announces free trade talks. >> also coming up this hour -- hoping to hit the right note, the hong kong-shanghai stock connect finally gets up and running. plus i'm another red flag from china. look at the slowing economy as banks try to limit lending. and freedom on fuel. a key election pledge. all that and more in this monday edition of "asia edge." >> i am john dawson with the markets. a bit of a mixed bag. china is so volatile. .5%, back upwn

again. shanghai-hong kong connect also. meanwhile, the hong kong exchanges in their biggest decline. that is partly down to the connect. as this launches, korea are the biggest callers. the individual chart, the nikkei, gradually declining. down and down and down, some really big declines. down because the yen has done this. there is the yen.

we have the impact there. the impact was minus what some people said about gdp. with aication is that recession confirmed, he has no choice but to delay the secondary increase in sales tax. japan's bring in economy editor. let's talk about this. they got it wrong. badly wrong. ?hat was behind that what were the biggest factors in this unexpectedly bad contraction number. said, the forecast and the government, their forecasts were for the economy to return

to growth in the third quarter and that just did not happen. the biggest factor here is the same thing that happened in the second quarter. the sales tax increases just killed consumption. people are not spending or purchasing. that is really cutting into companies' production./ companies are trying to run down ther metrics because of consumption. as i said last quarter, when the gdp data came out for the second surprise that a the hangover from that has lasted as long as it did. >> what does this mean for the future of the sales tax and the sales tax rise? >> all indications we are seeing is that the sales tax rise is not happening next year. will have aer abe press conference tomorrow where

he will probably speak about the sales tax rise. it has not actually been confirmed yet. it is likely that the government is going to say we cannot raise the sales tax as planned. some in the government are saying they might postpone it until april 2017. to take advantage of another 18 months or two years of growth and olympic spending which will kick into the economy at that time. of 10% inles tax rise october of next year is not going to happen. >> what is looking better as we head into the new year? >> today's data was very bad. if you look at the results from -- companies are optimistic about their growth

going forward and they are optimistic about their forecast for investment. companies cut investment in the third quarter. that is two quarters now where companies have slashed investments. the september data comes out as part of the third quarter. companies are saying they will be raising investment by the most in almost 10 years. so that is a positive sign that, even with this bad news, companies are still confident and planning to ways -- to raise wages. you look at balance sheets, massive profits in the third quarter. massive cash holdings. if they see the economy is coming back, the companies have money they can invest quickly in the economy. that is a good sign for the current quarter and going into next year. >> james joining us from tokyo. other stories making headlines -- japan's biggest banks out with results. an unexpected rise in first-half profit. it is down to overseas lending,

apparently. profits down 17%, that is being blamed on lending. income fall.n net a prolonged slump for cars in its home market. they are releasing several new models to increase demand at its luxury business in 2015. another check on china. sincejumped the most 2013, up nearly $12 billion from the previous period. the government has discussed lowering its growth target from 7.5%. >> it has been almost a decade

australiations, but and china has cut -- have agreed on an agreement for free trade. let's find out more from paul allen. what does the agreement say? >> we wait to find out. there has been plenty of speculation. the declaration of intent will be signed between the trade minister for australia and the chinese commerce minister. still being prepared. we will have some kind of ceremony and then find out what is in it. lifted for 95% of australian products going into china. there will be significant gains and gary tariffs will be -- dairy tariffs will be loosened as well. the richest woman in australia is looking for a piece of the action. very large dairy concern here in

queensland. sure can farmers and rice -- sugarcane farmers and rice farmers -- as for what it will be worth, when new zealand signed its free trade agreement in 2008, trade between those two countries has doubled. trade between australia and china last year was worth 150 billion. that gives you some idea of what australia's expectations are. >> all of this coming on the sidelines of the g-20. set somers have ambitious goals, raising growth by more than 2%, taxing corporations. i guess the big question is, can all of this be achieved? >> yes, well, that is always the question. between words and

deeds. already, there is some discussion about what it means. , that will2.1% goal be reviewed by the imf and the oecd, who say it can be achieved implement all of the policies that were discussed. but that is the tricky part. tony abbott was bemoaning the he cannot get cuts for policies in the may senate. we have heard japan slipped back into recession. so the issues facing the country's are many, however, there is still some optimism. let's are what barack obama had to say. hear what barack obama had to say. >> here in lisbon, all of the a20 countries have announced new initiative to support jobs by building infrastructure. our nation has made commitments that could drink another 100

million women into our collective workforce. we took steps towards strengthening our banks, closing tax loopholes for multinational companies, and stopping tax evaders from hiding behind shell companies. >> that was president obama's last address to the g-20. again talking about the commitments that were made. now they have to get down and do the work to make it happen. >> thanks so much. coming up next, it has been months in the making, but it is finally up and running. he will be live on the trading floor to check in on the hong kong-shanghai connect when "asia edge" returns. ♪

