Andy Xie, India and China

Andy Xie is a rare beast, he’s a talented, creative economist. His recent departure from Morgan Stanley, and by implication from the Global Economic Forum, is now being widely commented on in the press (and here).

Andy was really one of the first global economists to start drawing attention to the important impact the rise of the Chinese economy was going to have (you can find a selection of some of his posts on my page here, and my early China Economy Watch blog – now defunct – was full of citations from Andy, basically he was getting it right when almost everyone else was getting it wrong).

There are two memorable arguments that Xie has advanced over the years that still bear thinking about.

1) Throw away the text books. This wasn’t meant, I don’t think, to be taken literally, what he was getting at was that we are facing new phenomena, and we need to think on our feet. Intuitive economics. Two recent posts of mine (and comments) on the Indian Economy Blog reflect this legacy (and here).

2). It’s time to start conceptualising the global economy as *one* single developing economy (with a lot of market imperfections) rather than as the sum total of a lot of discrete individual economies. I still think that this idea hasn’t attracted the attention it deserves as a methodological proposal.

Ostensibly Andy left as a result of remarks he made about Singapore (if you believe the rumour mill):

The Hong Kong rumour mill quickly began speculating as to why Xie had left. Attentions have focused on an email that Xie penned on September 18. Many copies of the email – which was about Singapore – have since been passed around by the region’s fund management and banking community.

Clearly following Thaksin’s demise sensitivities in Singapore are running higher than usual.

But there was another issue lurking around in the background, namely:

“I tried to find out why Singapore was chosen to host the conference….Nobody knew. Some said that probably no one else wanted it. Some guessed that Singapore did a good selling job. I thought that it was a strange choice because Singapore was so far from any action or the hot topic of China and India. Mumbai or Shanghai would have been a lot more appropriate.”

Xie here is certainly expressing thoughts which are very much ‘out of season’, in the sense that he is raising an idea which he has long been advocating: that increasingly the drivers of global growth will be in China and India. In this sense what he is talking about is not so much the location, but rather the orientation and focus of the conference. In this sense what Xie is saying is very much ‘add odds with the consensus’ in the context of what was actually on the agenda.

And he is at odds with the way many people are currently conceptualising those global imbalances. In particular I would suggest that we currently have three rival paradigms in competition for understanding events:

1) The ‘it is largely a policy issue’ approach. The best known representatives of this view would undoutedly be the team at the Roubini Global Monitor (especially Brad Setser and Nouriel Roubini), and some of the staff economists at the IMF (in particular Raghuram Rajan, and also see this).

2) The view that the imbalances are – in large part at least – a result of excess global liquidity. The best examples of this view are to be found at the Bank for International Settlements (especially Claudio Borio and William White ), and in Morgan Stanley’s Joaquim Fels (and here).

3) The idea that there is an ongoing global demographic transition taking place and that this is occuring in different countries at different speeds. This means, for example, that some countries which are now enjoying their ‘demographic dividend’ – India, China, Brazil, Chile, Thailand, Turkey – are growing very quickly indeed, while others which are experiencing protracted population ageing – Japan, Germany, Italy – are suffering a continued economic slowdown. It is this asymmetry which lies behind the phenomenon which has become generally know as the ‘global imbalances’. One point of entry to this view would certainly be Ben Bernanke’s now notorious ‘global savings glut’ speech, another would be the work of Andy Xie (and to some extent Chetan Ahya) at Morgan Stanley, and a third point of access would, of course, be via the kind of posting I have been doing here on Afoe.

Quite who is right here only time will tell (and maybe not even then), and again quite why Andy left MS we will possibly never know, but at the end of the day one person’s loss here is almost certainly going to be someone else’s gain.

Incidentally, Ben’s been at it again: see the details from this speech yesterday.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

7 thoughts on “Andy Xie, India and China

  1. Andy’s second viewpoint, that the global economy is a single developing economy that has until now experienced very nonuniform, imperfect growth, does make all the sense in the world. For many, though, I think it’s a scary place to begin the talk about globalization, though, because it tacitly implies that imbalance will continue until, as Neal Stephenson put it so many years back, the Invisible Hand has taken all those historical inequities and smeared them out into what a Pakistani bricklayer would consider to be prosperity.

  2. The Bloomberg story is most excellent. For people who don’t want to click through, I’ll summarize.

    A. Xie: Mr Lee has no clothes.

    Government spokesperson(s): Mr Lee’s new suit is wonderful. The very latest in fashion.
    Reporter: Who are you?
    Government spokesperson(s): I can’t say.

    A. Xie: Mr Lee has no clothes.
    Mr Lee: Our clothes will grow by 3 percent for the next 10 to 15 years. Casinos are not immoral, they are tourist destinations.
    A. Xie [offstage]: Casinos were immoral for 40 years.

