The Exchanges

Q Is there an unsaid understanding? Say China has a tariff, say China has a trade surplus with America. Over the long term, is there an under, is there an unsaid understanding that China will buy, say, American treasury, for example, or invest a part of the money back into America?

A I think for now, I would say largely yes, because I think it's both push and pull. One is, I think Chinese do find Uh, the US dollar to be still a safe assets, and it's deep enough that we can deploy our capital into. But at the same time, it's also because there's a lack of alternative. I mean, in a way, this is related to what we discussed in a different session about RMB internationalization. Because by that time, even, even though we're not happy enough with the US dollar as a, uh, a, a, a, a, a, a restoration of value, there's really no other alternative we can put the money into. Of course, gold is one possibility, but the market is not deep or large enough.

AI assessment note: “I think for now, I would say largely yes, because I think it's both push and pull.”

Q China has capital controls. So does India, where I come from. I personally believe that long term, if we didn't have capital controls, more money would actually flow in and less would flow out. Uh, how is it in China? Do you feel that way? Do you think capital controls are a good thing or money should be more fungible?

A Uh, as a market economist, I don't think capital control is a good thing, but then going back to what you have said, I think I, I, I, I think in the very, very long term, depending on how you define long term, I think, yes, probably removing capital control, there will be more money flowing in than flowing out. But in the very short term, this is where I think policymakers are most concerned, uh, in almost all countries. I think they're concerned with, uh, a short-term outflow, and that's going to create, uh, really drastic shocks to, uh, the financial stability. And then we have experienced that or witnessed that in the Asian financial crisis and in some other episodes of history. So I think that is where, uh, the central bankers and the policymakers in China are putting more attention to. And that's sort of explaining why China's, Unwilling to or hesitant in removing capital control completely. I think China is going towards the right direction, but at a slower pace than the rest of the world is hoping for.

AI assessment note: “as a market economist, I don't think capital control is a good thing”

Q Can you elaborate, elaborate? What does the government have to do?

A Well, I think a couple of things. One is in general, people believe that the central government really cares about the GDP growth. And back in the past decade, from 2009 through 20 20, uh, real estate investment is the best way to boost the short term economic growth. So I think whenever there is a slowdown in the economy, uh, coming down from the central government down to the local government, they all want to sell more houses, build more houses. So that's going to push up the economic growth. At the same time, which I think will be a more complex issue in India is, uh, land sales have become the, the biggest contribution to fiscal revenues to many local governments in China. So of course, local governments have the incentive of pushing up the housing prices eventually in order to sell more lands at higher prices. So those two forces work together to ensure people really believe there's no way the government is willing to let down The housing prices. And I think that is that a guarantee from the government is reinforcing people's already strong expectation, as you described in India, about housing prices will never fall. Of course, that's the purpose of my book. Once it starts turning, it turns very badly. Yeah.

AI assessment note: “real estate investment is the best way to boost the short term economic growth”

Q Since we are in China today, maybe we can begin by you telling us how the Chinese economy is doing now?

A I think the economy is stabilizing. I think, uh, uh, we have been having some, uh, corrections in the housing market over the past five years that's taking a drag on the macroeconomy. That being said, I think, I mean, the, uh, the new growth engine, I mean, being the, uh, the so-called, uh, new quality productive forces, uh, higher-end manufacturing, uh, new technology, AI, and, uh, high-end semiconductors are coming up pretty strongly. There are a couple of issues that's bothering the economy right now. One is, of course, consumption, which is not growing as strongly as people are hoping for. The other is, of course, increasing frictions on the export or the trade side of the economy. But both sides are doing okay. Relatively speaking, in the global context, people are just wishing for the better.

AI assessment note: “I think the economy is stabilizing. I think, uh, uh, we have been having”

Q Right. What happens though, like, 10 years from now? Say everybody continues at, at the same level. The surplus and the deficit.

A I, I, I think I do have a couple of imaginations in my mind. One is, of course, uh, exchange rate. I mean, in a way, exchange rate is the way how to adjust trading balances. And of course, I think China is going into a, I mean, I, I still remember, uh, China started its, uh, exchange rate reform about a decade ago, and then, uh, RMB went down in devaluation for about a 30%, but it has appreciated 10 to 15%, uh, since last summer. So I think it is entering into a period where there is wider range of two-way to fluctuation, which I think is somewhat related or reflecting of the trade imbalances, not necessarily as closely as it should be in the past two, three years, but then I think that's one way of adjustment. Of course, uh, probably some other countries are thinking China is not adjusting enough or fast enough. So that's one area of adjustment. The other is, I think, I mean, really depending on whether you're the global south or you're the more developed economies, I think the global south has issues with the imbalances with China, but then at the same time, China is investing heavily into those countries through ODIs. So, yes, there are some issues, but then those countries seem to be feeling, okay, there will be a transitional period where many of the goods we're now importing from China will be eventually produced in China. Of course, there's a whole different kind of ques…

AI assessment note: “I think I do have a couple of imaginations in my mind. One is”

Q Is de-dollarization real? I know China started, China changed after the tariffs in Russia. I think the pace of change increased. What's happening now after the conflict and the geopolitical turmoil of the past couple of quarters?

A I think China has been pushing the RMB to be more internationally adopted through either trade or through, uh, exchange, uh, swaps. Uh, I think that the case with Russia is just one small part of the The general push for RMB internationalization. And to a greater extent, I think China has been increasing its trade surplus by so much that it has accumulated a lot of overseas adoption of RMB. That is one part of why RMB is becoming more popular. But just as we discussed in the other session yesterday, I think in terms of the total settlement for, for the whole world, R&B has not gone up a lot in the past decade or so. So in the regard of, well, is this a really big push or is there some balance or marketing mechanism is at play? I think I would tend to think the latter is more powerful in, yes, China is becoming more powerful and more, uh, uh, international, but then it's still in the hands of, in the, uh, eyes of the beholder about which one I would like to hold eventually. And I think a big question for that is how to provide a better venue for foreign investors to invest in offshore RMB related or denominated assets, which I think goes back to Matthew's points about Chinese companies or Chinese government would have to issue more safe assets overseas, which has not happened so far.

AI assessment note: “in terms of the total settlement for, for the whole world, R&B has not gone up a lot”