Inquiring Minds | Kissinger's protege Robert Hormats explores ways for China and the US to bridge their 'trust deficit'

Experienced diplomat and economist dissects the complexities of a complete China-US separation, emphasising that disagreements must be handled with caution.

Experienced diplomat and economist dissects the complexities of a complete China-US separation, emphasising that disagreements must be handled with caution.

Robert Hormats initiated his professional journey at the US National Security Council in 1969. Here, he held the position of chief consultant to Henry Kissinger on economic matters and was instrumental in rebuilding ties with China in the early 1970s. He transitioned to Goldman Sachs in 1982, where he devoted 25 years and ultimately rose to the rank of vice-chairman.

Hormats was named the Undersecretary of State for Economic and Energy Affairs in 2009 by Hillary Clinton. His role involved conducting high-level discussions with several countries, prominently with top-ranking Chinese officials. In 2013, he assumed the position of vice-chairman at Kissinger Associates. Presently, he shares his knowledge as a lecturer at Yale University's School of Management.

Forecasting Trump's actions on any specific topic, including this one, proves challenging. However, it's important to mention that several legislative proposals in Congress are also targeting the abolition of PNTR, and their fate remains uncertain as well.

Instead, I suspect that Congress will pass some sort of law. The real question is – what will that be? If they decide to remove PNTR, or if Trump does, it will result in the US returning to the tariff rates that were applied to all Chinese goods prior to the 1990s.

Essentially, for a substantial portion of the mid to late 20th century, our import taxes on China were significantly higher than those imposed on most other nations. This scenario underwent a dramatic shift, with a marked reduction in tariffs once the PNTR was granted. Hence, if the PNTR were to be revoked, the US would revert to the previous tariff conditions.

Analysts predict that Hong Kong's real estate market will remain popular with buyers from mainland China in 2025. In 2024, these buyers were responsible for 11,638 property transactions, marking a 90% surge from the previous year.

In 2024, their participation in primary and secondary real estate dealings amounted to 11,638, marking a 90 per cent surge compared to the previous year, as per data provided by Centaline Property Agency. The overall worth of these transactions escalated by 67 per cent, reaching HK$130.5 billion (US$16.7 billion), setting unprecedented levels for both indicators.

The last high point of property purchases in Hong Kong by individuals from the mainland came in 2010, when there were 10,079 deals on record. However, this only made up roughly 9 per cent of all transactions. In comparison, the number of transactions last year made up 24 per cent of total property deals.

In February 2023, Hong Kong eliminated the Buyer's Stamp Duty, previously levied on non-permanent residents, and also put a stop to the New Residential Stamp Duty for those buying a second home. Additionally, homeowners were granted relief from the Special Stamp Duty if they decided to sell within a two-year period. The authorities also eased the loan-to-value ratio to help homeowners manage their mortgage payments amidst rising interest rates.

The elimination of real estate restrictions, together with a more than 20% decrease in property prices from their highest point, and the government's launch of various strategies to attract skilled individuals and improve immigration processes, have increased the interest of mainland inhabitants in buying Hong Kong properties," stated Louis Chan Wing-kit, Chief Executive Officer of Centaline Property Agency.

Analysts suggest that China should prioritize reducing its excess housing inventory to restore confidence. They believe that it's crucial for Chinese officials to focus on destocking to prevent further drops in property prices for another year.

China's struggling real estate sector is set to face another challenging year, with some experts predicting a further decline in property prices in 2025. This comes after a series of varied outcomes following efforts to reduce surplus inventory over the previous year.

Ever since Beijing introduced a 300 billion yuan (US$40.9 billion) fund in May 2024 to assist local governments in purchasing unsold real estate, authorities in over 30 mainland cities have successfully minimized or managed the surplus. However, some cities failed to meet their objectives.

This necessitates immediate de-stocking in the industry to halt a four-year decline that has undermined one component of the country's economy, as per industry experts.

"Acquiring real estate shares continues to be a key focus this year," stated John Lam, who leads property research for China and Hong Kong at UBS. He predicts that, barring any further significant property developer defaults, the stockpile will decrease to a manageable amount by the middle of 2026.

