oh thanks for joining our team before we get to cross talk here are your headlines the british prime minister turns his tour of asia into a weapons sales seeking arms deals with nations in the pacific and move many see as an attempt to undermine china's growing this comes on the heels of the united states building up its military presence in the region. syria says government troops will stop all military operations on thursday morning in accordance with the u.n. grover a deadline for

a cease fire with opposition fighters that's despite some western countries again lashing out at the assad regime for its alleged failure to stick to commitments. kind of powerful earthquake and subsequent aftershocks triggered tsunami warnings in indonesia and several other countries in the indian ocean and there were no immediate reports of deaths or damage following the eight point six magnitude quake . china's poised to become the next global economic power player but just how soon will it happen you can find out right now on crosstalk. you. start. to. think this is. a low in welcome across the uk i.q. level rising and surpassing this is one way to describe china's truly amazing ascent on the international stage but with success comes challenges is the u.s.

ready to be second best in china and as china becomes number one put demanded a change of the rules that have benefited the west for decades even centuries. across china is number one i'm joined by even our own in our lando he is director of the china center at rome's college and author of chinese international investments in hong kong we go to martin henniker he is an associate director at the tight group and in chicago we have joshua lipman he's an associate with the boston consulting group and has done prior research on the chinese currency i gentlemen this is cross-eyed and you can jump in anytime you want martin if i go to you in hong kong first the international monetary fund says that china will equal the u.s. economy in two thousand and sixteen but others are even saying that the chinese economy is already surpassed the american one how do you look at it. yes

they are saying that the most optimistic viewpoint is they're trying as economy may already be traders and largess and the united states won so entirely sure where it is but certainly from our point of view the perspective of the european from the united states and europe is generally a that still china is letting far behind and we think that's clearly not true and apart from the i.m.f. a study by the economist released just now saying was a lie the i.m.f. that china will be surpassing the u.s. as the number one economy in two thousand and sixteen in the purchasing power parity terms in two thousand and eighteen in nominal g.d.p. terms of we would think if they have not already overtaken the u.s. which is quite possible then to than sixteen thousand eighteen that's probably the latest date so clearly from an investor's perspective you better look at china gaining some exposure in some way from a geopolitical perspective clearly it's gaining influence quite strongly and it's

probably a good thing that this is happening you know a trend and russia has been criticized a lot in the west but then as we all know there are different perspectives on this and the eastern countries often say that the western interests are stabilizing the world and not the other way around so generally yes china grib you probably number one soon and we think it's a good say ok joshua new york are you nodding your disagreeing ok so go right ahead what you. just. yeah martin i mean i think no one can deny the rapid growth of china sea in the last few years but the fact of the matter is that just in nominal g.d.p. terms the u.s. has more than double china now just around fifteen trillion u.s. dollars with china around six trillion u.s. dollars i don't see i don't see that imbalance changing anytime soon my firm has done some research on the productivity and you know there are a lot of factors contributing to manufacturing in jobs and going back to the u.s.

from china i think this is all contribute to you know a slowing the growth of china and my research i want to make clear that my research is separate i'm not here representing my firm but the the research that i've seen and the evidence i've seen all coin to you know china's growth slowing and so i mean i just love it even example you were saying that even seven percent that's that sterling growth isn't it seven percent per economy that's nice. and even if i made i mean again. it is going ok marty want to jump in there when we were allowed to go ahead marty when we are here just to get there so we're really there so much for watching as opposed to slowing your time i mean who does looking at the most recent indicators the p.m.i. index is strong fifty three point one the us fifty three point three the economy still has requests strong and as you say it's you know many multiples of what's the rest are storing and it's it's not a theory i mean just on the present projected growth even in the normal figure if

anything like the figures they need it is going to continue then said fred china real whatever united states in two thousand and eighteen it's not an opinion stressed if somebody has a saying in the u.s. well china's economy is just about to collapse there will be you know one thing that will stop it but if nothing fundamentally changes the fact that china really all of the united states so if you think is the word and so i was in like some hedge fund managers their property is going to collapse and that may be different but otherwise i'm sorry that's just not the reality of the way the way things are going and on the property just briefly are we are going this prices are quite high but that's one sector and other sectors are very very strong in china and beating really. being a great challenge to the west and. going. ok and frankly you know i wonder what accounts for the differences here because i mean i came across a report that said we did it decade it's possible the chinese economy be twice the size of the u.s. and we hear from joshua if you disagree with my money kind of it's not china but

