home, President Trump says he does not feel optimistic that the pro-democracy media mogul Jimmy Lai will be released. Lai was sentenced to 20 years in prison in February under the national security law. Trump told reporters that he asked President Xi about it who told him it's, quote, a tough one to change. He added, however, that Xi will consider releasing the pastor of an underground church who was detained last October.

[00:18:45]Coming up, I'll be speaking with Kurt Tong from the Asia Group to break down the key takeaways from the Trump-Xi [music] summit from trade and tech ties to Taiwan and Tehran. That's at 10:30 Hong Kong Singapore time, [music] the China Connection. Out for a short break.

[00:19:00]We'll be right back.

[00:19:05]>> [music] >> Mhm.

[00:21:14]>> US futures pointing to a softer start later today and it's a shaping up like this. So we have a downside fractional losses for the three major indices.

[00:21:23]Stocks slumping on Friday posting their worst day since late March and the NASDAQ breaking a 6-week winning streak.

[00:21:31]Chip stocks pulled back with Intel and Nvidia seeing heavier losses as Nvidia is on deck to report earnings this week.

[00:21:38]Those losses came as yield spiked the long end of the curve hitting its highest in a year as inflation concerns mount. The 30-year yield still holding around 5.1%.

[00:21:49]We're looking at the 30-year trading at 5.1543%.

[00:21:54]Former Kansas City Fed President Esther George says the Fed is likely to be more concerned about the rising price pressures and whether they remain just a supply shock that the Central Bank can look through.

[00:22:07]Supply shocks are something central banks can look through.

[00:22:10]And of course the Fed did that even during the time I was on the committee when it came to the pandemic shock.

[00:22:16]Looking through that supply shock at a time when inflation was beginning to build some momentum and of course to regret that only later. And I think now you're seeing a second order effect.

[00:22:29]Again, a supply shock for sure, but coming on the heels of already high inflation I think would make one pause a bit before you decide it's something you can look through.

[00:22:42]Let's take a closer look at the bond market here in Asia and our East Asia reporter Lisa Kim has been keeping tabs.

[00:22:48]Lisa.

[00:22:49]Hey Emily, so Japanese government bond yields are continuing their surge across the curve this morning. Yields on the benchmark 10-year JGBs hit their highest in nearly three decades or since 1996 this morning climbing even higher than levels that we saw last Friday and five-year JGBs hit their record high this morning while longer end of the curve also continues to stay elevated.

[00:23:13]And Emily, it looks like yields JGBs will continue to head higher because investors now foresee the BOJ hiking rates by 25 basis points to 1% at its meeting next month due to imported inflation from the Iran war and to protect the weak yen which trades in the upper handle of the 158 to the dollar. Kyodo News Agency and Bloomberg report that the Japanese government is considering compliant compiling that is a extra budget to buffer the impact from the Middle East conflict. Though that's something that uh Finance Minister Katayama said as recently as Friday that the Japanese government does not need for now. Over in South Korea, the stock market uh it's another wild day for that market. Uh the KOSPI is in the red for the second trading session and uh South Korea's benchmark KOSPI remember blazed past that 8,000 mark to the dollar on Friday before plunging at close and today it's oh it's a reverse course to trade higher by around 1.5% but earlier in the morning that index was trading in the red. And of course within South Korea's stock market we're keeping close tabs on Samsung Electronics because the world's largest chip maker is bracing for a potential strike later this week if it and its labor union fail to reach an agreement on wages, Emily.

[00:24:39]Talk more about that strike and the potential of it, Lisa. We're looking at shares of Samsung Electronics up more than 6%. What are the risks of this strike happening?

[00:24:50]Yeah, Emily. So now uh it's it's another wild day for Samsung Electronics. It's now up more than 6% as you mentioned but earlier in the session, it was down more than 2%, but when it comes to Samsung Electronics, the labor union is threat threatening to go on a strike from Thursday if Samsung Electronics does not meet its demand for higher wages. And it's become a national issue that President E Jae-myung weighed in on it on social media saying that labor that companies' rights has to be respected as much as labor rights. So, in a what in a roundabout way, he's sort of telling the labor union to meet the company in the middle. South Korean chip makers are really what's powering South Korean economy as well as the stock market. And uh Prime Minister Kim Boo-kyum also weighed in on the issue over the weekend. Watch what he had to say.