>> six months of talks and

delays came to an end today with the launch of the hong kong-shanghai stock connect. david inglis has spent the morning on the trading floor. what is the atmosphere like and what end of impact do you expect from this stock connect now? >> it is quite a different picture right now. the mood as well. the sure you have seen initial jubilation has flatlined. in, we arew minutes towards the negative. we have erased early gains. shares on the hong kong exchanges, the boorse operator was originally up and we are down since last i checked. it seems to be a case of a fairly negative news flow. dataows in china, negative coming from japan.

analystsg said, pointing out that this was priced in. just an update here. we are approaching mid way. just to give you an idea of the interest we have seen so far, mainly northbound that flows, money going into shanghai. remaining out of $13 billion. activity coming here to hong kong from shanghai. if i am being honest, it is a snooze fest, to say the least. we are talking about a daily limit of 10 billion yuan. so far, it is just one billion yuan. again, it is the first few hours, so let's give this some time to settle a little bit. back to you.

there arecourse, still some issues that need to be ironed out. we were talking about attacks, but that has been waived temporarily. now we are hearing that selling is more tedious than buying? what is that about? >> there are additional steps you have to do. that is the short of things. there is no selling of these shares. the first days, it is one way. , youu do choose to sell have to place it with your broker tonight or before 7:45 in the morning tomorrow there might be some compliance problems for a lot of these banks. there is also the issue of front running. these are growing pains. the chief executive of hong kong exchange has said that they are looking at the selling issue and

hope 2-iron it out over the next few years or so. ingles at the trading floor. thank you very much. >> we are talking with j.p. morgan's chief asian and emerging market strategist. moves,ng to the historic not much of a game changer, is it? >> it is part of this progressive opening of the chinese financial system, the global financial system. it is a pretty pragmatic solution to try to move the culture away from institutions. 75%rstand, we have used up of the northbound quota so far. much less in the other direction. treat it as a pragmatic, positive move. >> i guess they are building on the lessons they learned from the program, have they not?

>> we got some clarification on the taxation towards the end of next week. -- last week. it is all just temporary. that is the thing. let's not look the gift horse in the mouse -- in the mouth. you have a waiver so you will not be paying capital gains tax. that is better than we were prior to the announcement. >> what does this do in terms of how you look at china and invest in china? it is going to be mainly institutions from hong kong and more retail going to the south. >> i think what it does for our institutional clients, it gives them a set of stocks to invest in. we are talking about the world's second-largest economy, a huge breath of companies. it is about offering opportunities in what is a very rapidly-rebalancing economy. we are very bearish on the chinese economy but we have

turned bullish on the chinese stock market. what we think is going to be happening here is the government will be responding, easing measures. we are expecting to reserve ratio cut this year. the market will respond to that easing rather than being too focused on the economic data. >> it may be one of the biggest prices inthere, house the doldrums. as house prices went up, the stock market fell. inverse relationship one could argue here. i think you were telling me in the break that you are seeing a lot of interest in the stock market. >> we look at new accounts opened with chinese brokers. they have been rising since midyear. the asian market is being very resilient. we had a 10% reduction in new home sales. maybe some of that capital is ending up in the equity market. in the equity market, people make decent returns, particularly if they are investing in ipos.

it used to be the asian market was remote from the hong kong market. now there is a much clearer link. greg's when this was announced, everybody was looking at arbitrage opportunities. they have disappeared, have they not? >> they have. there are a few stocks at bid -- big premiums or discounts. the liquid trades have definitely compressed. joined our group discussion in about 20 minutes time. next, we look at the kiwi from the finance minister, bill english. you are watching "on the move."

