Trade and Environment Likely to Top US-China Strategic Economic Dialogue

Excerpts from Dr. Enzio von Pfeil's June 17, 2008, appearance on CNBC:

1. What are your thoughts on US/China strategic economic dialogue - what's likely to top the agenda?
   
   • Trade balances are the hot political potato on the U.S. election fanfare.
   • The key has to be that China wants to buy more firms in America, but America does not want this. Indeed, Congress has come up with new draft legislation that will make it even tougher for foreigners to enter America's "free" market.
   • Environmental concerns are next.
   • Taiwan is the final issue, what with the rapprochement between China and Taiwan.
2. On US - China trade - could you highlight interesting findings from your report?
   
   • In my forthcoming book on Trade Myths, my work suggests that if multinational corporations’ domestic sales and purchases are factored into trade flows,
     
     • China would have a global trade deficit of $45 billion in 2004 (the most recent data), versus her national trade surplus of $33 billion, and
     • America has a global trade surplus of over $2 trillion (vs her national trade deficit of $665 billion in 2006, the most recent data for MNC flows).
3. How may relations between the two countries change, and how this will impact growth in China?
   
   • American politicians’ deep hatred of anything “communist and thus Chinese” will only grow during America’s current stagflation.
   • China’s politicians will start returning the favour – witness their handling of Mattel (MAT), the toy company. Congress is bringing this on itself and on its own American firms, not China.
   • Dr. Lee Sands, ex USTR and thus father of China's WTO accession, notes in his recent, brilliant Forbes article ("Games for China," May 21, 2008) that Chinese are now "...much more interested what is happening in China...They are only dimly aware of American cultural icons."
4. US is pushing China to allow its yuan to appreciate - what are some implications for China and the rest of the region?
   
   • In particular, Treasury Secretary Hank Paulsen has a solution for everything: unsurprising, given that he appears to know everything about everything. The gifted man!
   • RMB upward pressure is coming from the white world. But all the Chinese want to get their money out of China – witness their purchases of high end property in Hong Kong, their voracious appetite for gambling in Macau. Have you ever questioned why China has not just opened her capital accounts? Here is the answer.
   • One implication of a rising RMB is that China’s imported inflation falls, which is good news given higher commodity prices.
   • But, the price-competitiveness of her low-end exports suffers, so she has to improve her productivity in order to reduce unit labour costs sharply.
5. What are your views on US economy & markets, and the challenges ahead?
   
   • I am truly amazed that “name” economists at great houses only began whimpering about a “recession” a couple of months ago. But I guess that they were scared of their own bonuses being threatened by irking the boys on their respective proprietary trading desks who had massive “long” positions…
   • We have brayed on about stagflation since spring of 2006.
   • Based on a recent analysis of America’s last four stagflations, I reckon that the U.S. market has another 30% to fall over the next year.
6. What are some investing strategies/opportunities for investors in Asia?
   
   • Cash, cash, cash: non-dollars. Reason: rates are rising, so being long of bonds is risky.
   • Avoid the dollar.
   • Avoid any razzle-dazzle structured investment products. In Hong Kong, the current disenchantment with “accumulators” is pervasive. More often than not, the guy selling you this stuff has no idea of its mechanics either!
   • Commodities: oil has further to rise and will be high for a long time.
   • Stock markets. We own Taiwan, Russia and Brazil.

Comments

[rainman]

Not sure about Taiwan, if you keep watching their political farce/show via TVBS...

Not sure about pure Hong Kong Plays, since the direct flight would bypass the place.

Not sure if there is a tipping point for China's domestic demand after the earth quake, but sure that China is still on the up trend mode