The Chinese authorities have promoted the use of the yuan around the world, while the US dollar dominates global transactions.
BEIJING – A Chinese economist’s keynote address at a leading asset manager’s investment strategy event last week focused on international politics rather than growth prospects.
“We are going through a cognitive revolution, so my talk today will not be the dissemination of an economic report,” said Liu Yuhui, director of a financial research department at a government think tank, the Chinese Academy of Social Sciences.
That’s according to a CNBC translation of his Mandarin speech Friday at asset manager ChinaAMC’s investment strategy conference. Founded in 1998, ChinaAMC is one of the largest mutual fund managers in the country, claiming 1.54 trillion yuan ($ 240.63 billion) in assets under management.
Liu’s talk was billed by the organizers as a discussion of macroeconomic issues for the second half of the year. But the presentation slides were titled “The Bipolar World Under the Cycle of Super-Expansion of the US Dollar: The ‘Cognitive Revolution’ of the Chinese Capital Market.”
The event came just two weeks after the ruling Chinese Communist Party just celebrated its centennial on July 1, when President Xi Jinping again called for China’s “great rejuvenation”.
Liu, also chief economist at Tianfeng Securities, echoed that line when he spoke confidently of China’s ability to achieve its goal of becoming a “great nation.”
He added that once-a-century opportunities would emerge from a “struggle for supremacy” between the United States and China.
The United States is the world’s largest economy, while China is the second and is catching up. The two countries have been embroiled in mounting tensions in recent years, starting with trade and spreading to finance and technology.
Helping China, in Liu’s view, is the American adoption of a dollar printing policy since the coronavirus pandemic. For Liu, that policy reflects an irreversible change that, among other things, has direct consequences for China’s goal of controlling inflation domestically.
However, Liu left no doubt as to whether China could manage to maintain its growth. Echoing confidence in Beijing, he said that China’s determination would allow the country to resist the effects of US policy, weakening the US economy and strengthening China.
‘Modern monetary theory’
In Liu’s view, the United States is based on the concept of “modern monetary theory,” which holds that governments with a strong currency can print money to support their national economies without worrying too much about budget deficits.
One of the best known proponents of modern monetary theory is Stephanie Kelton, former chief economist for the Democrats on the U.S. Senate Budget Committee and chief economic adviser to Bernie Sanders’ 2016 presidential campaign.
The United States, under the Trump administration and now the Biden administration, has kept interest rates low and released trillions of dollars into the economy to support growth after the pandemic.
The stimulus program has received criticism for its scale. At the Berkshire Hathaway conglomerate annual meeting in May, Charlie Munger, a business partner of American billionaire Warren Buffett, said modern monetary theory might be “more feasible than everyone thought. But I know if you keep doing it without limits it will end in a disaster . “
For Liu, staying in line with Chinese government directives will be even more critical for domestic investment in light of developments such as Alibaba founder Jack Ma’s controversial speech last fall and subsequent suspension of Ant Group’s IPO.
As Chinese policy will focus on ensuring national security and reducing carbon emissions, he said mainland China’s stocks with the highest likelihood of big gains will be those in the new energy, seed, optics and semiconductor industries, among others. .
As for digital currencies, on which the Chinese authorities have stepped up their crackdown this year, Liu also laid out them in geopolitical terms.
“In my opinion,” he said, “it’s just the United States’ way of tempting Chinese capital.”