China May Let The Yuan Continue To Depreciate.

Karl Hartenlok, chief investment officer of Myriad Asset Management (Carl Huttenlocher) does not think so. The Hongkong Based Multi Strategy hedge fund manages its assets to $2 billion 400 million.

Hate Rock used to manage Asia's investment strategy for Highbridge Capital, headquartered in New York and in charge of the world's $29 billion assets. He had a unique view on his prediction at the annual meeting of Thorne Hongkong in June 12th.

And his reason is: in the past thirteen years, China's economic growth It has gone through two stages. Between 2001 and 2008, China's economic growth was dominated by exports and investment in supporting exports.

And in 2008 the world financial crisis After that, fiscal stimulus investment has become the main driver of China's GDP growth, especially infrastructure related construction and residential investment.

As a result, China's housing prices have increased two times over the past ten years, and GDP of residential real estate accounts for nearly the level of the United States before the subprime crisis. The GDP of China's total debt is currently 230%, a big increase compared with 148% in 2008.

When debt We can no longer push China's economy forward, so what will be the driving force for China's economic growth in the future?

Most people predict that consumption will become a new engine for China's economic expansion. Rock said that consumption can only solve some problems, not enough to maintain China's economic growth rate of 7%.

China has been faced with the choice of borrowing heavily after the past five years. One option is to allow the Lehman phenomenon to happen, that is, to let irresponsible companies and banks go bankrupt and give them some lessons. But Rock did not think that was possible.

Another option is to learn from Japan, which means long-term deflation, falling real estate prices and slow economic growth. On the whole, China will usher in the ten year economic depression as Japan did in the 90s of last century. This is clearly not an attractive option.

So that leaves China with only one last option, that is, let the renminbi depreciate to a certain extent. This will help promote exports and support real estate prices. China's huge debts will also depreciate. Wage growth will continue, and 3.5% inflation target can be easily achieved.