saying it's much smaller i mean why the different numbers so i actually think the focus has been misdirected because looking. g.d.p. or purchasing power parity g.d.p. simply means that the overall economy is larger in china and with a billion people a billion plus people of course the economy's going to be large. in a country with three hundred million people such as the united states but i think what we really need to focus on is the ability of china to sustain it for a prolonged period of time and to achieve the quality of life their people and united states have if you look at the g.d.p. per capita in the united states it's significantly higher than that of china and will continue to be soul for years to come furthermore if we look at other quality of life in the clears such as pollution political risk control of corruption

those are all the issues that china is still struggling with in this simply focus on g.d.p. i think is misdirected well i'm joshua if i go to you i mean it's this not just focusing on g.d.p. i mean we're looking at different sectors the economy in china that are excel meanwhile they're dying in the united states we just don't have to look at g.d.p. . yeah. one hundred percent i really don't know how it's going to be capita g.d.p. per capita in the us is ten times greater than g.d.p. per capita in china and if my point is that even if you look at g.d.p. overall i still think the china has a long way to go no no denying that china is growing a lot it is but it has a long way to go before it can get close to even think you are passing us ok. let me think ok the thing is going to. go ahead yeah i would say

six years isn't deadline you know even if you are saying you know i mean even if you're saying the property market may slow down if you actually know. the former comptroller of the united states the guy who is in charge of auditing the books of the u.s. government david walker has been saying earlier this year that the u.s. is now where greece was two years ago in terms of instead crisis or even you know if you're saying that some probably slowdown in china you know the u.s. debt problem is apparently also just about to explode they will probably all grow as big as some water or so again you know that this is an order of the world control that china with all of the west i find it quite funny because again just under present numbers it is six years it's not really their pie in the future i mean. i didn't even bring up. i don't even bring up the fact of the property situation in china but that's definitely one factor contributing to a decrease in the rate of growth in china i think additionally you have to think

about the pressures on trying to see the advantage the cost of labor that china has had is going to be decreasing with the appreciation of the currency and with the increase in demand for wages by chinese workers my firm came out with statistics that says you know by two thousand and sixteen chinese coastal workers may only have a ten to fifteen percent cost advantage of. labor against us workers and with that kind of energy in factoring in things like transportation costs and inventory cos you're almost not seeing any benefit to producing things in china it's. just language you're right if i go to a lot i mean that's one of the reasons why the chinese are going to start investing more in their own domestic economy because they have domestic consumption i mean we may not have the cutting edge for exports in the near future whatever that means but they have a huge domestic market if they can work on that's a huge advantage yeah i mean i think there's no question about it but i think also when we look at the growth numbers we have to be very careful because if we grow

from one to two we grow by one hundred percent if we grow from one hundred to one hundred one we grow by one percent in both cases we've added one unit of value but in one case we've grown one hundred percent and the other the other place we're growing one percent so i think we have to take that into account on the china is starting at a much lower place now in terms of china's investment china is now looking to invest not only in china but really throughout the world in africa and in lead in america in areas that were traditionally the backyard of the united states and they are seeking resources and technologies to continue to fuel the economic growth ok it's very intriguing you kind of jumped ahead of me i want to do the second part of the program but martin i'd like to go to you i mean china with three trillion dollars in hard currency reserves they're turning into the lender of the most favored lender right now because china can loan money without

conditionality the i.m.f. is criticized for. yeah and that's really one of the reason as of us just mentioned bets china is so successful in other countries because you know where they're willing to lend and they're don't always force the countries like them i am there for as close spares to hospitals and schools before the money is flowing in and as a condition that just goes back to repay loans from major international banks who have you know lend money or twelve percent or fifteen percent or twenty percent rate but don't want to take the risk still has a bit of a political story but basically if you're looking at their faith but china has had enough of it i'm going to be elements where since i really moved in there quite substantially two or two would put it well of infrastructure as they are and in addition to obviously getting the raw materials i would it has had really quite a significant development in fact i don't think anybody can deny this and that's really also i hope we would sing for i try never to asian economies in general that the exports to the emerging markets and the integration with i don't know in

markets are growing because the us and i would say as we see a few of us going deeper into a better crisis around one point russia just mentioned you're saying well the g.d.p. per capita in the u.s. is still ten times higher than china on the other end china supposed to certainly have a cost advantage of ten to fifteen percent that doesn't really seem good to air out on you perhaps if you assume that i was exposed or great to see you as a very far away but in the future that's going to be less and less the case as there was a prior call to other emerging markets ok joining i jump in here we're going to do a short break and after lunch everything you do you are disgusted and china is number one state department. the ok thank you. ily. thank you thank you thanks.

