What Is the U.S. - China Economic Outlook Under Obama?

Excerpts from Dr. Enzio von Pfeil's January 21, 2009 appearance on CNBC Cash Flow:

1. Comment on Barack Obama's inauguration speech and the immediate tasks that the new administration is likely to undertake. What are some of the urgent issues that must be tackled?
   • He will shine as a speaker.
   • His key issue is to tackle the unemployment problem.
   • But he also is going to have to placate irate tax payers about the fat bonuses being paid the bankers out of taxpayer money.
2. What is your outlook for the U.S. economy, and discuss any concerns that you may have about what's being done to prevent the U.S. economy from worsening.
   
   • Whilst what Obama is trying is commendable, you cannot skip cycles: you cannot move from autumn to spring without going through the healthy, rejuvenating effects of winter. This is the time when that which is meant to die does die, so that when spring arrives, the healthy can get on with growing.
   • What this means in plain talk is that the overall budget deficit of about $4 trillion (if you include the Fed’s $2 trillion) is going to weigh on markets: once things stabilize, global investors will worry about overpriced Treasury bonds and thus about their dollar holdings.
   • Indeed, this is why we have telling our website subscribers to short government bonds; our advice is up by 25% since the market peak of October 2007, very much for this reason.
3. What Obama means for Asia in terms of trade, economy?
   • If you accept my assessment that you cannot skip cycles, then Asia cannot look to America for the stimulus.
   • Instead, this is a golden opportunity for Asian governments to figure out how to stimulate their own, domestic demand.
4. Discuss expectations for the slew of economic data due out from China, including Q4 GDP. Also comment on China's growth outlook.
   • Not much of a change in trend: output and prices down, (reported) employment down.
   • There are some investors thinking that China may “lead the pack” and recover faster than others (see next): I hardly think so.
   • The RMB 4 trillion stimulus package obviously is not enough – otherwise, why do they keep introducing supplementary packages?
5. Is China going to be the first big economy to recover?
   • Hardly.
   • The key reason that it cannot recover quickly is that there is nothing “to recover”: with unemployment rising, people will not spend, so any stimuli along the lines of making housing more affordable are simply missing the point.
   • A quick solution for China, for instance, would be to introduce universal, free health insurance: that would remove the yoke of having to save in case of illness.
6. What are your thoughts on the U.S.- China relations under Obama?
   • Part of Obama’s job is to disappoint people.
   • Whilst he needs China for geo-political reasons (Korea, financing the US budget deficit, etc), he needs local, U.S. constituents most.
   • Indeed, in the press we read that he was more protectionist during the campaign than McCain was.
   • In my most recent book, Trade Myths, I warn of rising U.S. as well as Chinese protectionism.
   • So you will see co-operation in geo-political issues like Korea, but protectionist rhetoric in trade issues on both sides of the Pacific.

Comments

[Firat Ünlü:]

"The RMB 4 trillion stimulus package obviously is not enough – otherwise, why do they keep introducing supplementary packages?"

Because they have the means to do so and are hell-bent on preserving social stability.

"The key reason that it cannot recover quickly is that there is nothing “to recover”: with unemployment rising, people will not spend, so any stimuli along the lines of making housing more affordable are simply missing the point."

They have competetive industries and are slowly moving up the value-chain, retail spending has been rising.

"A quick solution for China, for instance, would be to introduce universal, free health insurance: that would remove the yoke of having to save in case of illness."

They are, they even brought plans to do forward.

"So you will see co-operation in geo-political issues like Korea, but protectionist rhetoric in trade issues on both sides of the Pacific."

China will use North-Korea as long as America has troops in South-Korea, Japan and provides help to Taiwan. There is no chance of Chinese help on that front. In fact, China will try to keep America 'occupied' in Iran and North-Korea in an attempt to weaken it.
No value judgment here, just plain facts on realpolitik.

Jan 26 01:24 PM

[Firat Ünlü:]

Oh, and making housing more afforable it the single biggest key to getting Chinese within the cities to spend. Owning property is almost mandatory if you're serious about getting married.

Jan 26 01:34 PM

[Lonestar1:]

Not insightful comments.


"There are some investors thinking that China may “lead the pack” and recover faster than others (see next): I hardly think so.".

Who else would lead?
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"The RMB 4 trillion stimulus package obviously is not enough – otherwise, why do they keep introducing supplementary packages?"

If you try to offer more insightful information, don't just read WSJ, do more research on your own. Including stimulus packages from local gov's, I estimate the total would be at least 15 trillion RMB.
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"A quick solution for China, for instance, would be to introduce universal, free health insurance: that would remove the yoke of having to save in case of illness.".

It is more cultural phenomenon. Japanese saves a lot too, even though they have good healthcare. You are assuming a better healthcare would cause people to spend more and save less.

On the other hand, even though US does not have universal, free healthcare, people spend more than they have. It's cultural as well.

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Those geopolitical comments are even more superfacial. Sorry to say it.

Jan 26 02:31 PM

[Urbane Gori...:]

Re: Dr. Von Pfiel's analogy: "you cannot skip cycles: you cannot move from autumn to spring without going through the healthy, rejuvenating effects of winter. This is the time when that which is meant to die does die, so that when spring arrives, the healthy can get on with growing"

Perhaps if he had used 'the rainy season', he might have decided that crops cannot survive without water. In the same way, our societies cannot survive without lending. Just as you need to water your crops in a dry period so they don;t wither and die, I feel we need to to do the same with our banks.

There's a big difference between plants surviving their normal seasons and the potential for a collapse of our economy during an 'unseasonable' downturn.

jegan

Just think of the Billions as 'seed money'....

Jan 26 07:24 PM

[Ben Gee:]

December figures indicates real estate was having a mini boom in China. Sales were up 30% or more in major cities such as Beijing and Shanghai.
Bank loans were up to 772 billion yuan from about 485 in November. Growth in manufacture was higher in December than November. It may be too early to say China is on its way to recovery but these are good signs.
Why are we so worry about China when there is so much to worry here in N America? Are doom sayer worry that we will get out of the present crisis too soon?
I have a worry too. With every country trying to stimulate its economy, can inflation be far behind?

Jan 27 02:04 PM

[seneca:]

"The RMB 4 trillion stimulus package obviously is not enough – otherwise, why do they keep introducing supplementary packages?"

Because bonehead nobody (not even Dr Dunce) knows what the macro and microeconomic effects of a stimulus package are going to be (key point Dr Dumb: there's a variable called TIME involved). It's far more intelligent to launch a large stimulus package and follow with fine-tuned supplements than it is to overshoot and deal with the consequences of overheated.

This whole article by Dr File is preposterous (as most commentators have already noted) -- isn't it amazing that stuff like this can find a publisher? There's really no point to whining about the shrinkage of the publishing industry when this shrink gets to shrink wrap his ignorance.

Jan 27 03:32 PM

[User 220706:]

Excellent analysis regarding China's economic outlook published in "Risk Review" Magazine:

www.garpdigitallibrary...

Jan 28 04:10 PM