Enough About the U.S. … Let’s Talk China

LOS ANGELES – You’ve heard enough about the financial woes in the U.S. to last a lifetime. You’ve no doubt read all about Europe and the mess they’re facing.

But … have you read about speculation that China is headed for a financial dip of its own?

Keep in mind, many economists project that the supposed slump might largely just be a blip — but the mention of it immediately sparked conversations at “The U.S.-China Power Balance” panel at the 2012 Milken Global Conference.

“The issue of agency risk is a big issue in China,” Kynikos Associates President James Chanos said. Chanos, a noted China “bear,” added that he tells his clients, “please trade with China, but don’t invest there.”

“The trend of buy U.S. and being short on China has been a good one — and I think that’s only going to continue,” he added — pointing out that China’s GDP per capita is still relatively low.

Hao Capital founder Charles Y.S. Liu strongly disagreed and questioned whether Chanos had ever even visited the country.

“Those of us who have lived in and watched China … we take a very different view,” Liu said, adding that the dip taken by Chinese markets in the last year was an attempt by the government to “cool down” the economy.

“We don’t have securitized mortgages in China and we don’t have derivatives on securitized mortgages that run into complete financial systems, so I’m not sure where those bubbles — which are a thousand times bigger than Dubai — come from,” Liu said.

“If China does collapse it would be a calamity for the whole world,” he added.

Minxin Pie, the Director of the Keck Center for International and Strategic Studies at Claremont McKenna College, said that the downturn is coming and it’s only a question of “how deep the fall will be.”

“The fast phase of China’s growth is over, from now on it’s all downhill,” Pie said.

Pie mentioned that the communist government misallocating resources and state-directed lending greatly compounds the problem.

“When the government does your investments for you — you should be very, very worried,” Pie said. “I think the Chinese leaders are more aware of these issues than people realize.”

The Odd Couple: U.S. and China as Partners

The issue of complicated U.S.-China relations has been mentioned during the U.S. presidential campaign, both candidates have sounded off on the issue but unlike other topics it can be difficult to tell how much they really differ on the matter.

“You’ve heard Gov. Romney say some pretty tough things and how he would be tougher on China than the president has been,” said Nina Hachigian, Senior Fellow at the Center for American Progress. “This is not just a Republican thing though, China-bashing has been a strong and long bipartisan tradition.”

Depending on who wins in November, how can Americans expect our China policy to change?

“I expect that if the president gets re-elected you’ll see kind of a ‘steady as she goes’ … maintaining a strong presence in Asia and strong alliances there, trying to integrate China into the international system and create a level playing field,” Hachigian said. “And I think that if Gov. Romney gets elected I don’t think you’ll find policy being that much different than that.”

This is also a transition year in China from one set of leaders to another, but the panelists also said it’s difficult to say that the change will affect the U.S.-China relationship.

“China’s leaders understand very well that a good relationship with the U.S. is fundamentally in China’s interests,” Pie said. “Especially in the interests of the Chinese communist party, because the Chinese communist party cannot stay in power very long if it has the U.S. as its enemy.”

“In the end pragmatism, not ideology, will marks China’s policy,” he said.

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