[00:25:43]If a situation arises in which a strike is expected to cause significant damage to the national economy, the government will have no choice but to pursue all possible options, including emergency arbitration to protect the economy.

[00:26:00]The emergency arbitration is sort of the key takeaway from that sound bite that you heard there because that would stop the strike for about a month while a government agency steps in to mediate uh the conflict. And Prime Minister also said that just one day of strike at Samsung could cause up to around 650 million US in losses. And the latest line that we're getting out of South Korea with regards to the strike is that a South Korea court partially accepted Samsung's injunction request to stop a strike. This means that the labor union has to maintain the same level of staffs, operating hours, and operations even while on strike. But the court rejected the company's demand to prevent the labor union from occupying key facilities. And Samsung and its labor union have resumed talks this morning with a government mediator.

[00:26:58]Lisa, thank you very much for that the latest on Samsung Electronics. Let's take another look at the greater China markets and the Hong Kong market is the laggard today down 1 and 1/4%. Shanghai also tipped lower 4,133.

[00:27:13]Shenzhen though managing a gain of 0.4%.

[00:27:17]We did get the latest economic indicators from China the monthly activity data and all under shooting.

[00:27:23]Retail sales up 0.2% industrial output up 4.1% fixed asset investment contracting 1.6%.

[00:27:33]The national Bureau of Statistics says AI high-tech sectors developing quickly but the economy is facing external challenges but internal driving [music] forces remain unchanged and solid. The China Connection taking a short break.

[00:27:47]We'll be right back.

[00:30:11]>> Russian President Vladimir Putin will travel to China tomorrow for a two-day visit. The Kremlin says Putin and Xi will discuss ways to further strengthen strategic ties between Moscow and Beijing alongside broader regional and global issues. As part of the visit, Putin is also scheduled to discuss economic and trade cooperation with Chinese Premier Li Keqiang.

[00:30:34]Putin's trip comes just days after US President Trump wrapped up his visit to China, the first by a sitting US President in nearly a decade. In the latest official announcements following the summit, the White House says China has committed to buying at least $17 billion worth of US agricultural products over the next 3 years, while both sides also agreed to expand trade and reduce barriers. China's Foreign Minister Wang Yi confirming President Xi Jinping will visit the US on September 24th on President Trump's invitation.

[00:31:06]Joining me now, Kurt Tong, managing direct Excuse me, managing partner at the Asia Group. He is also former Consul General and Chief of Mission in Hong Kong and Macau. Ambassador, it's good to see you. Welcome back to Hong Kong.

[00:31:18]Thank you very much. Great to be here.

[00:31:19]It's really good to and very timely that you're here to chat with us because I want to get your take, your overall assessment of the outcomes of the summit. Uh there were a few deals, but I want to get your take on the measurable progress.

[00:31:31]Sure. So, the um measurable parts, yeah.

[00:31:35]So, the there were a bunch of deals made and it's quite interesting to me that that there was almost one announcement for every CEO that accompanied President Trump. Not quite. There were some that were just there to see and be seen um with the Chinese leader. But but across the board, there were specific uh American CEOs traveled with the president and then received uh concessions from the Chinese side or signed deals with the Chinese side or made significant progress on deals with the Chinese side. It really highlights the degree to which President Trump is focused on business outcomes in the US-China relationship. Really quite remarkable. Are you able to name any of those companies that stood out for you?

[00:32:19]Well, sure. So, Boeing obviously was is the main maker of aircraft in the United States and there were aircraft engines, which I think affects GE uh quite importantly. Car- Cargill uh is an important company on agricultural side.

[00:32:33]I think there was uh discussion about Visa and and Citybank getting some new uh licenses to operate in China. So, it's it's those are all good business forward movement concessions. None of them earth-shattering in and of itself, but significant.

