tv [untitled] April 11, 2012 5:30pm-6:00pm EDT
and you say of course try to follow me on twitter and find me at christine for as our thank you for watching and we will be back here an hour and a half. wealthy british style. time by the. market why not. find out what's really happening to the global economy with much concert for a no holds barred look at the global financial headlines tune into cars report on our team.
you know sometimes you see a story and it seems so sleep you think you understand it and then he lives something else and you hear or see some other part of it and realize everything you thought you knew you don't i'm sorry welcome to the big picture. you can. start. to. build. a low in welcome across the uk i'm rising
and surpassing this is one way to describe china's truly amazing ascent on the international stage but with success comes challenges is the u.s. ready to be second best in china and as china becomes number one put demanded a change of the rules that have benefited the west for decades even centuries. live you can still live. to cross china is number one i'm joined by you and alan in our lando he's director of the china center at rome's college and author of chinese international investments in hong kong we go to martin henniker he is an associate director at the tike group and in chicago we have joshua littman he's an associate with the boston consulting group and has done prior research on the chinese currency i gentlemen this is cross i've been you can jump in anytime you want martin if i go to you in hong kong first the international monetary fund says that china will equal the u.s. economy in two thousand and sixteen but others are even saying that the chinese
economy is already surpassed the american one how do you look at it. yes so you're saying that the most optimistic viewpoint is there that the chinese economy may already be twenty percent larger as in the united states one so they aren't entirely sure where it is but certainly from our point of view the perspective of europe and from the united states and europe is generally. china is lacking far behind and we think that's clearly not true and apart from the i.m.f. a study by the economist released just now saying also like the i.m.f. that china really surpassing the u.s. as the number one economy and killed as in sixteen of the purchasing power parity terms and put as an eighteen in nominal g.d.p. term so we would saying if they have not already overtaken the u.s. which is quite possible to do and sixteen for the nation that's probably the latest date so clearly from an investor's perspective you better look at china gaining some exposure in some way from
a geopolitical perspective clearly it's. gaining influence quite strongly and it's probably a good thing that this is happening you know a china and russia can criticize a lot in the west but then as we all know there are different perspectives on this and some countries often say that the rest and interests are stabilizing the world and not the other way around so generally yes china will be probably number one so one of the think it's a good same ok joshua new york already saw you nodding your disagreeing ok so. you would just go ahead. yeah martin i mean i think no one can deny the rapid growth the try to see in the last few years but the fact of the matter is that just in nominal g.d.p. terms the u.s. has more than double china now just around fifteen trillion u.s. dollars with china around six trillion u.s. dollars i don't see i don't see that imbalance changing anytime soon my firm has done some research on a productivity and you know there are
a lot of factors contributing to manufacturing in jobs and going back to the u.s. from china i think this is all contribute to you know a slowing the growth of china and my research i want to make clear that my research is separate i'm not here representing my firm but the research that i've seen in the evidence i've seen all point to you know china's growth slowing and so i mean i just love it even if seventy percent even it's never in percent that's that's sterling growth isn't it it's seven percent or economy that science. and even if i may die anyway and there is only an astronaut oh it is going ok marty you want to jump in there we're going to go ahead mark you just you know there's so. much of what shine as opposed to snow in your time i mean just looking at the most recent indicators that p.m.i. index is strong fifty three point one. fifty three point three the economy still
this request strong as you say it's many multiples of what's the rest of storing and it's it's not a theory i mean just on the present projected growth even in the norm in figures if anything like. it is going to continue then it's effect china really i would argue and i would say it's an eighteen it's not an opinion so i asked if somebody else is saying in the u.s. well china's economy is just about to collapse there will be you know one thing that will stop it but if nothing fundamentally changes the fact that china really all are taking the united states so if you think is the right time so i was in like some hedge fund manager there probably is going to collapse and then there may be different but otherwise i'm sorry that's just not the reality of the way the race i'm so going out on the property just briefly are we are by this the prices are quite high but that's one sector and other sectors are very strong in china and beating really. being a great challenge to the west and economies manufacturing there which is going. ok and frankly you know i do want to counter the differences here because i mean i
came across a report that said within a decade it's possible the chinese economy be twice the size of the u.s. and we hear from joshua if you disagree with or my money on china but saying it's much smaller i mean why the different numbers so i actually think the focus has been misdirected because looking. g.d.p. or purchasing power parity g.d.p. simply means that the overall economy is larger in china and with a billion people a billion plus people of course the economy is going to be larger. than a country with three hundred million people such as the united states but i think what we really need to focus on is the ability of china to sustain it for a prolonged period of time and to achieve the quality of life their people and united states have if you look at the g.d.p. per capita in the united states it's significantly higher than that of china and
will continue to be seoul for years to come furthermore if we look at other quality of life indicators such as pollution political risk control of corruption those are all the issues they're still struggling with in this simply focus on g.d.p. i think is misdirected well i'm joshua if i go to you i mean it this not just focusing on g.d.p. i mean we're looking at different sectors the economy in china that are expelling while they're dying in the united states we just don't have to look at g.d.p. . yeah. one hundred percent you don't know how it's going to be cheaper capita g.d.p. per capita in the us is ten times greater than g.d.p. per capita in china and even my point is that even if you look at g.d.p. overall i still think the china has a long way to go no no denying that china is growing a lot it is but it has a long way to go before it can get close to even thinking about passing the u.s.
