Nightingale: US interest hike frightens China

Economist argues China’s once overwhelming confidence in its economy has been replaced with looming fear of a depression

April 29, 2015
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Transcript

Economist Roger Nightingale tells World Finance that Chinese premier Li Keqiang’s recent exclusive interview with Western media reveals a country that is bracing for economic calamity as the US dollar rises in the months ahead.

World Finance: What do you make of the Premier’s statements on the prospect of China’s formalised QE program, and the US’s hike in rates? He said: “When QE is in place, there may be all sorts of players managing to stay afloat in this big ocean, yet it’s difficult really to predict now what may come out of it when QE is withdrawn.” Would you say that he’s right on the money?

Roger Nightingale: He quite clearly is worried about the level of activity in the Chinese economy. If he hadn’t been worried about that he wouldn’t have found it necessary to talk about throwing liquidity into the pot.

So quite clearly there’s been some change in view, because a year ago, two years ago, the Chinese authorities thought they had everything under control, they thought they didn’t need to do the sort of stuff that the Brits and the Americans were doing. They acknowledged that the economy is somewhat weaker, perhaps substantially weaker, that’s on the one hand.

Meanwhile you’ve got the Americans, as you rightly point out, talking about the possibility of doing the opposite, talking about the possibility of tightening money and raising interest rates. Well if they do that, you’re going to pull up the dollar hugely and pull down the yuan enormously. That’s going to cheapen the Chinese product selling into America.

World Finance: What he’s really not willing to admit outright is they’re engaging in their own easing programs, you don’t have to call it QE, but the Chinese are as powerless as the Americans are to market forces.

Roger Nightingale: Yes, absolutely.

World Finance: So what are we going to see in the next decades among these two economic giants?

Roger Nightingale: Depression. You can’t always have a nice solution to every scenario. Sometimes, you have to take a bit of pain, grit your teeth, tighten your belt, put your head down, and live through it. It won’t last forever. The Depression of the 1930s didn’t last for ever, the depression of the 1890s and the 1820s didn’t last forever, it will end. It just may be that we’re dead before it does.