[00:32:52]But for me, it was really the politics of it. So, the President Trump is really seeing the importance of that constituency being feeling like there's forward movement in the China relationship. And the Chinese side also seeing that as well. It's being in in China's interest to roll out the red carpet for these CEOs.

[00:33:11]On the trade front, what were some of the measurable developments? Is it the Board of Trade and Board of Investment, or is it more the agricultural products that's being purchased?

[00:33:20]>> Well, I think the process deliverables are very important. So, the decision to have a Board of Trade and a Board of Investment is significant because it's a commitment which the Trump administration and certainly the Biden administration were very reluctant to have previously to get from the from the perspective of critics sucked into having regular discussions with the Chinese side focused on process perhaps rather than outcomes. So, whether they can continue to have that be focused on outcomes, I'm actually I think they can on the trade issues. The investment is more difficult. But I I see that that there's a real opportunity for follow-up by both the US and China to take off some of the sharp edges of of the decoupling actions that each have taken through through this dialogue in the Board of Trade. So, with this, they don't need to reopen the tariff negotiations. What does this mean for the tariff rates? Well, I think you could tell that the Chinese side asked for but did not yet receive specific promises from the United States to lower tariffs.

[00:34:24]Um the Board of Trade will probably be the body that decides whether that happens on a sectoral basis, like there's specific sectors or items that have tariff reduction, or whether there's an across-the-board tariff reduction. I think it'll probably be a sectoral basis, and that that'll be something that's discussed in that Board of Trade in in considerable detail. And what does this mean for the trade truce, which now was at in November uh was there any development in that regard? Well, so the key elements of the of the so-called trade truce are actually more on technology controls and export controls for critical minerals from the Chinese side. That fundamentally stays in place. They've extended the time period, and that creates a foundation for more deal-making between the two governments on a commercial basis or on on or on the tariff matters. So, that is all part of this approach of you know, establishing stability and making deals, and making minor changes to the relationship from the um in a mutually beneficial way if the if those deals can be worked out. And you mentioned stability, and President Xi used his constructive strategic stability that he wants to see. Is this real policy or a diplomatic slogan?

[00:35:42]It's both.

[00:35:44]So, it's it's a diplomatic slogan. It's better than non-constructive uh strategic stability, certainly. And I think that that that uh President Xi is trying to be forward-leaning and saying, "Well, this if we have stability in the relationship, then that creates the possibility for forward movement."

[00:36:01]And if we only just have stability, the diplomatic part of it is if it's just stability and no forward movement, you can still call it constructive, right?

[00:36:09]So, the the the real question going forward is is there actually uh deals made, um additional concessions made, a a a a shift back away from constantly accelerating decoupling being driven by the two governments. Cuz even as this is all going on, the two governments have over the last few months done significant decoupling actions, regulatory actions toward one another that are against the interests of the other side. So, if if the leaders aren't establishing the stability and kind of calming the waves, the waves can get higher and higher and the relationship can start to to really um uh fragment in in uh in significant ways that then have geopolitical significance. Well, it's really great or optimistic that we already have another date in the calendar, which has now been confirmed by China as well, September 24th.

[00:37:01]>> important and and unusual for the Chinese government to confirm it so early. You typically they would be looking for additional concessions, a little bit of negotiating around the the key aspects of the visit, perhaps even on the Taiwan issue, before announcing the the visit. So, clearly there President Xi feels confident now in his relationship with Donald Trump that he can double down on it, take this rather risky step of of I mean, think about it.

[00:37:28]Washington is probably the city on the planet that is most hostile toward the Chinese government. And he's going to land right in there, surrounded by a lot of people who are very suspicious of China, and just kind of take it on and and see if Donald Trump can guide him through that in a way that that makes China puts China in a better position at the end of the day. What do you think uh President Xi's state visit will look like? Uh in Beijing, they rolled out the red carpet. Uh there was the honor guard. Uh there was a visit to the Temple of Heaven. What could it look like when President Xi goes to the White House? Well, the standard package for a state visit in the United States is these guys that playing the drums and fifes on the South Lawn.