ok but if that market leaks if i mean one thing ok here it's going to. go ahead mark yeah well i would say six years isn't deadline you know even if you are saying even if you're saying the property market may slow down if you actually know for sure i bet that's the former comptroller of the united states the guy who is in charge of auditing the books of the u.s. government david walker has been saying earlier this year that the u.s. is now where greece was two years ago in terms of instead crisis or even you know if you're saying that some probably slowdown in china you know the u.s. debt problem is the also just about to explode over probably order growth rate there somewhat or so again you know this is a lot of the picture that china would all agree us i find it quite funny because again just in the present numbers in six years it's not really that the future. i didn't even bring up. so i don't even bring up the fact of the property situation
in china but that's definitely one factor contributing to a decrease in the rate of growth in china i think additionally you have to think about the pressures on chinese currency and the advantage the cost advantage of leverage china has had is going to be decreasing with the appreciation of the currency and with the increase in demand for wages by chinese workers my firm came out with statistics that says you know by two thousand and sixteen chinese coastal workers may only have a ten to fifteen percent cost advantage of. labor against us workers and with that kind of advantage in factoring in things like transportation costs and inventory cos you're almost not seeing any benefit to producing things in china it's. going very well you're right if i go to he'll i mean that's one of the reasons why the chinese are going to start investing more in their own domestic economy because they have domestic consumption i mean we may not have the cutting edge for exports in the in the near future whatever that means but we have a huge domestic market a big market that's a huge advantage yeah i mean i think there's no question about it but i think also
when we look at the growth numbers we have to be very careful because if we grow from one to two we grow one hundred percent if we grow from one hundred to one hundred one we grow by one percent in both cases we've added one unit of value but in one case we've grown one hundred percent and in the other the other place we're growing one percent so i think we have to take that into account on that china is starting at a much lower place now in terms of china's investment china is now looking to invest not only in china itself but really throughout the world in africa and in latin america in areas that were traditionally the backyard of the united states and they're seeking resources and technologies to continue to fuel the economic growth ok it's very interesting you kind of jump ahead of me i want to do the second part of the program but martin i'd like to go to you i mean they try to with three trillion dollars in hard currency reserves they're turning
into the lender of the most favored lender right now because trying to can loan money without conditionality the i.m.f. is criticized for. yeah and bedsteads really one of the reason as of us just mentioned that china is so successful in other countries because you know they're willing to lend their brand of waits for us to countries like the i.m.f. or for us close to have hospitals and schools before the money is flowing and then as a condition that it has caused great will repay loans from a very international banks way of you know lend money or purpose and a fifteen percent to twenty percent rate but don't want to take the risks but that's a bit of a political story but basically if you're looking at their faith that china has had enough and i'm good of elements there since it really moved in there quite substantially. to a political infrastructure as a i and in addition to obviously getting the raw materials are that has had really quite a significant development in fact i don't think anybody can deny this and gets really
also i hope we would sing for a try maybe asian economies in general their big exports to the emerging markets and the integration with other emerging markets are growing because of the us and also as we see if you are is going deeper into a big crisis but on one other point i thought you had just mentioned you were saying grow the g.d.p. per capita in the us it's still ten times higher than china and other in china supposed to still money have a cost advantage of ten to fifteen percent that doesn't really seem to want to work out already perhaps if you assume they're always exports or diapers if you were very far away but in the future that's going to be less and less the case as there was a fire to go to other emerging markets ok doing a jump in here we're going to short break an avalanche everything continue our discussion and china is never wants to protect. you. you. just want to get. to
