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

REAL-Economics.com

Macroeconomics

China has had the biggest monetary expansion in world history over the past 8 years, but ran into the "marginal futility of new money" in June 2014-January 2016, as monetary easing mainly resulted in capital outflows, thus failing to boost nominal GDP. The latter improved slightly in 1H 2016, helped by slower net capital outflows, as the PBOC succeeded in generating two-way movement in the RMB (and communicated its strategy on managing the RMB's NEER better). That benign period is about to end, with faster capital outflows likely to slow TSF and M2 growth further, and FAI finally set to decline YoY in 4Q 2016 and into 2017. This is bad for China's growth but should be positive for the rest of the world, which can begin a new investment cycle in 2017.  Capital and services/income outflows were US$56.4bn in July 2016, having averaged a more modest US$47.5bn monthly in the latest six months (Feb-Jul16)-- compared with US$130bn of monthly net outflows in the previous 6 months (Aug15-Jan16), helped by two-way movement in the RMB and the reduced prospect of higher US interest rates. With the US economy gaining strength and US politics supporting a public-investment-led re-acceleration in the US next year (see <a href="https://www.smartkarma.com/insights/bullish-hrc-slays-the-1930s-spectre-prepare-for-investment-led-recovery" target="_blank" data-smartkarma-citation="insights:4810">Bullish: HRC Slays the 1930s’ Spectre; Prepare for Investment-Led Recovery</a>), higher US interest rates will begin to induce larger capital outflows from China by Nov-Dec 2016.FAI rose just 3% YoY in July 2016, although FAI to SOEs was still up 6% YoY -- reflecting the continued strength of bank lending to the effete SOE sector. Shadow-bank lending has slowed to a crawl, and so FAI to the private sector declined more than 20% MoM in July. This is a healthy development for an economy plagued by over-capacity. However, the likely acceleration in capital outflows in 4Q 2016 (as the world re-adjusts to the likelihood of higher US interest rates) will slow M2 and TSF growth substantially further, causing aggregate FAI to decline YoY in 4Q 2016 -- and continue doing so in 2017. Next year is thus set to see a sharp deceleration in China's real GDP growth, and much more turbulence in its political succession process over the next 15 months.For the rest of the world, however, declining FAI in China is a significant net positive -- allowing the US and India to lead a new global investment cycle in 2017 and beyond.

China has had the biggest monetary expansion in world history over the past 8 years, but ran into the "marginal futility of new money" in June 2014-January 2016, as monetary easing mainly resulted in capital outflows, thus failing to boost nominal GDP. The latter improved slightly in 1H 2016, helped by slower net capital outflows, as the PBOC succeeded in generating two-way movement in the RMB (and communicated its strategy on managing the RMB's NEER better). That benign period is about to end, with faster capital outflows likely to slow TSF and M2 growth further, and FAI finally set to decline YoY in 4Q 2016 and into 2017. This is bad for China's growth but should be positive for the rest of the world, which can begin a new investment cycle in 2017.  Capital and services/income outflows were US$56.4bn in July 2016, having averaged a more modest US$47.5bn monthly in the latest six months (Feb-Jul16)-- compared with US$130bn of monthly net outflows in the previous 6 months (Aug15-Jan16), helped by two-way movement in the RMB and the reduced prospect of higher US interest rates. With the US economy gaining strength and US politics supporting a public-investment-led re-acceleration in the US next year (see Bullish: HRC Slays the 1930s’ Spectre; Prepare for Investment-Led Recovery), higher US interest rates will begin to induce larger capital outflows from China by Nov-Dec 2016.FAI rose just 3% YoY in July 2016, although FAI to SOEs was still up 6% YoY -- reflecting the continued strength of bank lending to the effete SOE sector. Shadow-bank lending has slowed to a crawl, and so FAI to the private sector declined more than 20% MoM in July. This is a healthy development for an economy plagued by over-capacity. However, the likely acceleration in capital outflows in 4Q 2016 (as the world re-adjusts to the likelihood of higher US interest rates) will slow M2 and TSF growth substantially further, causing aggregate FAI to decline YoY in 4Q 2016 -- and continue doing so in 2017. Next year is thus set to see a sharp deceleration in China's real GDP growth, and much more turbulence in its political succession process over the next 15 months.For the rest of the world, however, declining FAI in China is a significant net positive -- allowing the US and India to lead a new global investment cycle in 2017 and beyond.  

Credit and FAI Set to Decelerate as Capital Outflows Resume Rising