Red Flags for China

Published on
3 October, 2018
Topic
Debt, Geopolitics, China
Duration
31 minutes
Asset class
Bonds/Rates/Credit, Equities

Red Flags for China

Featuring George Magnus

George Magnus, former Chief Economist at UBS and author of the recently published “Red Flags: Why Xi’s China Is in Jeopardy,” discusses the panoply of political and economic risks arrayed against China and its leader Xi Jinping: Ballooning debt, political instability, a demographic time-bomb, and the ever-looming threat of declining growth and a weakening currency. Filmed on September 27th, 2018 in London.

Published on
3 October, 2018
Topic
Debt, Geopolitics, China
Duration
31 minutes
Asset class
Bonds/Rates/Credit, Equities
Rating
16
Sharing

Comments

  • F

    Floyd .

    11 10 2018 22:46

    1       0

    just listened to Mike Howell before this, i would say that these two men have very different views of China,but that is a good thing . Frankly I found George's background comments more helpful in formulating an opinion of China. Probably one of the more practical,useful and understandable economic analyse that I have ever heard from an economist,no offense. His comparison to the Soviet Union was very insightful. Having him back to periodically update us on how the four challenges are unfolding would be valuable.

  • DY

    Damian Y.

    11 10 2018 06:17

    0       0

    Great interview, I love listening to English Boffins.
    This is a definition of fascism: a political philosophy, movement, or regime that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition. Sounds like China?
    This is a definition of mercantilism from wiki:Mercantilism is a national economic policy that is designed to maximize the exports of a nation. Mercantilism was dominant in modernized parts of Europe from the 16th to the 18th centuries before falling into decline, although some commentators argue that it is still practiced in the economies of industrializing countries in the form of economic interventionism. It promotes government regulation of a nation's economy for the purpose of augmenting state power at the expense of rival national powers. Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods. Historically, such policies frequently led to war and also motivated colonial expansion. Sounds like China?
    Steve Forbes has a very good book called Money:How the Destruction of the Dollar Threatens the Global Economy, that talks about mercantilism in modern economies. It's well worth the read.
    China doesn't have a rule of law like we have in the west, as a lot of these western companies are now finding out when their technology is being stolen by China. This is becoming a very big problem.
    With a Debt to GDP of 330% at the end of 2017, China has a lot of very big problems ahead of it. It will be interesting to see how all this plays out.

  • MB

    Matthias B.

    8 10 2018 17:49

    0       0

    grateful. apologies.

  • MB

    Matthias B.

    8 10 2018 17:48

    2       0

    I am impressed and very greatful for all the feedback by the viewers. I thought that the arguments and salient points were the best in a long time in a feedback section. Truly appreciate it, as valuable as the interview itself. tks!

  • DR

    David R.

    7 10 2018 15:27

    2       1

    For a counter viewpoint, check out this week's MacroVoices episode with Louis Gave of Gavekal Research, a European firm which also actually has boots on the ground staffing large research offices in Beijing and Hong Kong. They're not retail; they only deal with institutional clients for private investment funds into Asia and (expensive) research. Bottom line is they're very bullish on the Chinese economy and bearish on the US economy after the near-term, also with the belief the US will lose its reserve currency status (sooner than most expect) and the USD will collapse, causing a big economic reckoning for the US and a plunge in the US standard of living. Check it out.

  • HJ

    Harry J.

    7 10 2018 01:03

    1       0

    Buy the way long term economic forecasts seem to be as reliable as weather forecasts.

  • HJ

    Harry J.

    7 10 2018 01:00

    3       0

    It’s amazing to me that we have sooo many experts on an at best opaque data.

  • WM

    William M.

    6 10 2018 17:47

    2       0

    With this week's sharp spike up in interest rates, China wouldn't have to sell much of their t-bonds to rattle financial markets everywhere. Sure it hurts them too (at least in the short term)...but maybe it's better than their other options right now....and would have much quicker results...

  • DR

    David R.

    4 10 2018 21:56

    5       0

    Following up on the demographics, this is a familiar theme in the West, but I see a very different perspective in the East. Remembering that China has had a big overpopulation problem (like Africa is hurtling towards). So today, although China has three-quarters of a billion people who enter retirement age in 20-30 years, China also has 650-million people aged 29 or less. That's a LOT of youth. DOUBLE the **entire** population of the US, and surpassed only by India in terms of absolute number of young people. So I'm not sure the Chinese demographic story is such a dire one. Not with so many youth in absolute numbers. And elderly Asians don't really expect entitlements from the state/gov't comparable to the west, as in Asian culture it is the responsibility of children to care for parents, not the state/gov't. Anything from gov't is seen as a "bonus" and probably temporary - and Asian think in CYCLES not LINEARLY like westerners... a KEY point. Also, is it reasonable to compare China with Japan, because Japan is more "developed" (more social programs more entrenched), and furthermore the total population of Japan is only 9% of the population of mainland China (even excluding Hong Kong, Macao and Taiwan) and more urban. So different situations.

