Nobody knows, given China’s famed opacity, just how bad China’s financial system and economy are. Andy Xie, a man with a lot of experience in China, hazards a prediction, and it’s not pretty. From Sue Change at marketwatch.com:
Andy Xie is among the loudest voices warning of an inevitable implosion
Andy Xie isn’t known for tepid opinions.
The provocative Xie, who was a top economist at the World Bank and Morgan Stanley, found notoriety a decade ago when he left the Wall Street bank after a controversial internal report went public. Today, he is among the loudest voices warning of an inevitable implosion in China, the world’s second-largest economy.
Xie, now working independently and based in Shanghai, says the coming collapse won’t be like the Asian currency crisis of 1997 or the U.S. financial meltdown of 2008.
In a recent interview with MarketWatch, Xie said China’s trajectory instead resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash.
China in 2016 looks much the same, according to Xie, with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market — indicating that conditions are ripe for a correction.
“The government is allowing speculation by providing cheap financing,” Xie told MarketWatch. China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”
A longtime critic of Chinese economic growth
Xie’s viewpoints have at times attracted unwelcome attention. In 2006, when he was a star Asia economist at Morgan Stanley MS, -3.55% a leaked email to colleagues in which he said money laundering was bolstering growth in Singapore led to his abrupt departure from the bank.
In early 2007, he termed China’s surging markets a “bubble” that could lead to a banking crisis,” and in 2009 he likened them to a “Ponzi scheme.”
Xie, who is from China but was educated at — and earned a Ph.D. from — Massachusetts Institute of Technology, has said Chinese authorities have tried to characterize him as an American spy sent to disrupt their markets after his 2007 prediction. China’s consulate general in San Francisco and its embassy in Washington did not reply to requests for comment.
While he now works independently, Xie’s opinions on Asian affairs remain influential. He writes regularly for the South China Morning Post, among other publications, in May saying China is running a “gigantic monetary bubble that has corrupted virtually every corner of the economy.”
Xie “is a respected economist,” said Huawei Ling, managing editor of Caixin Weekly and a John S. Knight Journalism Fellow at Stanford University. “I appreciate his consistency and his analysis on China’s economic issues,” she said.
His 2007 forecast, meanwhile, turned out correct. Soon after his prediction, the Shanghai Composite Index SHCOMP, +0.60% started plunging. After hitting a peak of 6,092 on Oct. 19, 2007, it fell below 2,000 over the next 12 months.
To continue reading: This economist thinks China is headed for a 1929-style depression
