Andy Xie
Encyclopedia
Andy Xie (born 1962) is an independent economist
based in Shanghai
, and the former Morgan Stanley
star chief Asia-Pacific economist
famous for his contrarian and provocative views. He left Morgan Stanley abruptly in October 2006 when an internal email
that he penned was leaked out. He derided Singapore
as a money laundering
centre for Indonesia
, and the ASEAN group of nations as a failure.
with a M.S. in Civil Engineering
. He then obtained a PhD in Economics from Massachusetts Institute of Technology in 1990 and went on to become an economist for International Monetary Fund
, specialising in South-east Asian economies. He joined Morgan Stanley in 1997 as a Managing Director, and is noted for his provocative views on the Chinese economy
. His bearish calls on Shanghai property and Chinese stock market have attracted criticism from Chinese officials. In China, some local government economists criticized his bearish calls on Chinese Asset Bubble-Burst Cycle and questioned his personality, claiming him as an "American Parrot".
Xie is one of the few economists who accurately predicted economic bubble
s including the 1997 Asian Financial Crisis, dot-com bubble
(1999) and Subprime mortgage crisis
(2008). Xie considers himself as one who has had a reasonably good record at calling bubbles in the past. "I wrote my doctoral thesis arguing that Japan was a bubble in late 1980s, a long report at the World Bank in the early 1990s arguing that Southeast Asia was a bubble, research notes at Morgan Stanley in 1999 calling dotcom boom a bubble, and numerous research notes from 2003 onwards arguing that the U.S. property market was a bubble. On the other hand I have never called something a bubble that turned out not to be a bubble."
Xie described the Chinese economy as a "Panda Economy", which is named after "Kung Fu Panda
" -- a popular Hollywood cartoon movie. He argued that the Chinese economy was not as "nice and juicy" as most people thought and that China has enough space to adjust its political and economic policies to boost its economy only if it decides to reform the income distribution system and stir consumer demand. However, the real estate bubble might kill consumer demand in China. He also criticized economic policy makers across the world as being guilty of replacing an old bubble with a new bubble without real structural reform. He warned that if no structural reform is initiated, the world economy will go back to a 1970's era stagflation. Xie coined the term "Panda Put", in reference to the popular phrase "Greenspan put
", to describe the situation where investors in China believe that the government will not allow the stock market to go down before important dates in the Chinese calendar, like the 60th anniversary of the PRC or the 17th Party Congress.
Xie believes that to keep China from being an export dependent economy, the PRC government will need to redistribute the wealth to its citizens. It can do so via distributing shares of the State-owned companies (SoE) to its citizens and lowering housing costs.
Xie has suggested that to cool property speculation in China caused by excess surplus liquidity, the central government can consider imposing an 80% capital gains tax on property flipping, decreasing 10% each year afterwards.
Xie comments that Japan's low birth rate (1.4%) is partially due to the real estate bubble in the 1980s where China currently is following in the same track. Chinese land policy and short term government behaviors provide the perfect ground for a semi-permanent property bubble. An economic crisis similar to the Great Depression might happen in China within 20 years when Chinese baby boomers (born between 1950 to 1978) start to retire.
On 14 August 2008, Xie released his post "Apocalypse Soon" (末日启示录) on his blog, detailing how the entire U.S. financial system would soon unravel. On 15 September 2008, Lehman Brothers filed Chapter 11 Bankruptcy, and Merrill Lynch was sold to Bank of America in a shot-gun deal.
On 11 April 2009, Xie wrote on his blog that a bear market rally was underway. He suggested that stimulus, inventory cycle and capex spending would provide tailwind for the rally. He also wrote that a second dip would occur in 2010. As of 26 August 2009, the S&P 500 has risen 20.0% to 1028 from 858 on 13 April 2009.
On 4 May 2009, Xie wrote in the Financial Times
that if China loses faith in the U.S. dollar, the dollar will collapse. Commenting on United States' exploding deficit, Xie said that "Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests". "America's policy is pushing China towards developing an alternative financial system. China is aware that it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects China's anxiety over relying on the dollar system."
On 3 August 2009, Xie wrote that "Chinese asset markets have become a giant Ponzi scheme". He wrote "I want to make myself perfectly clear on China's asset markets today. They are a big bubble. Its bursting will bring very bad consequences for the country."
It is hard to estimate how many Chinese "pundits" make these bubble-free statements based on their independent analysis or under the influence of the Chinese government. Some scholars intend to attack Andy Xie's personality and seldom challenge his methodology behind the bearish calls. Xie commented that there is no reasonable logic behind these criticisms, especially on his nationality, and that he would ignore these personal attacks.
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
based in Shanghai
Shanghai
Shanghai is the largest city by population in China and the largest city proper in the world. It is one of the four province-level municipalities in the People's Republic of China, with a total population of over 23 million as of 2010...
, and the former Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
star chief Asia-Pacific economist
Economy of Asia
The economy of Asia comprises more than 4 billion people living in 46 different states. Six further states lie partly in Asia, but are considered to belong to another region economically and politically...
famous for his contrarian and provocative views. He left Morgan Stanley abruptly in October 2006 when an internal email
Email
Electronic mail, commonly known as email or e-mail, is a method of exchanging digital messages from an author to one or more recipients. Modern email operates across the Internet or other computer networks. Some early email systems required that the author and the recipient both be online at the...
that he penned was leaked out. He derided Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
as a money laundering
Money laundering
Money laundering is the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount...
centre for Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
, and the ASEAN group of nations as a failure.