Inventory in the top 50 cities across the mainland saw a reduction of roughly 30% in 2024, as per data from the China Index Academy. The surplus is estimated to be cleared in just over 21 months, and in some characteristic third and fourth tier cities, it could take over 30 months, the academy further noted.

10:57 AM

Upsurge, downfall, and debt: Is China's real estate market collapsing?

A university in the Netherlands, sponsored by ASML, has been embroiled in the US-China chip conflict and has suspended classes due to a cyberattack.

The leading global manufacturer of high-tech chip-making equipment dedicates substantial resources to Eindhoven University of Technology for training its prospective staff.

The Eindhoven University of Technology, situated roughly eight kilometres (five miles) away from ASML's worldwide headquarters, announced that all academic lectures and activities would be suspended at least until the upcoming Tuesday.

The university's vice-president, Patrick Groothuis, mentioned on Sunday that turning off the network was an "essential measure to avoid graver consequences."

The university announced that specialists are presently examining the scope and characteristics of the cyber breach. The institution's officials detected considerable unusual activity on their servers late this past Saturday. They have not yet made any communication with the unidentified hackers, according to the university's representative, Ivo Jongsma, in a telephonic conversation with Bloomberg News.

"He stated that inquiries are still ongoing to determine if any data was compromised. He further added that the university plans to provide an update about the breach on Monday.

Hong Kong shares plummet to a four-month low due to discouraging US employment figures, diminishing hopes of a rate reduction. Companies such as MTR Corp, Bank of China, Baidu, and Alibaba experience a downturn, alongside an increasing probability of capital fleeing from Asian markets.

The Hang Seng Index dropped by 1% finishing at 18,874.14, a record low since September 23. The Hang Seng Tech Index also saw a decrease of 0.9%. Meanwhile, in China, the CSI 300 Index experienced a slight dip of 0.3%, and the Shanghai Composite Index also took a step back by 0.2%.

Hong Kong's subway company, MTR Corp, saw a drop of over 4 per cent following a downgrade from HSBC. The Bank of China's shares also dropped over 3 per cent as they were being traded without a dividend payout privilege. Furthermore, Alibaba Group Holding and search engine provider Baidu experienced a minimum of 1 per cent decrease in their stock values.

U.S. equities wiped out all of this year's progress on Friday due to surprisingly strong U.S. payroll figures, which have lessened the likelihood of the Federal Reserve implementing a more relaxed policy this year. Bank of America, which had originally anticipated two quarter-point decreases in 2025, has stated that it now doesn't foresee any reductions, and that there might even be a hike. Citigroup, the most hopeful of all Wall Street institutions, forecasts five quarter-point reductions beginning in May. Goldman Sachs now predicts two reductions, down from their earlier estimate of three.

The US dollar index has surged to its peak since November 2022, while the 10-year Treasury, which is sensitive to interest rate changes, has declined, pushing the yield to a rate unheard of since November 2023, approximately 4.76 per cent. This increase in risk premium diminishes the attractiveness of shares.

"This bombshell disclosure effectively silences any rumors about upcoming rate reductions," stated Stephen Innes, the managing director at SPI Asset Management in Bangkok. "At the same time, concerns about US consumer inflation have been sparked and intensified by the ghost of Trump-era tariffs. Adding to the jittery mood is the ambiguity surrounding how Asian economies, particularly China, will cope under the looming 'America First' trade policies of the incoming Trump administration."

China has announced a trade finance facility worth $13 billion, aimed at bolstering the yuan hub in Hong Kong. The introduction of fresh incentives is set to strengthen Hong Kong's status as an offshore yuan center and will further expand the city's bond market by attracting more institutional participants.

China has introduced new strategies to enhance Hong Kong's position as a hub for offshore yuan financing. These include setting up a new yuan funding facility for banks and businesses, as well as broadening the opportunities for mainland investors to invest in foreign-currency bonds in the city.

The Chinese central bank, known as the People’s Bank of China (PBOC), in collaboration with the Hong Kong Monetary Authority (HKMA), plans to provide a liquidity facility of 100 billion yuan (equivalent to US$13.6 billion) for banks. This is intended to assist their customers in securing funding for durations of one, three, and six months, in an effort to bolster trade. Additionally, adjustments are set to be made to the cross-border Bond Connect scheme in order to enhance the market depth.