[00:38:11]Uh the the White House is under construction, quite famously. So, I'm not sure whether they're going to do that or they'll do some something that's more uniquely um in the character of of Donald Trump. But, there'll be some some kind of uh nice uh show and tell type activities that that that sort of show that are visually compelling and get people to focus on the relationship. We also now know that after President Trump visited Beijing, President Putin is also slated there.

[00:38:40]How much closely are you watching this?

[00:38:42]Well, I think it's Mr. Putin is not doing that well in his war on Ukraine right now. And so he's reaching out probably looking for some solace and some attention and perhaps has some specific requests.

[00:38:54]So I think the US not myself personally or my company, but but the United States will be watching rather closely to see what um additional solace, if you will, China might provide to Russia. And if there if there's significant assistance from China to Russia, then probably the US will complain about it.

[00:39:14]President Trump after his departure from Beijing, there were phone calls to Japan and South Korea. Why does he need to do that? Well, they're they're allies of the United States. And so he's checking in letting those leaders know that that he had them in mind as he was meeting with the the Chinese leader and and takes the concerns of Japan and and South Korea seriously. I also find it interesting that Prime Minister Takeichi is visiting the South Korean president this week going to go to his hometown. So they're doing their taking their own steps to do diplomatic reinforcement and it's part of a fairly standard but important uh diplomatic game being played on a global basis. There's also the G7 meeting coming up in June which will be an important uh milestone as as countries jockey for position on these different topics. I want to ask about Rubio and Pete Hegseth because this is the first time that a defense secretary has accompanied a president to China.

[00:40:17]Was there anything more to it than that?

[00:40:19]And uh for Rubio, he is a sanctioned individual.

[00:40:23]Uh there was a workaround that allowed him to get into the country. How important and the significance of these two cabinet members? Well, I think it was mostly internal to the US side. The significance. The President Trump, if you'll apologize for the for this word, um kind of travels with his posse and um and Mr. Hegseth and Mr. Rubio are part of that. And so, he considers obviously considers them significant advisers on military matters, on diplomatic matters.

[00:40:52]And the United States is still prosecuting a war with Iran. So, I think there was more about internal coordination and not wanting to be not part of this trip, especially for Mr. Rubio, given the Taiwan topics and other topics.

[00:41:10]Ukraine, North Korea, other things that could get touched on. Not wanting to be excluded from that is quite important.

[00:41:17]And I think he his presence probably had an impact on the outcomes. The the sanctioning thing, you know, sanctions are sanctions. They countries can put them on, take them off, ignore their own sanctions. Um those that I I I people tend to put too much emphasis on these sanctions stuff.

[00:41:35]I want to ask about uh Elon Musk and Jensen Huang because of course uh everybody was very excited that they were both there and uh they all both commanding their own presence. Uh Any deals or anything that stood out for you from their participation?

[00:41:52]>> So, I'm not aware of of anything specific to um Mr. Musk's empire. Uh but he was there and he rode on Air Force One. So, clearly his relationship with President Trump is still quite strong.

[00:42:05]Uh I thought the whole drama around Mr. Huang um joining the trip uh kind of seemed on last minute was quite interesting. Uh, it appears that that uh, his agenda on semiconductors was discussed, perhaps not by Mr. Trump himself, but certainly part of the visit. And so, there seems to be an ongoing dialogue about uh, Nvidia's uh, sales to China uh, that was probably part of the visit, but I'm not I'm not uh, aware of the details. We'll see if the H200s uh, will make their way into China. Well, there's a whole lot bunch of debate about whether China really needs them anymore or how much they should pay for them.

[00:42:43]And do they want to be dependent on them? So, it's a complicated question.

[00:42:47]Ambassador, thank you very much for joining us today. Enjoyed the discussion. Thank you. Thank you so much. We've been speaking with Kurt Tong from The Asia Group. The China Connection will be right back.

[00:45:03]>> [music] >> Chinese e-commerce giant Shein is reportedly set to acquire San Francisco-based company Everlane from majority owner L Catterton.