her. this is true he still keeps secrets but now it's time to feel up to something that silenced oxys a. if. any leave.

the to. see. him up. welcome back to crossfire it will come to mind you were talking about continue to rise of china. ok. ok when before we wanted a break you wanted to respond to martin's rapid fire comments about the chinese economy go right ahead. yeah i think we're we were talking about china being able to lend countries some of their foreign reserves and actually some of the reason the chinese are actually able to lend money to other countries is because

the u.s. has allowed it to explore. under strict under most favored nation status and allowed the currency to continue to be low so china was able to accumulate trillions of dollars of reserves as a result of this trade policy one of the things that we have to realize is we're talking about a chinese in american economy is that we really can the carport these two economies these two economies are sharing a bed and the success of one will affect the success of the other well ok but if we could you know if i could stay with you on i mean but the ills of the united states and its economy in the euro zone that's something that china doesn't want to get itself ensnarled in come on let's you know it's the international waters been established by washington the washington consensus in europe it's been that way for centuries the chinese don't like it and they want to move away from it and why not go ahead well in fact i'm not so sure they want to move away from

and i think the current system in place to trade system that we have in place is there actually the one that has allowed china to prosper because it has allowed china to export sometimes at the expense of western europe and american companies who couldn't compete on decelerator couldn't compete on cheap labor who couldn't compete on the cheap currency frankly so the united states and europe have had policies that allow developing countries to export unrestricted with limited i mean that's appearance very. very minimal in our city i mean martin if i can go to you were times that we might even sort of that you know china is doing well because the americans allow them to do well. well it's a tricky question i mean to some extent it is true i would say that the currency has been undervalued i mean it's appreciating slowly but it's still under value which is also why probably that they're going to be number one for us in purchasing

power just. for a lot of fallout. one and. it's tricky to say you know what what do you interpret history here if the americans and europeans just were so generous and of goodwill to all the neighbors to allow this to happen or what exactly was the reason i mean i would say today look at today what is the reality. is that china has become more powerful whatever exactly the reasons would have been maybe they just used as they did is the. so-called you know that's the reason why china is controlling the us not because they only have their own guns who have them but they were the only ones to be bothered to get up those trucks and do this this hard you know poisoning polluting in a way i want to do it so you can also argue it that way but clearly now china is the major economy or soon to be the remnant is also in the valley and from an investor's perspective that means you you find good investment opportunities also

there and since you briefly talked about the property and troubles they also want to touch on banks because that's one thing the china boom is our from saying the banking system is about to completely collapse because of property but one single well mind trying is banks have the highest reserve requirement ratio in the world almost only levanon it's still above the eleven and they do pretty well and it wasn't any reason to is no trying to christ what the reason is because they really have such a rigid interest. martin is always encyclopedic of this program josh. has been cleared to say so because i mean one of the things i want to get on the real is that you think the us how do you what's going to settle into second place ok i mean i'm an american you're american but you and also i mean we've been brought up it's always number one but in our lifetime that's going to change. so yeah i think there are a few points here first on martin's point about the chinese currency undervaluation

i think that's certainly the case on their own agrees the order of magnitude is a question but i think most people would agree in the order of thirty forty percent that you know chinese renminbi is undervalued and that's something that actually has changed in the last few years so i wouldn't say that the u.s. and europe have just been stagnant on those policies i mean since two thousand and five when china decoupled its currency from fixed page to the u.s. dollar china's been steadily appreciating its currency over twenty percent in the last few years so i think this is going to be one factor that contributes to the decline in china's exports and slows the rate of growth and to peter your point about how the u.s. will deal i mean i think the u.s. is coming to terms of coming to grips with the fact that it is no longer the only superpower in the world and it will have to share that power but i think there are a lot of i just i mean every time sure you've been really well in the republican campaign you've been following the republican campaign i don't get any sense from the republican party that you know that anyone should be more than number one of

