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TCW is a leading global asset management firm with over 50 years of investment experience and a broad range of products across fixed income, equities, emerging markets, and alternative investments. In each episode of TCW Investment Perspectives, professionals from the firm share their insights on global trends and events impacting markets and the investment landscape.
Welcome to the TCW Investment Perspectives Podcast, where
our investment professionals share their insights and
expertise on how to make the most of your portfolio.
I'm David Vick, Managing Director and Fixed Income at TCW.
Like everyone else, we here at TCW are paying close
attention to the relationship between China and the
US, given its centrality to global economic activity.
Even before tariffs became part of the most recent picture,
this relationship has been one of the most critical
dynamics shaping global markets, politics and innovation.
I am pleased to be joined today by Lin Jing Leong, a TCW Sovereign
Research Analyst who focuses on Asia and has deep expertise on
the economic and strategic ties between these two global powers.
Lin Jing, welcome to the podcast.
Thank you.
Alright, so let's just start at the beginning.
Can you give us a sort of a level set on where we're at in terms
of China, their growth prospects, current fiscal situation, maybe
what's happening in the housing market, those sorts of things?
Yeah, sure.
So I think, you know, what we've seen in China for the first quarter this year,
in terms of growth, is that it's really positively a surprise on the upside.
And that's very much been a function of export front loading,
to both the United States and also across the world.
And also the consumption stimulus program, the
trade-in program for certain strategic sectors.
So both of that has been doing quite well.
We've been seeing some sort of port data coming through, shipping data.
And interestingly, that could sort of support Q2 data as well.
While it's coming down for ships heading towards the United
States, it's actually going up to ASEAN, for example.
Some of it could be for ASEAN's own consumption,
but some of it could also be for transshipment.
So I think Q2 data would actually be a little
bit more positive than market expects currently.
And then we'll get to the point where Q3 is where,
you know, all the front loading sort of slows down.
And in addition to the fact that property sector isn't doing quite
well at the moment still, we will start seeing some impact there.
So for us, we actually think that we will start seeing
more significant stimulus, fiscal stimulus announcements
that will come through June, July this year.
April lack of announcement was expected, given how good data has
been and the lack of clarity as to actual sort of impact from U.S.
tariffs.
But June, July would be when we see the next sort of tranche.
And we think that this time around, it will focus more on services
consumption, like services vouchers, for example, to help boost growth.
So in conclusion, we expect 2025 growth to be about 4% to 4.5% year on year.
And that really depends on how effective some
of these fiscal stimulus will be against U.S.
Trump tariffs implications.
Got it.
So you mentioned some of the consumption support programs.
Obviously, we've been some strong export growth, at least,
you know, as people front load consumption, presumably.
But from an internal consumption standpoint, what are
some of the things the government's going to try and do?
And why has it been such a problem for them to spur that demand over time?
Yeah, so to, yeah, I guess, you know, I alluded to it just now, I do think that,
you know, they will spend more time on services consumption this time around.
Services voucher with a dateline is probably going to be the most effective.
But yeah, it's interesting.
China has spent the last two decades trying
to boost consumption as a percentage of GDP.
But, you know, it's really sort of had calamities after calamities, and
some of it by its own doing, some of it external, like COVID, for example.
So I think they will continue focusing on
the longer term sustainable stuff, right?
Reforming the pension system, for example, the Hukou migration system that
will certainly help boost growth across a big amount of cities in China.
Pension is only 30 US dollar per month.
So it's very hard, you know, and even if China increases it, you know, in the
foreseeable future, and it will probably increase it gradually, given the fiscal
constraints, it will take a long time before consumption patterns change.
And you've got the property sector basically employing 15% of employment.
It is 70% of most average household wealth.
It is certainly dire, you know, most people don't have the confidence to spend,
especially now when we've got potential, well, not potential anymore, but trade
tariffs coming through, you know, certainly hold back spending in that sense.
So as we've seen in the most recent data, it is only the segments
which are being subsidized that are actually surprising on the upside.
So that's been very effective.
There has been a major shift of spending from not just foreign goods
to domestic goods, but more importantly, no longer sort of luxury
goods into sort of value, you know, value for money goods.
So that's the trend at the moment.
But certainly we'll need more subsidies to come.
Got it.
Well, thanks for that.
Switching gears a little bit.
It definitely seems like these days, China
is trying to reduce reliance on US imports.
There's a deal with Brazil of soybeans and LNG with the UAE.
Do you expect to see more of these things happening?
What types of things might be candidates?
Like, how do you see that evolving over time?
I definitely do see more of that happening.
