Chinese authorities have promoted the use of the yuan worldwide while the US dollar dominates global transactions.
BEIJING – A Chinese economist’s keynote address at a major asset manager’s investment strategy event last week focused on international politics, not growth prospects.
“We’re experiencing a cognitive revolution, so my talk today won’t be an economic report dissemination,” said Liu Yuhui, director of a financial research division at a state think tank, China Academy of Social Sciences.
That comes from a CNBC translation of his speech in Mandarin language on Friday at the investment strategy conference of the asset manager ChinaAMC. Established in 1998, ChinaAMC is one of the largest mutual fund managers in the country with assets under management of 1.54 trillion yuan ($ 240.63 billion).
Liu’s lecture was billed by the organizers as a discussion of macroeconomic issues for the second half of the year. The presentation slides, however, were entitled “The Bipolar World Under the US Dollar Super Expansion Cycle – The ‘Cognitive Revolution’ of the Chinese Capital Market”.
The event has only come about two weeks since the ruling Chinese Communist Party celebrated its 100th anniversary on July 1, when President Xi Jinping again called for the “great rejuvenation” of China.
Liu, also chief economist at Tianfeng Securities, agreed with this line when he confidently spoke of China’s ability to achieve its goal of becoming a “great nation.”
He added that a “struggle for supremacy” between the US and China would create unique opportunities in the century.
The US is the largest economy in the world while China is the second largest economy and is catching up. The two countries have been mired in increasing tensions in recent years, from trade to finance and technology.
Helping China, Liu believes, is America’s adoption of a dollar-printing policy since the coronavirus pandemic. For Liu, this policy reflects irreversible change that has, among other things, direct consequences for China’s goal of controlling domestic inflation.
However, Liu left no doubt that China could manage to sustain its growth. Confirming confidence in Beijing, he said China’s determination would allow the country to withstand the impact of US policies, weaken the US economy, and strengthen China.
“Modern Monetary Theory”
According to Liu, the US is relying on the concept of “modern monetary theory,” which says that governments with a strong currency can print money to support their domestic economies without having to worry too much about budget deficits.
One of the best-known exponents of modern monetary theory is Stephanie Kelton, formerly Chief Economist for Democrats on the Senate Budget Committee and senior economic advisor to Bernie Sanders’ 2016 presidential campaign.
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The US, under the Trump administration and now the Biden administration, kept interest rates low and released trillions of dollars into the economy to support post-pandemic growth.
The economic stimulus plan has been criticized for its size. At the annual meeting of conglomerate Berkshire Hathaway in May, US billionaire Warren Buffett’s longtime business associate Charlie Munger said that modern monetary theory “may be more possible than everyone thought.”
For Liu, following developments like Alibaba founder Jack Ma’s controversial speech last fall and the subsequent suspension of the Ant Group IPO will make it even more important for domestic investment to adhere to Chinese government guidelines for Liu.
With Chinese policymakers focused on ensuring national security and reducing carbon emissions, he said mainland China stocks are most likely to make big gains in new energy, seed, optics, and more, among others Semiconductor industry will be.
As for digital currencies, which the Chinese authorities have tightened their crackdown on this year, Liu has also looked at them geopolitically.
“From my point of view,” he said, “this is just the US way of tempting Chinese capital.”