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, 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

China: Large Net Capital Outflows Presage Trouble as Excess Capacity Begins to Bite

China Has Had a Great 2020, but Over-Capacity Will Cause Headaches in 2021

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CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Macroeconomics

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China.

Exports were the key driver of China's acceleration in GDP in 4Q 2020, but FAI had been the key factor buoying the economy in April-December 2020. The low base will help power a substantial acceleration in YoY growth in 1Q 2021, but the impact of the FAI surge will hurt in 2H 2021, as export opportunities shrink once the rest of the world's production normalizes. In the interim, however, we recommend staying tactically overweight China. China's industrial growth of 7.3% YoY in December 2020 was the fastest in 3.5 years, while the 7.1% YoY growth in 4Q 2020 was the fastest since 3Q 2014. In turn, that powered the 6.5% YoY growth in real GDP during 4Q 2020, the fastest growth pace since 3Q 2018.  The key driver of the faster growth was a surge in fixed-asset investment (FAI) in April-November 2020 (+9.6% YoY), and a sharp acceleration in exports (+16.9% YoY) in 4Q 2020. The record trade surplus of US$212 billion in 4Q 2020 was accompanied by only a modest US$74 billion increase in foreign reserves, reflecting continued net capital outflow even amid the strengthening RMB. Given that China has massive industrial over-capacity, the sustainable response would have been to stimulate domestic consumption to take up that capacity. Retail sales did improve in 2H 2020, but still grew only 4.6% YoY in December and in 4Q 2020. Instead China added hugely to excess capacity (particularly physical infrastructure) with a boom in FAI, up 9.2% YoY in Apr-Dec 2020, the fastest pace since 1H 2016. This approach didn't hurt China in 2020, because the rest of the world's industrial capacity was inoperative, and China's exports consequently soared.      Full year real GDP growth was only 2.3% in 2020, the slowest in 3 decades, primarily because of the steep contraction in 1Q 2020 (the only quarter in which China was partially locked down on account of the Wuhan coronavirus). Consequently, 1Q 2021 will see spectacular YoY growth in all China's economic numbers -- exports, industrial output, FAI, retail sales, EPS growth -- helped by the artificially-depressed base. From 2Q 2021 onwards, real GDP growth will slow significantly (we estimate 5% YoY for 2Q-4Q 2021), as the reopening global economy reduces demand for China's exports, and industrial overcapacity resumes biting. In the near-term (1Q 2021) we recommend staying tactically overweight China. 

MSCI AC Asia ex Japan Index (MXASJ INDEX)

China's 2021 Will Look Spectacular in 1Q, but Overcapacity Will Bite Thereafter