Andy Xie shared his insights on the China and global economy at Citywire’s latest Asia fund selector forum. He stated that economic stimulus is not a foolproof plan. Andy explained why global companies are the biggest winner in the current economy, and what are the impacts.
You can read Nick Tay‘s Citywire article about Andy’s insights here…
“If you give money to Americans to buy an extra pair of Nike shoes, will it stimulate the economy? The shoes are made in China, the logistics are arranged in China, the shipping company, and even the ship is Chinese too. The only American who works is the guy who drives the truck. A lot of economists do not understand this.”
As more pressure is put on central bankers to deliver the GDP growth so desperately needed by the world’s developed economies, the resulting landscape has favoured speculators over investors, said Xie, who noted investors who focus on fundamentals have done poorly in the last few years, while speculators have done very well.
But at least one developed economy is taking positive measures to adjust to the new reality, and be more economically flexible, said Xie.
‘Germany is a good example. German wages are not higher than in other countries, the German living standard is not that high, but its economy is working because it’s restructured to fit in this world. Housing is cheap, education is cheap, healthcare is cheap.’
Assets such as housing, education, and healthcare are domestically focused, and are not easily globalised, unlike manufacturing and services.
Making such ‘non-tradable’ assets efficient, said Xie, allows Germans to compete globally, and effectively. Conversely, printing money has an almost contrary effect.
‘When you print money, what inflates first? It’s the things that do not trade; education, housing, and healthcare. In the short-term, you get the benefits, you get a wealth effect.’
‘Housing prices go up, people feel better and spend more money,’ says Xie, who notes the long-term effects will erode the competitiveness of money-printing economies.’
Dr Andy Xie 謝國忠 is Shanghai-based independent economist specialising in China and Asia. He is currently director of Rosetta Stone Advisors and of China Boqi Environmental Science and Technology.
Dr Xie is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States. He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Prior to that he spent two years with Macquarie Bank in Singapore, where he was an associate director in corporate finance. He also spent five years as an economist with the World Bank.