the united states is always going to be that place particularly matelot military spending if i can go to you as one of the interesting things that analogy i came across in researching this program is that you know right now the united states is kind of like britain after the first world war the us had was the largest economy in the world but britain was still the policeman of the world without all these ridiculous wars spend so much money on defense spending wow it sounds kind of like the united states to me in the present i mean the chinese are watching the united states tear itself to pieces ok and the chinese just keep slowly going up and up and it's remarkable to watch from a distance. yeah i think the chinese are going through an industrial revolution of sorts in a similar way that the united states has gone through it in the twentieth century taking over the power of europe and europe in in the nineteenth century so i think you're right that there is a lot of parallels to be drawn here between the declining power of the united states and the declining powers of europe but let us remember that even after the

decline in european quality of live g.d.p. per capita air quality. education level control over corruption are still much much better than then most emerging markets so to say that china. only needs the united states to grow is also i think an extreme point of view i believe that china and i think there's now i'm just simply by growing internally in the same way that the united states grew internally in the twentieth century ok joshua jumping ahead. i think there's an important point to make you're making this parallel if you look at cost world war two me the u.s. had about forty percent of the mean fracturing exports in the world and so to say that you know that the u.s. is in britain's place today i mean the u.s. economy today is relatively strong compared to china only has twenty percent of world exports and to me that's largely driven by exports so i wouldn't say that you

know the u.s. is headed towards decline in the same way that europe may have been after world war two and i think you one made a good point that there are a lot of other factors quality of life and standard of living. that are favorable for developed countries or vs going to me tina improved ok martin i think you could spare to say of the last thirty over the last thirty years we're going to martin and the quality of life for the chinese is improved immensely i mean i think we tend to forget what it was like thirty years ago thirty five years ago go ahead martin. absolutely right a lot of people have come out of poverty by person x. and i do agree if you go to china you know the living space there and then compare that to you know what kind of housing living standard you can buy in the u.s. but that's because they have more lending doesn't mean they're better education pay if you have you know educated people you know supposedly talking about how their education is much better in america and then in asia for example that's that's a job because i'm just looking at the international part they always coming out and

obviously his education seems to be considerably better in asia and then to say that this is not the case you know shows maybe there's something wrong because they think asian americans a lot of american see there's still you know we're very very u.s. centric and you just mentioned last thing the republican party isn't waking up to this but one part of the republican party is those ron paul supporters are actually a lot more modest and realizing that their best days and out of their crisis you know for us the best case may be very much chance to get other countries. stronger and stronger by the united states going to go back to you in orlando i mean if china grows in other emerging markets they're going to want to see a change of the way the world is run at least economically financially speaking because they want to a greater stake ok and we look at these institutions like the world bank the i.m.f. i mean this is all post world war two ok we're now in post cold war ok we're in the twenty first century now i mean when are those institutions going to balance out

more to represent the majority of the people in the world not the americans not the europeans there are smart small minority in the world right now and their economies are shrinking relative to the bric countries for example yes i think you're right but the system that is the world war two is the current system of economic order political order so the chinese really in the russians and the brazilians and other emerging markets really have two choices or do they want to participate in the current systems to yield more influence in the in the systems that we currently have or do they want to create new systems based on a wider area and occasions i have i think the chinese are going to try to influence the current system and create some new systems for example creating a monetary fund will be able to bail out developing countries and be able to give foreign aid but to simply say that we will shove aside all of the systems that

we've developed in the you know. what about replacing the dollar with a fair currency unit for the world i mean that just benefits the united states at the detriment of everyone else in the world everyone. yes well you have to remember that immediately after world war two we did develop an instrumental a that was called special drawing rights as the r.'s and the reason we don't have as the us today is because nobody wanted to use them the dollar has become gold central gravitated good is we've all been a little busy to figure out your figure of speech ok ok josh one of your last one of those is going to change my point go ahead joshua yeah i think he's make an important point that bretton woods taught us that you can't make an artificial currency and at the end of the day people trade what they have and and this economy people have dollars people trillion dollars and that means good news for the u.s. in the short term ok we'll see if the chinese can get rid of them one way or

another you guys go way over another time a think so my guess a day in our land and in chicago and banks are viewers are watching is here already see you next time a member rostock. can still. from.

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