    A. Xie: Mr Lee has no clothes.
    Morgan Stanley: We handled $1.5 billion in deals in Singapore this year and advised the government of Singapore on a major investment. Mr Xie no longer works for us. We are very supportive of Mr Lee’s new textile initiative.

  3. There were a number of problems with the Singapore agenda: focus on IMF/WB internal reforms — a discussion that could have been held anywhere — and issues that seemed germane 4 months ago but were getting stale by the time the suits arrived, most notably high oil prices. In addition, a new plunge in long-term yields in the US (which is making the housing crunch referred to Edward’s link to Ben’s speeech) not as severe as it could be, and signs that the commodity boom may be petering out (which itself may be a leading indicator of a Chinese growth slowdown).

  4. Mr. Xie was unable to comment, as he is recovering from surgery to remove his foot, and his Blackberry, from his mouth. He is recovering at a Florida clinic where we understand he is sharing a room with ex-Congressman Foley, recovering from a similar operation.

  5. “and smeared them out into what a Pakistani bricklayer would consider to be prosperity.”

    Come come Robert, this may be the dismal science, but is there really any need to be so gloomy?

    Of course, it depends whether you mean a Pakistani bricklayer today, or a Pakistani bricklayer 30 years from now. (Although it should be noted that Pakistan is not presently in the developing economies leading group, it continues to remain stuck in some sort of high fertility ‘trap’).

    So maybe the yardstick might be a Mumbai bricklayer. Incidentally, a commenter on the Indian Economy Blog just pointed out to me that bricklayers in Mumbai are currently hard to find, since many are working in the middle east, attracted by the higher wages produced by the oil-surplus construction boom.

    But all of this is a little beside the point. Really, of course, there is going to be a global adjustment. This was always inevitable, and just like increased life expectancy it is good news. And in the same way as increasing life expectancy presents us with new challenges, so does growing global economic development. Relative resource scarcity would be just one of these problems.

    Basically the issue is not one of people’s living standards going down, since technological advance will obviously work in the opposite direction. But OTOH there will be big changes in relative prices and relative currency values. This is clear.

    One of the issues which faces the developed world in this context is that there will be a sort of double effect: prices of energy and raw materials may rise steadily as resource constraints make themselves felt, while prices for manufactured products and services may trend down. So handling this in the context of ageing populations in the developed world is going to be a big macroeconomic challenge. Maintaining intergenerational fairness (as Bernanke suggests) will be one of the issues, and handling high levels of accumulated debt on the part of the younger age groups if the general tonic becomes deflationary will be another.

    But c’mon, whatever happened to that renowned appetite for facing up to a challenge?

  6. “the housing crunch referred to Edward’s link to Ben’s speeech) not as severe as it could be, and signs that the commodity boom may be petering out (which itself may be a leading indicator of a Chinese growth slowdown).”

    This is undoubtedly one of the big issues, and one which means that a voice like Andy Xie’s may not be too convenient in some quarters right now.

    Basically I am worried about the kind of economic analysis that is being served up in the press at the moment. I am worried about it since it seems to be amazingly naieve and unrealistic, and is horribly reminiscent of some of the bad stock analysis which was served up just before the Nasdaq went for a nosedive.

    Basically expectations and confidence are important, but a certain amount of realism is needed is you don’t want to produce a ‘confidence crisis’ in the backdraft of a set of well packaged pipe dreams. I will give just two examples.

    The drop in the oil price. This is being read everywhere as good news. But we have to be very careful here. A drop in energy prices produced by an expansion in capacity or by an increase in energy use efficiency would undoubtedly be good news. But this is not the present case. Prices are falling since people feel that demand will fall due to slowing economic activity. This is a very different story.

    This is now producing ever new highs in the stock markets, but these are very likely not justified, so we might well expect some sort of ‘correction’ and this, if it happens, will add to what is called the wealth effect, and will itself feed the slowdown.

    P O’Neill is right to draw attention to the way in which falling long term interest rates can cushion the US (and Spanish etc) housing slowdowns, and there is a lot that is presently none to clear, but we do need to be careful. None of this is as clear as many consensus analysts are suggesting.

    Secondly growth in the Eurozone. I cannot help feeling that Trichet made a big blunder yesterday. One of the reasons cited for anticipating more eurozone inflation is the 3% VAT hike which is about to come in Germany. But this is money that is being drained from the economy to pay debts. So this is negative for growth. If you also raise borrowing costs you accentuate this problem. So again the tealeaves are being read erroneously.

    The two big unknowns are what will happen in China in 2007, and what will be the real impact of the US housing slowdown. Until both of these are clearer people need to be very careful indeed when it comes to making prognoses.

    And it is just such caution which is lacking, and this perhaps is the most worrying part of the present situation afaiac.

  7. ISTR Xie was the first to turn bearish on oil, in about January, which is either very prescient or very lucky, but in either case very brave – and a fine example that the market can stay irrational longer than you can stay solvent.

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