>> new zealand's finance minister says he would like to see the kiwi decline to cement sustainable growth and his country. bill english spoke to us on the sidelines of the g-20 and says it -- he is confident the economy is resilient enough to withstand a fall in prices. >> we are confident. we have quite a resilient economy. under our government in the last six years, we pushed that program along. so there is a lot of resilience built in.

we have had a 50% reduction in dairy prices in the last six months. we are confident we will be able to whether that change. a bit of uncertainty in australia and china. those are the two economies in which we are most dependent. we are in a resilient position. a are you likely to propose budget for this financial year? signs are not promising. >> we will see if there is an impact on government revenue. nominal gdp will be smaller. we will be reporting on the effect of that in the next six weeks or so. but we are on track with expenditure control. revenues are rising. it is just a measure of whether they are rising as fast as we expected. over the next two or three somewherewill peak

around 27% of gdp, which is below international standards. for our economy, it is still a bit high. >> the kiwi-dollar is down from mid july. are you comfortable with that? the rbs cannot to say that it is still pretty strong. >> historically, it is pretty strong. we are comfortable with the kind of adjustment we are seeing. the test is going to be whether it falls or fall through to some inflation. on ane our eye inflationary environment. new zealand has been historically high dollar into the u.s. currency. about the highest three or four year average since the 1950's. our exporters have turned out to -- it has had a positive impact on their productivity and

competitiveness. the dropping dollar and sector, andxport therefore a more diverse one. >> would you like to see a faster pace of decline? >> well, we do not get to choose. >> if you had a choice. it would thought that be sustainable for new zealand. what we're looking for is sustainable growth. we have the opportunity over the next three or four years. in ae market is factoring 25-basis point increase in september. what are you anticipating? >> we know the expectation of it is having some impact on our currency. it is a sign of growth. that is positive. talking to bill english. let's take a look at what is

going on in the australian markets. we have declines of .9%. that is in spite of the prospect that manytrade deal suggested could come in above expectations with china being announced later today. is pretty much flat. here in hong kong, after the initial euphoria, we saw the hang seng up .8%. that is a move down now. we are looking forward to the business in tokyo. it has been a bad time. the yen spiked lower before recovery. and the nikkei 225 putting in a loss of worse than expected japanese growth data. this is "asia edge." ♪

asian stocks take a hit as japan makes an unexpected slide into recession. .onnection complete the hong kong-shanghai link is underway. surging bad loans fuel further concern over china's slowing economy. the nikkei is reopening after its lunch break and they had a pretty bad morning, hit by those disappointing gdp data. john is here with the opening prices.

>> the market is back in action. , this decline is down to what is a modest 1.6% growth fall into recession. he will say why he thinks he is shocked by this. nikkei important is the is declined and the yen is moving from week to strong -- weak to strong. picture fort is the the nikkei. we are going to get quickly to the japanese yen. 115.81 is the current level.

initial reaction was to weaken. there.s right about now going down to 115. a bit of strength because the sales tax will probably be postponed. >> as john was telling us, japan has technically now, in a recession, it's economy has contracted for a second consecutive quarter. third quarter, annualized gdp falling 1.6%. let's speak to william. japan is technically in a recession. does this mean that the planned attack site for next year is now dead? hike for next year is now

dead? >> yes. it would be economic suicide to go forward. as john was saying, this happened in 1997, the last time japan raised consumption taxes. japan ended up having to reverse that decision and cut taxes a new. it is happening again. we are being reminded today that the economy is just not strong or stable enough to withstand higher taxes. going forward with the tax increase next year would give consumers less incentive to spend money over time. it would make them more uncertain about the economy and would give companies less confidence in investing and paying workers more. in many ways, it would be very counterproductive. evil reason for raising taxes the way that japan is is to maintain its debt levels. it has high debt levels and it is trying to pay those down. in many ways, this is another example of policymakers shooting themselves in the foot. having reports of a possible snap election called by abe in order to seek a

renewed popular mandate. are we expecting that next month? .> we are expecting it i am hoping that the prime minister things better of it. in many ways, the prime minister has a mandate. they want him to implement abenomics and they want the economy to be more vibrant. they want him to act and he has not yet. in many ways, they're probably will be a snap election. it is a bit of a pointless exercise. again, we have a mandate. let's just stick to it. >> the japanese economy contracting for two consecutive quarters. to getn abe do sustainable growth? >> he needs to immediately roll up his sleeves and redouble efforts to implement the third arrow. he needs to take a variety of steps to make japan more competitive. he needs to tweak corporate tax rates. he needs to make japan more

conducive to start up companies. japan is still very much about very big companies. it is not about new companies from the ground up. we have to change our mindset to get that going. there are a variety of things japan needs to be doing to make the economy more vibrant. we have had a lot of help from the central bank, but central-bank policy is not enough when you have 20 years of deflation and stagnation as we have in japan. abe isinister on the -- just not doing it. >> thank you so much. >> it has been an historic day for trading in hong kong and shanghai. after talks and delays, the much-anticipated stock connect. -- steve, how has this been greeted there?

