Dr Andy Xie, renowned Chinese economist, shared his insights in his recent article published in SCMP that China must draw the right lessons from Japan’s trade war with the US, and develop its technology.
Stagnation hasn’t done Japan in because it started with a high level of average income and a bunch of world-beating industries. But for China, with an average income of around US$10,000 and a manufacturing-led export economy, a policy mistake like Japan’s could have catastrophic consequences. It might not be able to hang onto a US$10,000 average income.
The right lesson to draw from Japan is not to delay structural reforms. When an asset bubble deflates, it could cripple big banks and companies. But if they are restructured quickly, the financial system can get back on its feet and allocate capital for competitive activities.
It is equally important to diversify the financial system away from state dominance. A government-controlled system is not good at identifying emerging competitive industries. This is why China has been better at catching up than making breakthroughs.
The US-China rivalry makes this weakness dangerous. When the US blocks access to its technologies, China must create its own. Your place in the global supply chain is only safe when the chain needs you as much as you need it.
In China’s power structure, more have a vested interest in keeping asset prices stable than in developing proprietary technologies. Otherwise, China wouldn’t be in its current predicament.
The US trade war and ban on Huawei may have changed the dynamics somewhat. But considering the credit support for the property market and the tolerance of the resulting inflation so far, those who wish to do the right thing for the Chinese economy might not prevail.
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Dr Andy Xie 謝國忠 is a renowned Chinese economist based in Shanghai who has been named one of the “50 Most Influential Persons in Finance” by Bloomberg.
Andy Xie’s skill and has been tried and tested through the years. He 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. Before that, Andy spent two years with Macquarie Bank in Singapore an associate director in corporate finance and five years as an economist with the World Bank. Dr Andy Xie is currently a director of Rosetta Stone Advisors.
Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.