Here comes the hot money! As the U.S. economy totters, China will look even more attractive to investors. And their cash flows, looking for high returns, will keep growth revved.
At least that’s how Andy Xie, Morgan Stanley’s former star economist in the region, sees the outlook for the coming year. Xie spoke to the Foreign Correspondents’ Club of China this morning in one of the most stimulating talks we’ve had this year.
First off, Xie is not your average bank wonk. He’s an MIT-trained engineer/economist with a sharp tongue, sharp enough that it cost him his job at Morgan Stanley last year when he suggested Singapore was a haven for corruption and money laundering.
Xie’s interesting shtick is that China is far less reliant on trade with the U.S. than in the past. It is selling heavily to places like Africa, India and Russia, which now have cash to buy. South-South trade, as it were, is becoming a reality. And this will keep China’s economy churning. Here are some excerpts:
“Everybody in the world has too much money except the United States. Think about it. Even Russia has a $500 billion in foreign reserves. Even India has over, like, $200 billion in foreign reserves. India never had that kind of money before. This has very important implications for what happens next year. Emerging economies do not need to cut back. They can expand. You go to Dubai, and it’s a bubble. Yes, it is a bubble. But they have money, it’s their own money. They are not borrowing money...
“Even Africa has a lot of money. So emerging market trade in China is already half of China’s trade growth. As American consumers need to rest, need to pass, suddenly emerging market trade is happening. And emerging market trade is right up China’s alley because emerging markets export commodities, exactly what China needs - oil, copper, iron ore – exactly what China needs. And China exports cheaper consumer products and on top of that cheap capital goods, like pumps, like trucks...”
"This is truly the dawn of emerging market trade development.”
Xie said the slowdown – and possible outright recession – in the United States will also help China in the next year or two.
“The hot money is going to come to China. Six months ago, I wrote an article that said as the U.S. comes down, a lot of people will come to China. The reason why is because I see the financial guys are running the world, so-called financial capitalists. … These people need to do something. When one bubble bursts, they go somewhere else. You can be sure of that. . . . Next year, the hot money story is going to become bigger. …
“Yes, we see a lot of problems in China. But the trade is still intact. The bubble can continue with all this hot money coming in. So the strong economy is likely to last.”