The growth and advancement of the capital market are crucial to Hong Kong's position as a global financial hub," said Pan Gongsheng, Governor of the PBOC, while speaking at the Asian Financial Forum in Hong Kong on Monday. He added that both parties would cooperate to enhance the linkage of financial markets, including promoting the listing and bond issuance of more top-tier companies in Hong Kong.

China might utilize the city as a storage space for an increased amount of its gold, which made up 5.7 per cent of its reserves in October, as stated by Anderson Cheung, the chief of global commodities at Best Profit Capital. The Hong Kong Airport Authority revealed a plan in October to boost its gold vault capacity at the city's airport from 150 to 1,000 tonnes.

In the meantime, the fresh yuan liquidity facility is a refinement of a current plan that supports trade financing for a maximum of seven days, according to HKMA CEO Eddie Yue Wai-man, who made the comment outside of the forum. This will result in businesses and banks feeling more at ease using yuan for trade settlements, he further noted.

"A lot of financial institutions are interested in expanding their business in yuan financing, however, they are restricted by the amount of deposits they have in yuan," stated Darryl Chan, Deputy CEO of HKMA. "This new facility will ensure they have a consistent supply of yuan to assist their business clients."

CATL, a leading Chinese company, is set to choose banks for a $5 billion stock sale in Hong Kong. The world's premier manufacturer of EV batteries is contemplating a secondary listing in Hong Kong, potentially raising a minimum of $5 billion.

Current Amperex Technology Limited (CATL) is reportedly set to engage Bank of America, China International Capital Corporation (CICC), CSC Financial, and JPMorgan Chase as key coordinators for another listing in Hong Kong this year, as per sources close to the situation.

Additional banks are expected to get involved in what might become one of the biggest deals in Hong Kong in the past few years, according to sources who requested anonymity due to the confidential nature of the discussions.

Discussions are still in progress, and elements such as the potential size of the offering, the list of banks involved, and the schedule may shift, according to sources.

Spokespersons for CATL, Bank of America, and JPMorgan chose not to comment, while immediate responses were not received from CICC and CSC when asked for their comments.

The firm, together with Tencent Holdings, was recently put on a blacklist by the U.S. due to supposed ties with the Chinese military. However, CATL clarified in a communication that it doesn't partake in any activities related to the military.

UBS is not deterred by the shaky commencement of China's markets, predicting that stocks will rise by the close of 2025. UBS asserts that institutional investors, such as insurance firms, are attracted to stocks due to the swift decline in Chinese bond yields.

Profits for companies listed on the mainland are projected to increase by approximately 6 per cent in 2025, up from 5 per cent the previous year, according to Meng Lei, a strategist at a Swiss bank, who shared these insights at a Shanghai briefing on Monday. He also suggested that China is expected to emerge from its over two years long deflationary period, as senior policy makers introduce stimulus measures and tackle the issue of industrial surplus. A common belief among many investors is that China's deflation is hampering the performance of mainland-listed shares.

"Meng suggests that we're likely to witness a 6% rise in profits this year, starting from a relatively low base, which should encourage a good number of investors. There's an anticipation of better producer prices that could potentially reach zero or even turn inflationary. Given such circumstances, businesses will have a better control over pricing, which would significantly bolster the profit margins of publicly traded companies."

Meng indicated that China's shift towards more relaxed fiscal and monetary strategies, discussed at a couple of prominent gatherings late last year, would bolster the stock market. UBS's macro unit anticipates that Beijing will increase the government's debt ceiling to about 3 to 4 percent of the total economic output, while simultaneously decreasing the borrowing expenses by 30 to 40 basis points this year. The macro unit also forecasted that China will release special government bonds worth at least 2 trillion yuan (US$272.8 billion) to stimulate growth.

Furthermore, Meng anticipates that the government will take steps to bolster production prices by cutting down on surplus capacity in certain sectors. In December, China saw a 2.3% drop in producer prices, marking the 27th straight month of decrease. Meanwhile, consumer inflation remained unchanged.