[00:45:17]According to Puck and The Information, its board signed off on the deal this weekend, and it's a significant shakeup for Shein, which is known as a fast fashion, while Everlane is considered a mid-range label selling high-quality leather and apparel products. The transaction values Everlane at $100 million, which is a significant discount from where it stood during its heyday due to its rising debt issues.

[00:45:43]Here in Hong Kong, the Goldman Sachs Asia Communacopia and Technology Conference is currently underway, and CNBC's Sherry Qin joins us live on the sidelines with a special guest. Sherry.

[00:45:56]Thank you so much, Emily, for that. And in this conversation, I want to focus on China internet, and of course what's happening on this AI race and all this and where are we in this cycle is probably the question that Ronald Keung gets all the time. He is of course as the head of Asia research international research at the Goldman Sachs joining us live on the sidelines of Goldman Sachs Asia communacopia Asia tech conference. Of course Ronald it's great to have you on. Thank you so much for joining us. So just set the scene for us once again. What are you most excited about to you know hear about and check out in terms of the latest in this AI competition and here in Hong Kong we actually are seeing a lot of interesting names on the schedule today at this event. Indeed. Thank you Sherry. We have hundreds of companies here across internet AI models, robotics and across the supply chain. And of course we have 10 cent coming this week soon.

[00:47:02]We have a few of the many of the AI model companies here as well. I would say the key debate at this point is still is how is the gap between US and Chinese models. We're seeing ARRs are still tripling, doubling. I would say they've gone eight times in ARRs or eight times in token numbers in from January to March and we're expecting another kind of 3X from here to year end. So these are still proliferations of tokens driven by agentic demand, enterprise demand and even some of the consumer AI demand as well. I mean what we're most excited about are data centers and and the cloud which are a top preferred subsector and we will wait to see what the Neo clouds and so on data centers will talk will comment on shortly this afternoon as well. Okay. So the token demand is at top of your mind and we actually started the coverage this morning with Erica Sheridan of course a co-lead of TMT research at Goldman Sachs and he was talking about how the economics of token is improving, meaning the cost of token is coming down. When there is so much demand, why is it coming down? That was my question. I wonder if that is also happening in Asia and China. Yes. So, if we recall we had chatbots and that's very cool. You're going to ask a question, it comes back. As we move move more and more into agents, there was the open core frenzy, now Hermes and all of those. That means the the demand for tokens is 24/7. It's you you kind of not just asking a question and and get one answer back. They're actually doing tasks for you and that that growth of tokens is because of this 24/7 demand that's that's growing. And amongst the Chinese companies, if you recall, that the parameter sizes of quite quite of our Chinese AI model companies are smaller. No matter it's the new kind of Tencent model 103 or the MiniMaxes and all of all of these Xiaomis all of all of these models have a few kind of different positionings, but one of the positioning will be smaller parameters and very efficient. Makes them experts, much lower token costs, which kind of fits into the agentic world, which is the attractive pricing. And if you look at the gross margin levels of these models, they're still actually pretty pretty positive in the positive territory. And some of those are actually have double-digit margins on the gross margin basis. That would say the tight computing, the unique infrastructure and the architecture behind is driving Chinese models.

[00:49:21]There's some unique differentiation there and we've seen a lot of these AI models have been best-performing stocks this year on the Hong Kong Stock Exchange as well.

[00:49:30]What about the competitive landscape within the China and a lot of people are paying attention to what ByteDance is doing and how they're making some interesting moves in terms of growing their consumer AI business. Who is leading and who do you think will continue to lead? I mean, it's it's a really a race and that's what happens in sort of early innings of any technology innovation cycle. What do you think?

[00:49:58]Yes, there's a magical number kind of people are targeting. When will the these Chinese AI model companies reach a 1 billion ARR level? ARR kind of annualized and recurring revenue. And this this amount used to be one of the private leaders in AI in in the US around 18 months ago. So, we think that that's where going to this these companies are they reaching that that target? And we're with all of our our companies targeting growing ARR.

