Gordon you've been a China sort of
doomsayer for a long time is what we're
seeing now the hard landing that you've
called in the past is this it yeah well
this is certainly a hard landing because
China's not growing at the seven point
zero percent that Beijing claims it's
not even growing at the two point two
percent that they're privately talking
about in China it could very well be
even lower than that but if I'm wrong
and I could because we no one really
knows where it China is it'll be there
in a couple months because what we're
seeing is a severe deterioration in the
economy you know there's the devaluation
there is the plunge in the stock market
but most important there's the money
coming out of China you know there are
various estimates somewhere between five
hundred and twenty to eight hundred
billion dollars in the last five
quarters that's a lot of money that's
the Chinese people voting with their
feet that's what basically they're
saying is this economy is doesn't have a
future well we spoke to David Wu head of
global rates and currency research at
Bank of America Merrill Lynch yesterday
talking about China stock market and
what's going to keep it rising in the
near term though take a listen people
not realizing what now basically four
five days away from the parade in
Beijing to celebrate it in the Second
World War
presumably the reason why the Chinese
started to intervene in the stock market
directly is because they don't want the
president looked bad with the foreign
dignitary's so to show up in Beijing
yeah absolutely I mean because you know
they did not intervene on Monday Tuesday
Wednesday and we saw the stock market
fall but lo and behold in the last hour
on Thursday it went up 5.3 percent
yesterday 4.8% that's completely
inexplicable this is government buying
in the last hour of this afternoon
session one of the things that we've
said in the interview is that we could
see a return to further UN weakness
after the parade and that maybe the
resale was just the beginning he was
even talking about the government
letting the currency go completely what
do you what's your take on the
government's currency policy at this
moment well eventually they're going to
have to do that because that's the way
the economy is going and the currency is
at an unsupportable level you know
they're spending if ft says about 10
billion dollars a day to support the
value of the currency and that meant
that means in 21 weeks you go through a
trillion dollars of reserves
and that number could actually increase
because as people start to realize how
bad things are in China you can see the
pessimism build both inside and outside
China therefore you could see even more
money coming out of the country we did
see if you go take a look at their FX
reserves a sock Jen had a note out this
week talking about the extra firepower
that China has that they don't actually
need to support their currency well it's
not quite it but uh yeah there you go
and basically they're saying that they
have about 900 billion that they can
play with to support their currency and
help with capital outflows would you
agree with that you know who knows what
they have because we don't you can't
really trust what they say about their
foreign exchange reserves but obviously
look they say they've got three point
six five billion at least through the
end of last quarter they probably have a
lot less now with their burn rate and
that burn rate as I said will probably
increase so you know this country which
has looks invulnerable now could very
well end up being the the real basket
case of next year or maybe even the end
of this year with the way things are
going because the economy doesn't have
any support there Deutsche Bank was out
with a note this week in which they used
the term quantitative tightening and
they basically made the argument that
China's reserves have grown roughly at
the same pace as the Federal Reserve's
assets during quantitative easing but
now they're coming down as you can see
on the chart it's the purple line has
started to decline and so Deutsche Bank
is saying that this is an issue for the
entire world China's reserves starting
to head down do you see global
ramifications from this only because of
the panic but I actually think China is
less important to the global economy
than most people think
because you know everyone says it's an
engine of global growth well to be an
engine you've got to buy the goods and
services of other countries to create
growth elsewhere but China through
mercantilist policies has actually been
taking growth from other places and you
know the manufacturing that is done in
China well that'll be done in Vietnam
and India and elsewhere
so the global economy will adjust but
people will panic because there is this
perception that China is critical to
everything and I think that that's wrong
but that's the way the world works these
days so therefore there will be problems
when China has even more difficulties
that are more evident but in terms of
the actual stock market do you think
that actually has effect on Chinese
consumption I mean they can still grow
that they're really invested
more in real-estate than they are with
their assets which under 10% according
to some analysts yeah well it has a
marginal effect on consumption you know
we've seen the reporting about people
not buying luxury cars and even not
buying midsize cars because of the falls
in the stock market people had put their
money in there they had hoped it would
ride they'd take it out when they get
something that they want to buy that's
not happening right now but also you
know consumption it really hasn't been
as vibrant as the retail numbers suggest
I think that it's been growing but it's
not been growing at the rate at
everybody thinks so it hasn't really
been the pull for the rest of the world
we see that in the really bad import
numbers for instance all right so you
already have a very gloomy assessment of
China a realistic assessment of China
fair enough
but what keep what's your nightmare
scenario for China that keeps you up at
night well basically that they have a
1930s style crash si leaders there
cannot effect the downward trend in the
economy they can slow it and they have
been slowing it for a number of years
but everything nothing's working
monetary stimulus is not working fiscal
stimulus would be dangerous because it
creates debt they can't reform because
of problems in the political system the
stock market boom was a bust and now
they're devaluing their currency this is
a country where the leaders really
cannot affect the economy for the better