Andy Rothman is an investment strategist with Matthews Asia, where he writes the Sinology column. He was previously the chief China strategist for the brokerage and investment group CLSA after a long career in the U.S. Foreign Service. On the October 27 Sinica Podcast, he discusses the Chinese economy’s direction and common misconceptions about it that are propagated in the media. Background reading for the episode can be found here, and Andy’s Q&A is below.
Jeremy: What first drew you to China?
Andy: My introduction to China wasn’t planned! I was an undergraduate at Colgate University when the U.S. and China reestablished diplomatic relations. I didn’t have any particular interest in China, but there was an opportunity to join a group of students and an economics professor, who was from China, to travel there for a month, so I jumped at the chance. Aside from Canada, it was my first trip outside of the U.S., and it was an incredible experience. China was still emerging from the Cultural Revolution, and it was fascinating. After I came back to the U.S., I started reading a bit of Chinese history, and then in 1983, when the State Department offered me a job in the foreign service, I volunteered to study Chinese and return there to work.
Jeremy: The early part of your career was in the U.S. Foreign Service and you were the director of the Macroeconomic and Domestic Policy Office at the American Embassy in Beijing. What did this job involve, and what is done with the work that comes from the State Department’s economic research?
Andy: That was in the late 1990s, when U.S.-China negotiations over China’s entry into the WTO were in full swing, and my team at the embassy was focused on analyzing the health of the Chinese economy, and looking at the potential impact of WTO membership on China. Back then, for example, many people were predicting that China’s WTO entry would have dire consequences for parts of the Chinese economy, such as agriculture, and we were looking at that issue.
In general, I was doing research that is very similar to what I’m doing today at Matthews Asia, but just for a different audience. At the embassy, our research was distributed only to U.S. government officials, including in the U.S. Trade Representative’s Office, the Treasury and the National Economic Council at the White House. Now, of course, we are trying to help educate a broad range of investors in the U.S., Europe, Latin America and Asia, and to participate — via channels such as the Sinica Podcast — in discussions about China and its impact on the world.
Jeremy: How does the information that the U.S. government gets about global economics and financial issues compare with what’s available to private-sector investors? What were your major information sources during your time in the foreign service and is that any different from your sources now?
Andy: I think I have better access to information about the Chinese economy today, as compared with when I was in the embassy. Many working-level Chinese officials are still happy to speak with me about their views on the economy. More importantly, people at privately owned companies, which account for more than 80 percent of all jobs in China and drive all of the growth, are, I think, more forthcoming with a private-sector economist than with one who works for the U.S. government, so my access to the largest part of the Chinese economy is much better.
Tracking developments in the Chinese economy is actually much easier now, compared with when I was at the embassy, because the private sector was in its infancy back then, and there was very little data available outside of the government numbers. Today, there is a wide range of private companies that are happy to share information about their order books, margins, investment plans and wages. I know that many people are concerned about the quality of information about the Chinese economy, so I addressed that topic in a note earlier this year.
Jeremy: Your views on the Chinese economy have remained quite bullish for at least as long as I have been following your work, which is more than a decade. Do you ever get accused of being a “panda hugger” or a sell-side booster?
Andy: Sure, occasionally I’ve been accused of being too bullish about China, but I respond with a few points. First, this isn’t like supporting your favorite baseball team, through good years and bad! I can only stay employed if the readers of Sinology — which I’ve been publishing for more than a decade, after leaving the government — think that it helps them better understand China and its impact on the global economy and on their investment decisions. Second, I was very pessimistic about China’s prospects for many years, but in the mid-1990s, my views changed as facts on the ground changed. The Chinese government began shrinking the state sector (laying off 46 million workers over six years!) and allowing the establishment of small, privately owned companies, and the state began relaxing control over its citizens’ personal freedom. I met many Chinese who decided to give up good jobs in the U.S. and return to China. That’s when I began to be fairly bullish. Third, I think I only sound very bullish because so many people are hyper-bearish about China! For example, here is part of the October 19 issue of Sinology:
Perhaps the key takeaway from the just-published third-quarter China macro numbers is that the sky didn’t fall. . . Instead, third-quarter data signaled that economic growth has stabilized at a healthy pace, and that China’s transition from a high-speed, heavy industry-based economy to a moderately fast consumer and services-based economy is well under way. The challenges of completing this transition will result in gradually slower growth rates and increased volatility, but the risks of a hard landing are very low.
Jeremy: Do you see a threat to Hong Kong and New York from a growing desire of the Chinese government and many Chinese companies to list their shares on domestic exchanges in Shenzhen and Shanghai?
Andy: No. I think competition is good for everyone.
Jeremy: What are your top five books (or articles or websites) on the Chinese economy?
The Deng Xiaoping Era: An Inquiry into the Fate of Chinese Socialism, 1978-1994, by Maurice Meisner
This book, which was published 20 years ago, is a fantastic look at the early days of the unique transformation of the Chinese economy. A great foundation for understanding what is happening today.
Markets Over Mao: The Rise of Private Business in China, by Nicholas R. Lardy
This recent book, by one of the leading experts on China’s economy, explains the growing impact of private-sector entrepreneurs.
The Party: The Secret World of China’s Communist Rulers, by Richard McGregor
While entrepreneurs drive China’s growth, the Communist Party still plays an outsized role in economic policymaking, and Richard McGregor’s book provides excellent insights into how the party operates.
The Man Who Stayed Behind, by Sidney Rittenberg, and After the Bitter Comes the Sweet: How One Woman Weathered the Storms of China’s Recent History, by Yulin Rittenberg
These two books are not strictly about China’s economy, but both are great reads and offer important insights into the experiences that shaped the Chinese people, helping us understand their attitudes about the current economic and political conditions.
Sidney Rittenberg describes his time with Mao and other senior party leaders as one of the few Americans to join the Communist Party. He also writes about his long stint in Chinese prisons, when Mao believed (wrongly) that Sidney was a spy. In the second book, his wife, Yulin, discusses what it was like to grow up in poverty in China, as well as the challenges she and her children faced when Sidney was imprisoned.