to. welcome back to crossfire how people were talking about the continued rise of china. ok. ok and before we went to the break you wanted to respond to martin's rapid fire comments about the chinese economy go right ahead yeah i think we're we were talking about china being able to lend countries some of their foreign reserves actually some of the reason that china is actually able to lend money to other countries is because the u.s. has allowed it to export. under strict under most favored nation status and allowed the currency to continue to be lower so china was able to accumulate trillions of dollars of reserves as a result of this. trade policy one of the things that we have to realize is we're
talking about the chinese and american economy is that we really cannot be carful these two economies that these two economies are sharing a bed and the success of one will affect the success of the other ok but if we could you know if i could stay with you i mean but the ills of the united states and its economy in the euro zone that's something that china doesn't want to get itself installed in come on let's you know it's the international order has been established by washington and washington consensus and europe and it's been that way for centuries the chinese don't like it and they want to move away from it and why not go ahead. well in fact i'm not so sure they want to move away from and i think the the current system in place to trade system that we have in place is there actually the one that has allowed china to prosper because it has a lot of china to export sometimes at the expense of western europe and american companies who couldn't compete. to sell or reserve couldn't compete on cheap labor
who couldn't compete on the cheap currency frankly so the united states and europe have had policies that allow developing countries to explore unrestricted with limited i mean you know it sounds very very made. very minimal i would see i mean martin if i can go to you it sounds like we might even says that you know china is doing well because the americans allow them to do well. very it's a tricky question i mean to some extent it is true i would say that currency has been undervalued i mean it's appreciating slowly but it's still a value which is also why probably they want to be number one for us in purchasing power just the terms and then for a lot of. it's tricky to say you know what what how to interpret history here if the americans and europeans just were so generous and of goodwill to all the neighbors to allow this to happen what exactly what the reason i mean i would just say today look at today what is
a reality. is that china has become a power whatever exactly the reasons would have been maybe they just used as they did this the. so-called red you know there's a reason why china is controlling the us not because they only have the only ones who have them but they were the only ones to be bothered to pick up those minerals and all this hard you know korean and polluting work nobody else wanted to do it so you can also argue that way by clearly now china is the major economy or soon to be the remnant is also on the brilliant from an investor's perspective that means you you find good investment opportunities also there and then to briefly talk about the property and they also want to touch on banks because that's one thing they china do miss are often saying the banking system is about to completely collapse because of property but one single time is being said we hire as reserve ratio in the world almost only lebannon it's still about eleven and did do pretty well and
little doesn't enter into it later enterprises what the reason is because really as a result interest. margin is always encyclopedic of this program josh responded when we had to say so because i mean one of the things i want to get on the list if you think the u.s. i would say you want to settle into second place ok i mean i'm an american you're an american you and also i mean we've been brought up it's always number one but in our lifetime that's going to change. so yeah i think there are a few points here first on one's point about the chinese currency undervaluation i think that certainly based on their own agrees the order of magnitude is a question but i think most people would agree in the order of thirty forty percent that you know the chinese renminbi is undervalued and that's something that actually has changed in the last few years so i wouldn't say that the u.s. and europe have just been stagnant on those policies i mean since two thousand and five when china decoupled its currency from fixed page to the u.s.
