Dr Andy Xie: With US trade deal, China kicks the can of economic reforms down the road – at greater cost to itself

Dr Andy Xie

Dr Andy Xie believes that the “phase-one trade deal between China and the United States is not substantial enough to stop both economies from decoupling“. He elaborates on this and more in his most recent SCMP article:

Buying time with bribes is not a good strategy for China. It kicks the can down the road but at greater cost for the future. The only way out is for China to become an independent economy. Its reliance on the dollar – symbolised by the renminbi’s dollar peg – is the source of its vulnerability to external forces. It is bizarre for the world’s second-largest economy to peg its currency to the dollar, shackling its monetary policy.

Dependency on exports and fear of capital flight are the reasons that China sticks with its dollar peg and tightly controls the capital account. If China wants to be truly independent of the US, it must have a flexible exchange rate and an open capital account. To get there, the country must address the underlying causes of its export dependency and the capital flight tendency.

Overinvestment is the reason for China’s export dependency. When overcapacity is everywhere, export promotion is the only way out, as overinvestment, by definition, suppresses domestic consumption.

China’s household disposable income is estimated to be about 43 per cent of its gross domestic product, extremely low by international standards. If China wants to be independent, it needs to increase this to 60 per cent. This requires government agencies and state-owned enterprises to shrink their expenditures considerably. The way out is for the government to shrink.

To address capital flight tendency, China must introduce real property rights. When ownership feels like transitory, you cannot blame people for taking their savings to where they can really own something. For example, while China has very high property prices, many properties have a tenure of 70 years. And the government favours neighbourhood party cells over owners’ committees for property management. If people cannot truly own their homes, how could savings stick at home?

The US-China trade war has exposed China’s vulnerabilities. The solutions are reforms at home. Bribing the US government or commercial entities is not likely to have a lasting impact. It will only make the future more difficult.


  • Chinese’s promises to buy more from the US simply do not add up, while US tariffs remain on many Chinese imports and the tech war continues unabated.
  • Chinese hopes to lift market sentiments with the deal will be short-lived. Its true path lies in economic independence and reforms

Read more about it here.

Dr Andy Xie

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.

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