By the middle of the year, residents of Hong Kong will be able to utilize the Faster Payment System (FPS) for international transactions, according to the Hong Kong Monetary Authority (HKMA). The HKMA and the People's Bank of China (PBOC) have been collaborating to integrate the FPS with the mainland’s Internet Banking Payment System.

The Hong Kong Monetary Authority (HKMA) has announced that Hong Kong and mainland China are connecting their digital payment systems. This move will enable minor cross-border transactions through mobile phone numbers within this year.

The Hong Kong Monetary Authority (HKMA) has further included three additional banks – HSBC, Standard Chartered, and Bank of Communications – to permit residents of Hong Kong to initiate mainland bank accounts without their physical presence required. These banks are now part of a group of eight, which have been offering services for opening accounts since 2019.

CEO Eddie Yue Wai-man stated at the Asian Financial Forum on Monday that these initiatives will enable residents of Hong Kong who wish to live, work, or commute to the mainland to have access to efficient banking and cross-border payment services for their routine expenditures.

The Hong Kong Monetary Authority (HKMA) and China's central bank, People's Bank of China, are collaborating to connect Hong Kong's Faster Payment System (FPS) with China's Internet Banking Payment System (IBPS). This will enable users in both regions to execute instantaneous transfers of minor amounts via these two payment platforms.

Stephen Pang, the interim leader of financial infrastructure at the HKMA, revealed that the integration of FPS and IBPS was technically achieved in December. He indicated that some services were projected to roll out around the middle of the current year, but chose not to share further specifics.

The founder and chairman of Fuyao Glass, Cao Dewang, who is also featured in the American Factory film, has gained approval from China's Education Ministry to establish a university that will compete with Stanford.

On Monday, Fuyao University of Science and Technology (FYUST) in Fuzhou, the capital city of Fujian province in Southeast China, received permission from the Chinese Ministry of Education to offer undergraduate courses. There is currently a public feedback period in progress, which will continue until Friday.

The Heren Charity Foundation, founded by Cao Dewang, the creator and head of Fuyao Glass, has contributed Fuyao shares valued at 10 billion yuan (equivalent to US$1.36 billion) to a project that was revealed in 2021.

The president of the Chinese university, Wang Shuguo, announced last week that Cao has ambitions to set FYUST as a standard comparable to Stanford University in the US, as per regional news sources. He additionally mentioned that the institution plans to begin student enrollment this year.

According to its official website, FYUST is aspiring to be a top-tier research university specializing in science and engineering. The school plans to start with seven departments, such as materials science and technology, computer science and engineering, and mechanical engineering and automation.

A scientist from Nvidia has commended a Chinese humanoid robot, sparking curiosity. Engine AI, based in Shenzhen, is aiming to take advantage of the rising interest in its human-like robots by reducing its prices in the face of fierce market competition.

A footage featuring a humanoid robot, manufactured by the Chinese start-up Engine AI, has been making rounds on the internet. This came after Jim Fan, a high-ranking research scientist from the US semiconductor titan Nvidia, shared it on social media platform X, posing the question, "Is this genuine?"

"The robot's walk might be cool, but we urgently need them to tackle fires," Fan penned, after verifying the video's genuineness.

Last week, Engine AI shared a video on Chinese social media sites. The clip featured a robot named SE01, which was seen strolling through a shopping center, drawing the attention of passersby.

Experts suggest that international retirement plans may provide Hong Kong residents with more affordable healthcare options. They point out that Hong Kong is facing an aging population, dwindling birth rates, and a large number of retired individuals who are not financially ready for what lies ahead.

"The enrollment in pension life insurance products in Hong Kong is notably low," stated Tang.

According to Tang, data from the OECD suggests that individuals approaching retirement at 65 years old desire to retain at least 70% of their income from the prior year to sustain a similar lifestyle.

Simultaneously, Hong Kong's medical infrastructure is feeling the pressure due to an increasing elderly population and the exit of healthcare experts.

In 2023, approximately 22% of Hong Kong's 7.5 million residents were aged 65 and over, as per data from the Statistics Department. Projections for 2046 suggest that this age group will represent nearly 36% of the overall population.