To Beat China, US Should Tax Ray Dalio Out of Existence
Yves here. It isn’t facetious to suggest that fund managers be taxed heavily, and not just Ray Dalio because China.
As most reader know, the post-financial-crisis “recovery” was so weak as to lead quite a few economists to dig into what was causing what they politely labeled “secular stagnation.” Many concluded that overfinancialization was the main reason. It’s not hard to think that nearly two generations of math PhDs preferring Wall Street to technology or medicine will have an effect.
And within finance, asset management was found to impose the biggest drag. Secondary market trading of securities isn’t productive from a societal perspective, even though asset management produces billionaires at twice the rate of Silicon Valley.
By David Llewellyn-Smith, Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. Originally published at MacroBusiness
It is Fifth Plenum week as the fifth plenary session of the 19th Central Committee of the Chinese Communist Party meets in Beijing from Monday through Thursday. Today Xi gave a work report and presented the “discussion drafts” of the proposals for the 14th Five-Year (2021-2025) Plan for Economic and Social Development and future targets for 2035.
There is always speculation around Plenums about personnel changes. I am not assuming there will be any particularly interesting ones, and I expect that more people will realize it has become obvious that there are no clear successors to Xi in the current top leadership and so third terms for Xi as General Secretary, President and Chairman of the Central Military Commission at the 2022 20th Party Congress are nearly assured.
Friday was the 70th anniversary commemoration for the PLA’s entry into the Korean War, and in his recounting of the CCP’s version of the history of the conflict Xi used some tough language that was directed at the US.
Also on Friday senior financial officials convened the Bund Summit aimed at “promoting China’s financial opening-up and global economic development”. The most important speaker at the event was Vice President Wang Qishan, an “old friend” for some of the foreign financiers in virtual attendance. Wang has not given a public speech in many months, so his appearance is noteworthy.
The Fifth Plenum will further push the “Dual Circulation Strategy” and increasing emphasis on self-reliance, Xi’s Friday comments are another indication of the official recognition of the structurally changed US-China relationship, and the Bund Summit is a reminder that the leadership understands China still needs foreign capital to achieve many of its goals.
Expect to hear a lot more about some relatively new buzzwords, especially dual circulation, factor market reform and governance, along with older ones such as supply-side structural reform which first emerged in late 2015.
Far more than just buzzwords though, these are serious, well-thought-out strategies and policies to guide China’s economic development through a fundamental structural shift away from speed toward quality and sustainability. Dual circulation and factor market reform emerged earlier this year and will provide a broad framework for government ministries, officials and advisers to design and implement more detailed, specific policies that will help the economy flourish and grow in a sustainable way…
President Xi has continuously emphasized the need for self-sufficiency in key technologies, and at an August symposium (link in Chinese) to solicit input for the 14th FYP from economists and scholars, he said technology and innovation can foster new growth drivers and are key to building “internal circulation.” His remarks reaffirm expectations that China will double down on its efforts to reduce its reliance on technology from the U.S. and other economies and many analysts expect the 14th FYP to put even greater emphasis on funding for research.
“Technologies relevant to semiconductors, 5G and quantum computing, among others will be likely mentioned in the 14th Five-Year Plan. Policy support involving taxes support and talent nurturing will surely be included,” Li Chang’an, a professor at the University of International Business and Economics’ School of Public Administration, told the Global Times on Friday…
Li said that China may revise economic and social development targets during the 14th Five-Year Plan to stimulate growth but they will be within a range. He projected that China may set an annual GDP growth target of 4-5 percent for 2021-25.
We see the following elements as the most important to watch:
The presence or absence of a longer-term GDP target. These targets have always featured in past Five-Year Plans, but the days of China doubling GDP every decade are in the past, and Beijing may gain policy flexibility by eliminating a target.
Details on how China plans to implement its “dual circulation” strategy. This could include measures to support domestic consumption and changes to technology and industrial policy goals in the face of a more hostile external environment. Whether the strategy is primarily focused on import substitution in high-tech supply chains or a more conventional consumer-focused stimulus for domestic demand will influence global views of this new policy element.
Environmental and energy policy changes that support Beijing’s recent pledge of carbon neutrality by 2060.