[00:50:26]That's kind of the the key thing that that's driving the expectations for these these companies. Landscape admittedly is is quite fragmented at this point, which means we have multiple independents amongst the AI model companies, but ByteDance, Alibaba, Tencent, they're also kind of driving on the kind of cash-rich front. In the US, we've seen kind of hyperscalers using their core internet business driving capex and becoming computing kind of focus on computing with their inbuilt chips. And then we have multimodal focus from some of the internet megacaps in the US followed by very strong coding from the techs. I think we're seeing some of those similarities in in China, but with a few more players. And I would say firstly, coding is one that most of both the internet megacaps plus the AI independents have very utmost focused on is the coding market. And then followed by multimodal, which is I'll say the eventual path to AGI would be whatever not just what I'm speaking today, but our ears and our mouths understand the physical world. So, that would be the kind of next stage of our full model understanding. And I'll say ByteDance, Alibaba focused on multimodal from kind of day one amongst the private companies. Well, amongst the independent players, one or two of them also very focused like the mini maxes on on full model.

[00:51:50]And I was actually having conversation around the China internet names on the back of Alibaba and Tencent's earnings adjust last week and this guest from Barclays was talking about how he believes that in China in terms of the capex, it's capex investment China is maybe a few quarters behind the United States. And I wonder if that's what you're seeing in your numbers as well.

[00:52:17]And what does that mean for markets?

[00:52:20]Because it's really about not how much capex is going into it, but it's really about how the market is ready for that kind of number. What do you think? Yes, I'll say quarterly earnings for the March we're kind of halfway through the reporting season. We had Alibaba Tencent already reported. But the in aggregate China internet earnings we expect a decline of by a quarter year-on-year.

[00:52:43]So it's still a drag to kind of on the EPS revisions, on the investment cycle.

[00:52:49]And what's driving that aggregate decline has been due to the incremental AI investments. Not just into enterprise, but actually the the kind of the the consumer side, which is the most costly in terms of the subsidies for the coin apps or yuanbao apps and all those consumer side.

[00:53:05]But the good news of course is as we head into the June quarter and into the second half of this year, we had the quick commerce massive investments last year. So we do have a EPS kind of reverting back to the positive trends for China internet company. The second of course the debate would be how are these companies competing with the AI independent model companies that we just mentioned. The third aspect would be in the consumer era or era. How how will people how will kind of ad traffic change? Will you use your agent to book your flight ticket? Would you use more kind of interaction with an agent? And where will that agent level stand? Our view would be the operating system level may have a kind of advantage in terms of access rights of the agent, but then the security and all of those will have to be considered, but who are the companies that has that access to the operating system? They may be able to launch a agent that could tap into more of your apps and therefore there may be a change in traffic in the future. It's you activating your agent and your agent activating the apps currently in your phone. So that those are the kind of key developments that we track really closely and we also anticipate to see what Tencent WeChat Asian is ecosystem has to offer with their AI agent that they're working on versus some of the operating system players that that may also be designing their agents in the consumer AI world. So we've got about 90 seconds to go, Ronald. Sorry to squeeze you, but what about the chip angle? And I wonder how meaningful it was it is now in 2026 for Chinese companies to get their access to Nvidia's H200 chips. Is it a different story compared to couple of years ago?

[00:54:49]It is a evolving. Domestic chip is still the the key supply and but capacity is constrained today. It will be less so in a year's time with domestic chip capacity doubling this year and doubling again next year from our China technology team colleagues estimates. So therefore CapEx will ramp up for domestic chips. The uncertainty would be for the external foreign high-end chips.

[00:55:15]Very careful choice of word there, evolving.

[00:55:19]Ronald, it's great to have you on. Thank you so much for joining us. I really enjoyed that conversation. That was Ronald Keung of Goldman Sachs uh joining us live from the Goldman Sachs Asia Communacopia and Technology Conference at 2026. Ms., it's back to you.

[00:55:37]Cherry, thank you very much for that and on that note, that'll do it for this edition of the China Connection. I'm Emily Tan. Keep it tuned to CNBC.

[00:55:45]>> [music] >> Inside India is coming up next.

[00:59:29]>> Mhm.

[00:59:46]>> Mhm.