dollar china's been steadily appreciating its currency over twenty percent in the last few years so i think this is going to be one factor that contributes to the decline in china's exports and slows the rate of growth and to your point about how the u.s. would deal i mean i think the u.s. is coming to terms of coming to grips with the fact that it is no longer the only superpower in the world and it will have to share that power but i think there are a lot like i just i mean every time sure you've been really following the republican campaign that you've been following the republican campaign i don't get any sense from the republican party that you know that anyone should be more than number one but united states is always going to be that place particularly matelot military spending a lot of anger to you is one of the interesting things that analogy i came across in researching this program is that you know right now the united states is kind of like britain after the first world war the us had was the largest economy in the world but britain was still the policeman of the world and thought all these ridiculous wars spent so much money on defense spending wow it sounds kind of like
the united states i mean in the present i mean the chinese are watching the united states tear itself to pieces ok and the chinese just keep slowly going up and now i mean it's remarkable to watch from a distance. yeah i think the chinese are going through an industrial revolution of sorts in a similar way that the united states has gone through it in the twentieth century taking over the power of europe and europe in in the nineteenth century so i think you're right there is a lot of parallels to be drawn here between the declining car of the united states and the declining powers of europe but let us remember that even after the decline european quality of lives g.d.p. per capita air quality. education level control of a correction are still much much better than then most emerging markets so to say that china. only needs the united states to grow is also i think an extreme point
of view believe that china i think there's no i'm just simply by growing internally in the same way that the united states grew internally in the twentieth century ok joshua jump in go ahead. i think there's an important point to make you're making this parallel if you look at post world war two me the us had about forty percent of the mini factory exports in the world and so to say that you know. that the u.s. is in britain's place today i mean the u.s. economy today is relatively strong compared to that and china only has twenty percent of world exports and to me that's largely driven by exports so i wouldn't say that you know the u.s. is headed towards decline in the same way that europe may have been after world war two and i think you are a good point that there are a lot of other factors quality of life and standard of living that. that are favorable for developed countries or of us is going to maintain or improve ok
martin but you know i think you could fair to say over the last thirty over the last thirty years we're going to martin hong kong the quality of life for the chinese is improved immensely i mean i think we tend to forget what it was like thirty years ago thirty five years ago go ahead martin. that's absolutely right a lot of people have come out of poverty but to some extent if you go to china you know they're living space there and then compare that to you know what kind of housing living standard you can buy in the u.s. but that's because they have more lend it doesn't mean they're better education in fact if you have you know educated people you know supposedly talking about how the education is much better in america and then in asia for example that's that's a job because i'm just looking at the piece and the national report. coming out and obviously the education seems to be considerably better in asia and then to say that this is not the case shows maybe that there's something wrong based education america's a lot of american c. there were still you know we're very very u.s. centric and you just mentioned last thing the republican party isn't waking up to this but one out of the republican party is those ron paul supporters actually
a lot more not and realizing that the best days and out of the crisis you know for us the best case may be very much telling speech there and other countries you know . stronger and stronger. the state's going to find out about you in orlando i mean this china grows in other emerging markets they're going to want to see a change of the way the world is run at least economically financially speaking because they want to have a greater stake ok and we look at these in certain situations like the world bank the i.m.f. i mean this was all post world war two ok we're now we're in post cold war ok we're in the twenty first century now i mean when it goes institutions are going to balance out more to represent the majority of the people in the world not the americans not the europeans there are small small minority in the world right now in their economies are shrinking relative to the bric countries for example yes i think you're right but the system that is emerging of the world war two is the current system of economic order political order so the chinese really in the
russians and the brazilians and other emerging markets really have two choices or do they want to participate in the current systems to yield more influence in the in the system that we currently have or do they want to create new systems based on what. i have i think the chinese are going to try to influence the current system and to create some new systems for example creating a monetary fund will be able to bail out developing countries and be able to give foreign aid but to simply say that we will shove aside all of the systems that we've developed and you know it seems to me if i go to the only real i would about replacing the dollar with a fair currency unit for the world i mean that just benefits the united states at the detriment of everyone else in the world everyone. yes well you have to remember that immediately after world war two we did develop an instrument play that was
called special drawing rights as the r.'s and the reason we don't have as the arsenal day is because nobody wanted to use them and the dollar has become as good as gold central gravitated good is we've all been a little uneasy are you a guy is a figure of speech ok ok josh on the last word the prose is going to change my point go ahead joshua yeah i think he's make an important point that bretton woods taught us that you can't make an artificial currency and at the end of the day people trade what they have and in this economy people have dollars people trillion dollars and that means good news for the u.s. in the short term ok we'll see if the chinese from get rid of them one way or another you guys are doing over time maybe name some i guess a day in orlando and in chicago and thanks to our viewers for watching us here are to see you next time remember. they can still.