  • DR

    David R.

    4 10 2018 21:38

    3       2

    IMHO, Chinese President-for-life Xi is the top red flag for China because through his big central planning and renewed "socialism with Chinese characteristics" governing style, he is reversing the tremendous progress initiated by Deng Xaoping, a reformer who believed in free markets to do the best he could to turn China from a failed socialist state towards an entrepreneurial, market-driven, increasingly capitalist juggernaut (like the US used to be before the onset of its chronic decline under the creeping socialism that Deng rejected having experienced firsthand for decades how economically devastating state socialism truly is - just like Venezuelans). Deng was inspired by the magnificance he witnessed in the rich, booming, free market uber-capitalist "Chinese" city-states of Hong Kong and Singapore (witness the movie Crazy Rich Asians haha), and Deng sought to plant the seeds of that success back in China. Alas, along came Xi.

  • DS

    David S.

    4 10 2018 19:55

    5       0

    Excellent long-term look at China. Chinese trade practices are real and do need to be addressed and remedied. China, however, does have a lot of non-tariff barriers to use when the US tariffs are increased. It does not need to go tit for tat. It is easy to provoke anger in the US administration and the China will use this to further its position in cultivating political friendships in the rest of the world - Europe, Russia, Korea, etc. The Renminbi will fall with the Chinese government stepping in every so often to control shorts. Chinese $US and gold reserves are increasing in value daily vis-a-vis the Renminbi. This US tariff war may be good domestic US politics, but it looks like a Pyrrhic victory to me as it is being played now. DLS

  • ly

    lena y.

    4 10 2018 19:10

    2       0

    Unfortunately it’s hard to understand the Chinese model. I doubt the capitalism in the western culture can full apply to Chinese culture! China has five thousands years of dictatorship which is like in grained in the culture. As Ray Dalio says family comes before individual in china. Ones sacrifice is an honor !
    With such a huge population it is hard to govern with democracy when citizens are not ready! We’ve seen it in India!

  • YB

    Yuriy B.

    4 10 2018 04:55

    12       1

    Obviously Magnus is a brilliant guy. But he fails to acknowledge one way that an aging China differs from an aging U.S.: in China, it is culturally normal for the elderly to die peacefully rather than be subjected to endless invasive, expensive life-prolonging hospitalizations and procedures. An aging China is unlikely to bankrupt itself primarily from healthcare obligations. China obviously has other financial problems besides this one. But it is western-centric to view China's demography problem solely in Americo-European terms.

  • DI

    Dabangg I.

    4 10 2018 02:11

    19       0

    that horrible loud music never fails to annoy. least normalize it with the speakers base volume.

  • DV

    Daniel V.

    4 10 2018 01:59

    16       1

    Please have Mr. Magnus have a regular and periodic update on his views.

  • RA

    Robert A.

    3 10 2018 22:05

    6       0

    I always enjoy both the substance and the articulation of this Gentleman’s presentations. Thanks Milton for this timely refresher on some of China’s challenges.

  • T~

    Tshort63 ~.

    3 10 2018 21:39

    6       0

    Superb. Nice to have a cogent view with plenty of context and data to support longer-term views. Better than the bubble vision sound bites.

  • TB

    Tim B.

    3 10 2018 16:55

    9       0

    Excellent piece.

    In regards to the tit-for-tat trade war, there is another option that the Chinese have. There could be “grassroots campaign” against western companies, especially high profile ones. Apple comes to mind as an obvious target. Action could take the form of boycotts and “enhanced government regulation.” Furthermore, if Apple has important suppliers in China, those could come under various pressures as well. Like the other strategies mentioned by Mr. Magnus, this line of attack has it’s drawbacks, but this is a card that China has played before and could again.

  • JG

    John G.

    3 10 2018 15:34

    14       1

    A well-constructed thesis and forecast, in my opinion. I can't see how the debt and demographics won't slow growth in China.

    In comparison, I would like to see another interview with Simon Hunt who, in May of this year, was extremely bullish on China (12% annual growth) after the government restructures its shadow banking system and provides more lending to the tier 3-5 cities and rural areas.

  • JB

    Jack B.

    3 10 2018 09:42

    10       1

    Excellent summary!