The Opportunities and Risks of Investing in China (w/ Rashique Rahman & Ed Harrison)
ED HARRISON: Then China. RASHIQUE RAHMAN: This is a big, big topic. I like to call it the Sino schism, in a sense, which is this divergence between the West, US prominently, and China in a sense, they're going on diverging paths. It's not just related to trade, but it's what's happening with the advent of emerging tac. ED HARRISON: Huawei. RASHIQUE RAHMAN: Absolutely. 5G and who's going to take the ascendancy in the South China Sea, those things are going to lead to this divisiveness between China and the West, US most prominently. Where are other countries going to follow? Are they going to follow the US or are they going to follow China? This is a big theme, and it's an enduring theme. It goes beyond short term trade spats. It's a much more enduring rivalry, so to speak, between the US West and China. Part of that manifestation is going to be China manages its own economy. Of course, we know that it's shifting towards more domestic consumption as opposed to fixed asset investment. It's really hard to get off of that. We've seen actually China re-levering, not de-levering over the last few years so it's going to be a hard shift for them to make. The growth is going to slow there, it's going to increase social tensions, I believe, that's the most important aspect for the leadership in China to be mindful of is moderating the social tension rather than the economy itself. I think China has the levers to manage through that. It's a relatively closed economy, and I think China will do well to manage that. I also think that China is going to be much more assertive in managing its debt, the buildup of debt and there're ways to get around that. They've done that in the past. I think they'll do that in the future. I'm not as concerned about this buildup of debt in China as other people are, they'll address it in, I think, relatively unique ways. It's not as much of a problem. ED HARRISON: It sounds like, because you don't think that there is a crisis, so to speak, coming to China and because it's been picked over by so many people because it's the elephant in the room in emerging markets, it's not really a sexy place to make a relative value call. RASHIQUE RAHMAN: No, it's not. It's not. It's not really. It's a muddle through, think about it as muddle through. Growth in China is probably going to be below 6% now, what to do? So what? People were saying, oh, the hard landing that China is going to be going from 12% growth to 6% growth. No, they're the managing it reasonably well. It's a little bumpy but in general, they're going to manage it relatively well. ED HARRISON: Coronavirus. RASHIQUE RAHMAN: I think that's obviously, that's an issue not just for China, but for the rest of the world. We're seeing markets responding to that. We'll see how that plays out. Hopefully, like the SARS scare, it becomes contained. We'll have to see, but I think the issue for China is more about social, maintaining social cohesion and stability, that's really the issue for China, it's not about the economy. For the global markets, it's about social stability, it's not about the economy. I know that sounds strange but to me, a hard landing in China isn't about the economy, it's about the social stability. That's, I think, in the minds of the leadership as well, so I don't necessarily see an eminent economic crisis in China at all. They have the tools, the wherewithal to address that. The issue is more about the repercussions of the slowing in China growth which is, of course affecting EMs, which were heavily reliant on China. Europe to some extent as well, which is suffering from that slowdown. The world economy in general is taking a notch down in terms of growth conditions and needs to find ways to offset that. JUSTINE: If you're ready to go beyond the interview make sure you visit realvision.com where you can try real vision plus for 30 day for just $1. We'll see you next time right here on real vision.