I just read an incredible interview of Gao Xiqing (高西庆) by James Fallows in the Atlantic entitled “Be Nice To The Countries That Lend You Money“. Gao is the President of China Investment Corporation, the sovereign wealth fund of China.
Here are some of my notes:
- Dollar strength is purely a temporary thing because foreign lenders need dollars to pay back their creditors. But the dollar is going down long term.
- We are in a new era of deleveraging where we can’t support the same leverage levels. This is a fundamental and permanent change.
- Consumers also have gotten used an unsustainable level of leverage: “People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners….After we are gone, you cannot just go to the moon to get more money.“
- Derivatives “are bullshit. They are crap. They serve to cheat people.“
- Wall Street is overpaid and creates a terrible distortion of talent flows in America…”this directs the resources of the country. It distorts the talents of the country. The best and brightest minds go to lawyering, go to M.B.A.s”
- Americans have created “socialism with American characteristics”–”after months and months of struggling with your own ideology, with your own pride, your self-righteousness … finally [the U.S. applied] one of the great gifts of Americans, which is that you’re pragmatic. Now our people are joking that we look at the U.S. and see ’socialism with American characteristics’”
- Time to start talking to your creditors – US Officials didn’t consult Chinese officials before the rescue plan was put into place. But it is now high time for a “second Bretton Woods system” which involves the Chinese, Japanese, and Russians, and others with a stake in the system.
- American arrogance — “This generation of Americans is so used to your supremacy…It hurts to think, Okay, now we have to be on equal footing to other people“
- Start talking to the Chinese and Middle Easterners. Pull your troops back at save some money instead of spending $2 billion a day. (Isn’t it ironic that a lot of the money that pays the Iraq war bill is coming from the Saudis, Chinese, Japanese, and Russians).
Any thoughts?
Photo courtesy OECD.
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This guy is just a tool
If Western banking sucks so much why did your fund solely invest in Western financial companies
The dollar is going long term – I seriously doubt it since it is pegged to the RMB by the Chinese government
All this American arrogance, consumer overspending, balance of power shifting etc. etc. is just political rhetoric. Guess what guys, you built your entire economy on cheap exports to Western consumers
Good point…tool or more accurately “mouthpiece” Government people in Beijing are not yet as ready to bite the hand that feeds as this guy, but he helps stoke the Nationalist pride ;–)
I think its more than political rhetoric. I agree with many of his criticisms but also believe that the Chinese government was 100% party to this crisis through pegging the RMB at a low rate and exclusively promoting exports.
His criticisms of the US are correct, but China is just as guilty for extending endless credit to the US, and for making the criticisms after the bubble blowup.
Basically everybody was happy with the bubble before it blew up because it served everyone’s interests, including China’s, but after it blew up, everybody wants to say “I told you so.”
Here is my question: “Why did the Chinese government continue to sell Chinese goods to fat Americans who were buying junk, instead of lending more of that money to China’s cash-starved private sector? And why does it continue that practice of not lending to the the private sector and SMEs today?”
See, my uncle had a point…
He would say Greenspan’s policies fueled much of China’s growth in recent decades…
As for Paul’s question: Is that rhetorical? You answered yourself in a previous comment?
Kai: Actually that is not a rhetorical question, it’s a real question. Why, of the three kinds of companies in China (state-owned, WFOEs and Chinese private companies), is it so much harder for Chinese private companies to obtain capital for expansion?
I believe that China could have faster healthier growth if the Chinese financial sector was able to direct more capital to the private sector, instead of their having to rely on hedge funds, VCs and going public overseas to raise capital.
Paul, you’re right. I had read too much into the previous comment I referred to above, having apparently projected my own thoughts onto your comment to mean China overemphasizes strategic SOEs and avoids private service sectors due to a desire to maintain control. Upon re-reading your comment, I realized you made no such implication. Apologies for the confusion.
Interesting post! Americans should blame themselves for the financial crisis fostered by themselves. The practice of self-criticism is more appropriate for them at this moment.
LoL, indeed. Though, I’d argue that by most accounts the Americans ARE rabidly self-criticizing themselves in all this, hence making your comment somewhat unnecessary! But hey, its a good reminder! :)
I don’t think the “self-criticism” is deep enough…ordinary people still are blaming Wall St and the government. Rightly so, but everyone was party to this disaster.
Oh, I agree. I think “Americans,” as some national identity, have been criticizing themselves, but I agree many individual Americans are no different from other people when it comes to blaming everyone but oneself. Many American consumers have been idiots, and Wall St. is culpable for facilitating that idiocy. Likewise, America as an economic entity has been an idiot, and China is culpable for facilitating that idiocy. At the end of the day, everyone was an idiot.
But it isn’t hard to see why: Everyone was enjoying it while it lasted. Greenspan’s policies made America happy while making China happy as well. It is arguable that China has Greenspan to thank for much of its modern GDP growth. Without Greenspan or America deficit spending in aggregate, how would China’s export-centric GDP growth have been so spectacular?
The actual economic principles behind this relationship is not necessarily wrong (rather they’re just reflective of human nature), but it got out of control. That’s what all bubbles are. Economic history has been a constant cycle of excess and contraction. We go too far, and we’re brought back down to earth. Some people die in the process. Turn the page.
The kind of blather that will get you publicity…but the long term logic is shot through with holes, reminds me of the old saw “most predictions about the future turn out to be wrong ” if anyone were to bother to look back and check, which they usually don’t .
China, Russia, the Middle East, and America all have their share of problems, this kind of “us against them” mentality is not going to work in global economy, we have just seen how dependent and interconnected we are.
Great economies do not rise and fall based on their level of Nationalist Pride, but on their ability to generate investments, building solid business models, and confidence in it’s markets, along with raising the standard of living for it’s people.
While there is no doubt that a big bubble has burst, and an era may be over, a new era is dawning and America is still leading the way.
I would much rather be in America’s position right now then China, Russia, or the Middle East, however if you really think these three can lead the way into a the new millennium…step up to the plate and start leading….the people who lead will find new ways….the followers whine and complain, and say things like “Derivatives “are bullshit” but never offer any alternatives, maybe if you had played a major role ( or even resisted) the the Japanese and the Germans in WWII the “Bretton Woods Act” would have been made the RMB the world’s currency, but the countries that make the decisions, then and now, are and will be the ones who step up and take the risks…most people who work outside of China, Russia, and The Middle East are overpaid by your standards….how much do you make ? average salary in Beijing is about 2,000 RMB a month or about USD $290.00…Don’t think you will find many followers yet ?
Interesting point. I think you are right that China is not ready to “lead” (or interested in it for that matter). So far the world is voting with their feet to maintain American leadership (as evidenced by the flight-to-safety to American (and developed world) equities and the US Dollar. Its not clear that this will continue forever though. And things could change quite rapidly.
You bring up an interesting question for the future relevant to today.
True, it is not clear that this will continue forever and things could change. However, what would that change be predicated on? Why is there a “flight-to-safety” to American/developed-world equities and currency?
I have my answers and arguments, but I’m curious to first see what others think what really drives people (or nations) to do what they’re doing.