Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, Chief Economist at ICICI Securities, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.

Chief Economist & Political Strategist

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Macroeconomics

China's working-age population has been declining since 2013. With minimal increases in the migrant labour force, almost all of China's 6.7% real GDP growth has to come from productivity growth. With exports continuing to decline (-7.3% in Oct'16, -10% YoY in Sep'16), productivity growth can only be generated by rapid FAI growth (itself irrational in an economy suffering from widespread overcapacity).  Despite paying lip-service to moving away from investment-led growth, a renewed spurt in credit and TSF generated an acceleration in FAI in September-October 2016 (to +9% YoY growth, from a trough of 2.6% YoY growth in July). However, capital flight resumed in October '16, with services/income and capital outflows swelling to US$95bn that month (above the monthly average outflow of US$$81.67bn over the latest 12 months), as the RMB depreciated by 1.2%MoM. With the RMB's depreciation accelerating (already 2%) in the first three weeks of November 2016, capital outflows are likely to accelerate.China's TSF grew 14.3%YoY faster in Jan-Oct 2016 (to RMB14.4tn, or an increase of US$2.1tn) helping to buoy FAI, thereby achieving the 6.7% GDP growth target in the last two quarters. However the larger capital outflows will likely trigger the marginal futility of new money, making it difficult to sustain big increases in TSF and credit in November-December (months of larger money demand). The consequent tightening of liquidity conditions will be exacerbated by the 25bp hike in the US Fed Funds rate in December, and the likely further upward spike in US bond yields as President-elect Trump unveils his infrastructure spending and tax-cutting agenda (both likely to raise the US fiscal deficit). We expect the US 10-year bond yield to rise to 3.5% by mid-2017, steadily tightening liquidity conditions for China -- and reining in GDP growth and property prices.The size of the US bilateral trade deficit with China (US$322bn in the latest 12 months) will become a major political issue in the early months of the Trump presidency, likely resulting in calls for anti-dumping duties and other restraints on imports from China. Given that there have been no net additions to China's holdings of US Treasuries since 2H 2014, China has little real capacity to retaliate against the US (especially since it has such a large bilateral surplus). Consequently, the US is likely to get its way on trade and (eventually, in 2018) in obliging China to stop depreciating the RMB -- because President-elect Trump will have a key ally in Chuck Schumer (D-NY), the Senate minority leader, in labelling China a currency manipulator. China's exports and FAI are likely to decelerate significantly during the first two years of a Trump presidency, slowing the economy and heightening the risks of a crack in the edifice of China's fragile financial system.

China's working-age population has been declining since 2013. With minimal increases in the migrant labour force, almost all of China's 6.7% real GDP growth has to come from productivity growth. With exports continuing to decline (-7.3% in Oct'16, -10% YoY in Sep'16), productivity growth can only be generated by rapid FAI growth (itself irrational in an economy suffering from widespread overcapacity).  Despite paying lip-service to moving away from investment-led growth, a renewed spurt in credit and TSF generated an acceleration in FAI in September-October 2016 (to +9% YoY growth, from a trough of 2.6% YoY growth in July). However, capital flight resumed in October '16, with services/income and capital outflows swelling to US$95bn that month (above the monthly average outflow of US$$81.67bn over the latest 12 months), as the RMB depreciated by 1.2%MoM. With the RMB's depreciation accelerating (already 2%) in the first three weeks of November 2016, capital outflows are likely to accelerate.China's TSF grew 14.3%YoY faster in Jan-Oct 2016 (to RMB14.4tn, or an increase of US$2.1tn) helping to buoy FAI, thereby achieving the 6.7% GDP growth target in the last two quarters. However the larger capital outflows will likely trigger the marginal futility of new money, making it difficult to sustain big increases in TSF and credit in November-December (months of larger money demand). The consequent tightening of liquidity conditions will be exacerbated by the 25bp hike in the US Fed Funds rate in December, and the likely further upward spike in US bond yields as President-elect Trump unveils his infrastructure spending and tax-cutting agenda (both likely to raise the US fiscal deficit). We expect the US 10-year bond yield to rise to 3.5% by mid-2017, steadily tightening liquidity conditions for China -- and reining in GDP growth and property prices.The size of the US bilateral trade deficit with China (US$322bn in the latest 12 months) will become a major political issue in the early months of the Trump presidency, likely resulting in calls for anti-dumping duties and other restraints on imports from China. Given that there have been no net additions to China's holdings of US Treasuries since 2H 2014, China has little real capacity to retaliate against the US (especially since it has such a large bilateral surplus). Consequently, the US is likely to get its way on trade and (eventually, in 2018) in obliging China to stop depreciating the RMB -- because President-elect Trump will have a key ally in Chuck Schumer (D-NY), the Senate minority leader, in labelling China a currency manipulator. China's exports and FAI are likely to decelerate significantly during the first two years of a Trump presidency, slowing the economy and heightening the risks of a crack in the edifice of China's fragile financial system.  

China: Hurtling Toward Crisis, Nudged Along by Trump