The pledges were made during the Shanghai Bund Summit, a two-day gathering of Chinese bankers and regulators, that offered the country’s leaders an opportunity to showcase their plans to the global financial community ahead of a key policy meeting in Beijing, where President Xi Jinping is expected to map out the country’s development blueprint for the next five years.
One key message China is trying to deliver is that it is committed to deepening its economic and financial ties with the rest of the world even though relations between Beijing and Washington have plunged to their lowest level in decades.
On Saturday, Vice-President Wang Qishan made a rare appearance at the summit and told delegates – who included former US treasury secretary Robert Rubin, hedge fund manager Ray Dalio and Bloomberg chairman Peter Grauer – that “win-win cooperation is the only right choice for the world”…
John Waldron, president and chief operating officer at Goldman Sachs, told the forum that the US bank was “encouraged by the enhanced access China providing foreign firms … which we believe will lead us to a stronger, more resilient Chinese financial sector.”
Waldron suggested that China should relax restrictions on outbound flows, allow foreigners to become market makers in the bond market, and align Chinese regulation with international norms to “bolster investors’ confidence in China’s capital markets, to pave the way for further inflows, and enable increased cooperation between the United States, the rest of the world, and China”.
China will consider creating more channels for overseas investors to participate in the Chinese mainland’s capital market, China Securities Regulatory Commission (CSRC) Vice Chairman Fang Xinghai said at a financial summit in Shanghai on Saturday…
It’s also essential to give foreign firms easier access to the country’s securities and fund sectors, Fang said. Currently, China has approved eight foreign-controlled securities firms, the first wholly foreign-owned mutual fund manager and the first wholly foreign-owned futures firm.
Fang said the regulator will “further improve and foster an environment with fair competition for domestic and foreign securities and fund institutions,” and boost their cross-border services capabilities to better fulfill companies’ needs for cross-border investment and financing.
China’s finance industry should stay off the “wrong paths” of speculation, self-circulating financial bubbles and Ponzi schemes, Vice President Wang Qishan told a financial summit on Saturday.
The industry should serve the real economy and focus on preventing financial risks, Wang said in a pre-recorded speech presented to the Bund Summit in Shanghai.
Wang made his remarks as China pushes ahead with its efforts to prevent systemic risks in the financial sector that have been created by high debt levels, many companies’ immature risk control, and underregulation of emerging areas such as internet finance.
The world order is changing, yet many are missing this because of a persistent anti-China bias. China’s extraordinary performance isn’t new. In fact, apart from the 1839-1949 “Century of humiliation”, it has historically been one of the world’s most powerful countries and cultures. Just over the past four decades its economic changes have been remarkable. Whatever criticisms you may have about Chinese “state capitalism”, you cannot say it hasn’t worked, even if you strongly disagree with how Beijing has done it…
As a global macro investor, I think a lot about how much I should invest where, looking at fundamentals and how others are positioned. China’s fundamentals are strong, its assets relatively attractively priced, and the world is underweight Chinese stocks and bonds. These currently account for 3 per cent or less of foreign portfolio holdings; a neutral weighting would be closer to 15 per cent.
This discrepancy is at least in part due to anti-Chinese bias. I think it is about to change. Chinese markets are opening up to foreigners, who can now access at least 60 per cent of them compared with 1 per cent in 2015.
Comment: Surely not coincidental timing that Dalio places this OpEd on the eve of his appearance at the Bund Summit
The State Administration of Foreign Exchange (SAFE) is considering loosening some restrictions on cross-border investment under its Qualified Foreign Limited Partnership (QFLP) program, a deputy SAFE head told a briefing in Beijing on Friday.
Wang Chunying said that the forex regulator is studying a pilot reform plan for the QFLP program to cut red tape, expand the range of investment open to foreign investors and explore a model for private equity funds’ cross-border financing and investment activities.
The free world needs to slap a Pigouvian Tax on Ray Dalio and his ilk.
If markets are incapable of protecting the liberalism that underpins capitalism (that is, markets) thanks to the apostasy of firms like Bridgewater then that is a kind of ideological imbalance requiring policy intervention.
A giant Pigouvian tax on anybody tipping free-market savings into building China would do it nicely.