Career
Xie graduated from Massachusetts Institute of TechnologyMassachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...
with a M.S. in Civil Engineering
Civil engineering
Civil engineering is a professional engineering discipline that deals with the design, construction, and maintenance of the physical and naturally built environment, including works like roads, bridges, canals, dams, and buildings...
. He then obtained a PhD in Economics from Massachusetts Institute of Technology in 1990 and went on to become an economist for International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, specialising in South-east Asian economies. He joined Morgan Stanley in 1997 as a Managing Director, and is noted for his provocative views on the Chinese economy
Economy of the People's Republic of China
The People's Republic of China ranks since 2010 as the world's second largest economy after the United States. It has been the world's fastest-growing major economy, with consistent growth rates of around 10% over the past 30 years. China is also the largest exporter and second largest importer of...
. His bearish calls on Shanghai property and Chinese stock market have attracted criticism from Chinese officials. In China, some local government economists criticized his bearish calls on Chinese Asset Bubble-Burst Cycle and questioned his personality, claiming him as an "American Parrot".
Xie is one of the few economists who accurately predicted economic bubble
Economic bubble
An economic bubble is "trade in high volumes at prices that are considerably at variance with intrinsic values"...
s including the 1997 Asian Financial Crisis, dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
(1999) and Subprime mortgage crisis
Subprime mortgage crisis
The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages....
(2008). Xie considers himself as one who has had a reasonably good record at calling bubbles in the past. "I wrote my doctoral thesis arguing that Japan was a bubble in late 1980s, a long report at the World Bank in the early 1990s arguing that Southeast Asia was a bubble, research notes at Morgan Stanley in 1999 calling dotcom boom a bubble, and numerous research notes from 2003 onwards arguing that the U.S. property market was a bubble. On the other hand I have never called something a bubble that turned out not to be a bubble."
Views
Xie's economic views are influenced by the Austrian School.Xie described the Chinese economy as a "Panda Economy", which is named after "Kung Fu Panda
Kung Fu Panda
Kung Fu Panda is a 2008 American computer-animated action comedy film produced by DreamWorks Animation and distributed by Paramount Pictures...
" -- a popular Hollywood cartoon movie. He argued that the Chinese economy was not as "nice and juicy" as most people thought and that China has enough space to adjust its political and economic policies to boost its economy only if it decides to reform the income distribution system and stir consumer demand. However, the real estate bubble might kill consumer demand in China. He also criticized economic policy makers across the world as being guilty of replacing an old bubble with a new bubble without real structural reform. He warned that if no structural reform is initiated, the world economy will go back to a 1970's era stagflation. Xie coined the term "Panda Put", in reference to the popular phrase "Greenspan put
Greenspan put
The "Greenspan Put" refers to the monetary policy approach that Alan Greenspan, the former Chairman of the United States Federal Reserve Board, and other Fed members exercised from the late 1987 to 2000....
", to describe the situation where investors in China believe that the government will not allow the stock market to go down before important dates in the Chinese calendar, like the 60th anniversary of the PRC or the 17th Party Congress.
Xie believes that to keep China from being an export dependent economy, the PRC government will need to redistribute the wealth to its citizens. It can do so via distributing shares of the State-owned companies (SoE) to its citizens and lowering housing costs.
Xie has suggested that to cool property speculation in China caused by excess surplus liquidity, the central government can consider imposing an 80% capital gains tax on property flipping, decreasing 10% each year afterwards.
Xie comments that Japan's low birth rate (1.4%) is partially due to the real estate bubble in the 1980s where China currently is following in the same track. Chinese land policy and short term government behaviors provide the perfect ground for a semi-permanent property bubble. An economic crisis similar to the Great Depression might happen in China within 20 years when Chinese baby boomers (born between 1950 to 1978) start to retire.
Important calls
In 2003, Xie warned that China needed to free up capital markets to avoid losing potential economic growthOn 14 August 2008, Xie released his post "Apocalypse Soon" (末日启示录) on his blog, detailing how the entire U.S. financial system would soon unravel. On 15 September 2008, Lehman Brothers filed Chapter 11 Bankruptcy, and Merrill Lynch was sold to Bank of America in a shot-gun deal.
On 11 April 2009, Xie wrote on his blog that a bear market rally was underway. He suggested that stimulus, inventory cycle and capex spending would provide tailwind for the rally. He also wrote that a second dip would occur in 2010. As of 26 August 2009, the S&P 500 has risen 20.0% to 1028 from 858 on 13 April 2009.
On 4 May 2009, Xie wrote in the Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
that if China loses faith in the U.S. dollar, the dollar will collapse. Commenting on United States' exploding deficit, Xie said that "Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests". "America's policy is pushing China towards developing an alternative financial system. China is aware that it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects China's anxiety over relying on the dollar system."
On 3 August 2009, Xie wrote that "Chinese asset markets have become a giant Ponzi scheme". He wrote "I want to make myself perfectly clear on China's asset markets today. They are a big bubble. Its bursting will bring very bad consequences for the country."
Criticism
Xie's bearish calls of Chinese asset bubble brought broad criticisms from local Chinese "Pundits" and domestic retail investors. These local Chinese "pundits" include scholars from universities, local governments and investment advisors. Some Chinese "Pundits" claim that there is no bubble in the Chinese asset market and high P/E is an indication of strong future growth of Chinese economy. Some suggest that the Chinese asset market is deeply undervalued and return on equity (ROE) analysis is not applicable in China.It is hard to estimate how many Chinese "pundits" make these bubble-free statements based on their independent analysis or under the influence of the Chinese government. Some scholars intend to attack Andy Xie's personality and seldom challenge his methodology behind the bearish calls. Xie commented that there is no reasonable logic behind these criticisms, especially on his nationality, and that he would ignore these personal attacks.