it is just a baby step, or so it would seem. >> it is a baby step, but it is a significant one. china opens up its capital account. internationalizing its currency. let's not forget, this further cements or encourages hong kong to be the gateway into china. it is not minimizing hong kong for the benefit of shanghai. this is a connect between the two. hong kong is the conduit for international investors. international investors have had limited access to this stock market through the various quotas. so you had to go through a bank qvat had a qb license -- license and it was a more cumbersome process. this allows people in hong kong with brokerage accounts to directly invest in hong kong. fromt to bring up a quote

moody's. moody's said, "beijing's decision to allow the stock connect to go forward despite seven weeks of pro-democracy demonstrations in hong kong is likely to alleviate investor concerns that the protests would damage hong kong's political, economic, and financial relationship with the mainland." the fact that they have gone ahead with this means they are further promoting financial sector reform as promised. , ins there in april southern china, when leakage on kachung announced this. there were speculations that the protest would delay it. it has not. china is still opening up its capital account. for international investors, the likes of jim o'neill, the former goldman sachs economist, he said this is critical for international portfolios to diversify to a stock market that is massive. it is a retail-driven stock

market, but it is a massive economy, the world's second-largest, and one that does not necessarily go in lockstep with what the fed does or what is happening in europe. time is a very interesting . again, baby steps. but it is a very critical one for china's internationalization. mentioned retail investors. that is really what it is about four china. it is the institutional side here in hong kong. as property prices decline, it seems that the stock market is back in favor. markets havestock not treated investors well over the last three years so they have been skittish. now the property market has been not treating investors well either because of the curves and restrictions. they are relaxing that a little

bit. but the stock market is a highly-speculative gamble in this market and has not performed well. thes up 18% since announcement because there is speculation that international and domestic funds will come in and prop this up this is a state-driven initiative to get this further opening up of the capital account. the earlye seeing, numbers, maybe david and john can update as the morning goes on, but the latest numbers i have, the northbound investment is about 10 times that of money going from china south to hong kong. there is a lot of discrepancy right now. northbound.ted southbound could come eventually as the mainland investors look at this opportunity as well and more stable returns out of investment in hong kong listed shares. >> that is stephen engle for us in hong -- in shanghai.

>> we have been talking about the launch of the hong kong-shanghai connect with our guests all morning. we are on the trading floor with china equity's strategist. is hong kong becoming more like shanghai or the other way around? >> near-term, it is both. the bigger stocks are increasing more like hong kong. institutional investors into the market. smaller cap stocks are money comingth the in. >> we spoke to another key player in the launch. he says this may help turn around the recent slump in chinese markets. >> china is still relatively cheap compared to its peers. that is the overriding sentiment and drive of why people, despite what is going on globally,

economically, maybe china, after not having a great market run, i do think you will see a lot of basic bids coming into the market to pick up certain stocks and plays. >> and jpmorgan's chief china economist says investors see this as a proxy for reforms. verythink markets reacted positive to this connect program. out only because you have more broader sector investment, but this is a sign that china's financial reform is still progressing. ,hen we talk with investors they do not care that much or 8%, china grows 7% but they want signals that china's structural reforms are happening. >> that is the word from asia on the hong kong-shanghai trading week -- link. >> another red flag from china.

bad loans jumped in the third quarter. the economy may be slowing down more than we thought. the details, more about the numbers. >> heading into the weakest expansion we have seen since 1990. those bad loans spiked the most since 2005. rising, those nonperforming , $8 billion over the previous quarter. thanks are cautious. credit is frail. ubs says bankers have appetite for risk and there are rising a sluggishading to expansion and credit. there are three reasons behind this. the number one thing is the property downturn. prices are falling. as well as the overcapacity in cold, steel, and the textiles industry.

as well as small and medium-sized companies. they are fighting for survival right now. there is a concern that this cooling economy will be further lessen theiranks lending to avoid credit risk. >> the bigger picture is growth at the end of the day. what can they do about it? there is a lot of weaponry they have, the central bank could simulate growth. >> economists say it is likely that they may have to do some rate cuts here, maybe early next year. that might be likely. a could discuss lowering the nation's growth rate as well. next year, they are expecting it to reduce to 7.4%. >> thank you very much. up next, japan's disappointing data and a snap election as well. we will discuss all of that and

the rest of the days top stories after this short break. ♪

-- let's start things off with the awful number from japan today. things are not getting better. they are certainly getting worse. the sales tax hike is just dead in the water now. do they really need to call an election? >> it is like a lot of policy out there. it has been kicked further and such. they still need to do a sales tax increase, but maybe a few years from now. calculation is, let's see if we can get an electoral mandate. becoming easier now that we are expecting that the sales tax i will be