But more importantly, I do think that they themselves
want to create more self-capabilities as well.
That was a big part of the dual circulation plan that came through in 2020.
And I don't think that's changed.
That's still ongoing.
But in terms of your question, you know, in terms of the goods that
they are certainly targeting, I sort of think of, you know, import
dependency at above 60% as critical goods for them to sort of look at.
So you mentioned a couple.
There is also crude oil, which they've increasingly
sort of expanded to, you know, importing from Russia.
There's deals with Iran and Venezuela, for example.
Then there is iron ore, which, you know,
they're importing from Africa at this point.
Soybeans, you know, that's been shifted to Brazil quite a bit, but
they themselves are also skeptical about the dependency there.
So there's been increasing talks about importing from Argentina.
And yeah, and then I think there was like copper ores
as well, which they've started talks with Kazakhstan.
So plenty of that.
You're definitely looking to diversify as much as they can.
But more importantly, one of the areas actually has been sort of aircrafts.
They certainly import a lot of that.
And they're trying to sort of build their own
capabilities at the moment to build their own.
So that's probably taking, I guess, front
and center in terms of strategic roles.
Got it.
Should we think about trade maybe going the other way?
A lot of talk about, you know, types of Chinese imports
that will have the most impact on the U.S., things like
toys, clothes, medical components, that sort of stuff.
What do you think about the types of goods flowing from
China into the U.S., things that may stop or lessen?
Like, how do you see that evolving going forward?
Generally, I think of it from two fronts.
One, discretionary or non-critical, and two, lowest profit margins, right?
Those are probably the way to think about it.
So next on the list would be something like furniture and home goods.
And they've certainly found sort of other places to import from.
Vietnam, for example, Malaysia are good candidates.
I think even Mexico, I think, which I don't cover, but closer to home.
So that's definitely one.
Plastic products and also solar panels could be next on the list.
There is massive sort of Southeast Asian companies that do export that as well.
So that could be the diversification there.
So when we think about the U.S.-China trade
dispute, there's a lot of back and forth.
What are some of the levers that China can pull?
What are some of the things they can do in this conflict as we go forward?
At this current juncture, unfortunately, it does look like
they're still keen on not backing down, I think, on both fronts.
So in terms of what could be announced confrontationally,
in addition to tariffs, we've heard some tweaks of the
unreliable entities list, export controls as well.
Well, services trade could actually be quite interesting
to focus on China basically imports up to sort of $55
billion worth of services from the United States.
43% of that in travels and about 71% of that
travel component is actually in education.
It has already started telling its population maybe to not head towards
the United States for education, but it could escalate more significantly
if it stops and bans its people from actually coming out this way.
Do you think it will see, like, aside from the U.S., do you expect to see more
countries either trading more with China or maybe becoming more protectionists?
How do you see that Chinese relationship with the rest
of the world evolving given the dispute with the U.S.?
I think it will be a combination of both.
I mean, at this current juncture, China has been going out and making friends.
I mean, they've made friends, but, you know, they're trying to
sort of recultivate a lot of different relationships they have.
For example, the recent tour to Vietnam, Cambodia and Malaysia, for example.
You know, so on that front, I do think it will continue
making more friends and becoming better friends and building
more trade deals there, positive ones at the very least.
But in terms of, I guess, the accusation that China does dump a lot of
cheap goods across all these different countries as well, anti-dumping
sort of initiatives are already put forth against China across
multiple goods, steel being one of the more significant ones.
And then you have, you know, more recently
things like fiber optic cables in Brazil.
Brazil's even thinking about like electrical vehicle
sort of not so much bans, but like I think tariffs.
And then you've got Malaysia having iron and
steel import anti-dumping tariffs on China.
I think PETs, some plastic products.
And then India.
India is the most interesting because India currently has the most
investigation against sort of China's sort of dumping theory.
I think since December 2024, they're investigating
also putting anti-dumping duties on Chinese steel.
So there are certainly some implications from, I guess, US tariffs,
because it is interesting to see that China's share of global exports
hasn't actually come down since the first Trump administration.
So clearly, they've just been shifting things around, and I
think some of these countries are certainly feeling the pain.
Great.
Well, thanks very much for that.
I know there's a lot of things to cover here,
but I think we're out of time for today.
Lin Jing, thanks very much for joining the podcast.
For more information on TCW strategies, please visit our website at TCW.com.
Thanks for listening, and we'll pick up next time exploring
more trends and opportunities that are shaping global markets.
Thank you for joining us today on TCW Investment Insights.
For more insights from TCW, please visit TCW.com slash insights.
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