postponed? we had some contradicting policies. you had the finance ministry trying to raise taxes. >> in itself, sales tax will not give you a superficial increase but it is negative because you have a fiscal drag. you are taking spending power away. i think the boj has been clear recently. coming outng more qe of the boj. i would argue the policy environment in japan is moving. the irony of that economic data is that as more policy. more policy. >> upgrading the stock market, not necessarily the country. >> how would you rate of a nymex? your take on this right now? rate abenomics? he is more generous

with his assessment than the market has been. the gdp numbers are clearly negative as an assessment of abenomics. thated more abenomics result the structural issues in japan. things that sound very monday, japan, aorkforce in lack of child care, the whole education system needs a bit of reform to free up more capacity in that economy. dartsmore 1000 little more than anything. horse.hat is the >> you were waiting to bring that out. >> this is the goat. our columnist has been saying

all morning -- why are people shocked? rise,the last sales tax it went into recession. this was a bit too aggressive, too soon. why do it in the first place? let the economy breathe a bit. >> sales tax went up on the first of april. you get a recession in the second quarter. they just reported a third-quarter recession. so the sales tax should have been -- you know, that temporary hit should have met more consumption in march, less in april, and then you got through that statistical distortion. unfortunately, the third quarter has come out -- >> after the last one, it is not really important. it could have caused a deep recession in the second quarter. you should have got a sequential recovery in the third quarter. ultimately, if he can get

.rowth going, that is the thing that is going to pay for any sales tax. a sales tax.need >> we are running a fiscal deficit. we had very high debt to gdp. as you get the economy going, you are not going to have 10-year bond yields. as those bond yields move higher, you are going to have to start to sort out your fiscal position. one thing i will say positively about the economy is we are credit growth.% that does not sound like a dramatic number, but in the context of many years of deflation, that is encouraging. >> what was the problem this time? we are seeing the yen weakening and businesses are doing better. are they not doing anything with the extra money they are getting? >> it seems to be that story. we have more of a global phenomena where policymakers are trying to provide cheaper money.

actually, you cannot find willing borrowers. just realized, your name is on each of these. year andbviously next this is the horse, more like a sheep. >> my horse is really an unfortunate end. as we come to the end of the horse, what does the year of the goat hold? >> statistically, this is the best year. the average return is something like 35% for the year of the goat. apparently terrible to get married in though. >> moving on. >> i am looking forward to the next question. chinese stocks? >> we look at the returns for

the asia-pacific index, very good for the next couple of years. >> how does that change the playing field? >> i think it meaningfully changes the playing field. you have the most liquid market in asia, the japan market opening up. that is a material change for investors. >> thank you very much indeed. let's show you what we got coming up next. look -- l ♪

>> it is monday, the 17th of november. this is a look at our top stories. japan back in recession as the economy -- contracts over a second consecutive quarter.

gdp falling 1.6%, after expectations of a near 2% expansion. shinzo abe delaying a sales tax hike and could bring snap elections. >> japan fell into recession, got pushed into the recession by the v.a.t. hike. it makes much clearer the dramatic action we saw by the bank of japan a couple of weeks ago. in terms of the policy reaction, monetary policy is already in place to counter against the recession. ,he next will be fiscal policy delaying the v.a.t. hike a virtual certainty. shanghai-hong kong stock link is now open. it allows foreign investors access to mainland chinese stocks for the first time. brisbanewrapping up in

with a commitment to growth and jobs. world leaders agreeing to measures to boost economies by $2 trillion by -- bringing a stimulus program to an end while japan and europe taking action to avoid deflation. >> here is a quick look at the main event we will be following this week. we will be watching china's .roperty prices on tuesday real estate saw a broad downturn in september in all but one city. china is shaping the future of the world wide web on wednesday. it will hold its first world internet conference in the historic town of -- mashayoshi- ma and attend.due to cyber terrorism and e-commerce will be on the agenda.

handbags go under the hammer for the first time at christie's in hong kong on thursday. among the highlights is an ostrich bergen expected to fetch $25,000. the auction will also include wine, art, and watches. friday sees the start of the final weekend of the formula one season, meaning we will decide the drivers world championship. the circus is in opera dobby and the race will award double mercedes drivers are in contention. >> absolutely. the race is taking place on sunday. european states station, the comet landor completed its mission and fell silent. since landing, it took a series of photos and drilled into the comet's surface.

then is sent all of the data back to earth. >> it had a terrible landing and and cannot a shadow recharge batteries. >> that is all from us today. thank you for watching.

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