Tariq Saeedi
Ashgabat, 19 July 2013 (nCa) — In the first half of this article, published yesterday (18 July 2013), we argued that China is where it is because of the people of China. This is no earth shattering discovery; just stating the obvious.
However, it is necessary to underline this simple fact because the tail end of generation Y and the main bulk of generation Z, that are entering the civil services and the corporate world already, are the ones that would decide the fate of their own countries and also the fate of the world in general for the next several decades.
The winners would be those countries where the sense of entitlement of this generation would be tempered by equal and opposing sense of responsibility.
The magic is in keeping the channels open between the generations.
This can best be explained by the story of Zhu Changhong.
Zhu Changhong is 43, midway between the generation of President Xi Jinping and the generation Y+Z.
As far as investment decisions are concerned, he is the most powerful man in the world in his capacity as the captain of the Chinese foreign exchange reserve funds that stand at a mind boggling US $ 3.4 TRILLION, and growing.
His official title is chief investment officer at the reserves-management department of SAFE —– SAFE is China’s State Administration of Foreign Exchange.
To visualize how much is US $ 3.4 Trillion, let’s put it against the foreign exchange reserves of the USA and the Eurozone.
The US foreign exchange reserves are US $ 148 Billion and the combined Eurozone reserves are US $ 809 Billion. In other words, the total reserves of China are a whopping 3.5 TIMES more than the total reserves of USA and Eurozone put together.
Just imagine the power of the man who can decide where to put this money – and more importantly, from where to retrieve what was put earlier.
But Zhu Changhong is not just the most powerful man in the investment world, he is also the most invisible man – not a single, good quality photo Zhu Changhong is available on the Internet.
Who is Zhu Changhong?
He was born in a poor family in Anhuiprovince of China. At the age of 20 he arrived nearly penniless at the University of Chicago where he did his doctorate in quantum physics.
Ditching the prospects of a bright academic career, he joined Allianz SE where he quickly proved his genius in investment decisions and became the right hand man of Bill Gross. The earnings at Allianz enabled him to buy two luxury homes in California and a condo in Las Vegas.
However, in 2009 he resigned from Allianz and returned to China where he took over the management of reserves and immediately moved to revolutionize the investment strategy of China, earning him admiration and applause both at home and abroad.
Under his captaincy, China has moved away from the US Treasury bonds and into US corporate bonds, equities and real estate. When he took over, about 45% of Chinese reserves were tied up with the US Treasury. He has since managed to reduce it to less than 35%.
[An excellent article about Zhu Changhong, published by The Wall Street Journal on 16 July 2013, can be found here: http://online.wsj.com/article/SB10001424127887323664204578606301739504368.html]
When we say that the success of China is based on the people of China, we mean the people like Zhu Changhong. Even though the Chinese government must be paying him handsomely, whatever he earns at SAFE would only be a fraction of what he could earn in the USA. With his financial wizardry, he could have started his own investment firm and gone on to make hundreds of millions if not billions.
A trait he has brought home from his academic side is that he spreads the credit instead of keeping it to himself. He calls the success of his policies the success of the entire team, of which he calls himself just a member, not a leader.
He also retains the perspective – The reserves of China are described internally as xue han qian, which means the money earned by the blood and sweat of the Chinese workers.
This is the same sense of responsibility we see in most of the top Chinese leadership including President Xi Jinping.
When it comes to the judiciary, we see this in the suspended death sentence given to the former Railways Minister Liu Zhijun for corruption and abuse of power.
When it comes to austerity measures, we see it in the new leadership of China that insists on austerity from the top instead of passing the buck to the people.
The outcome of the decades of work of the people of China, right from the president down to the farmer in the fields, is what makes China here and now.
Two indicators can serve to highlight this point.
The external debt of China is a small fraction of the external debt of either USA or EU.
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Total External Debt [Total external debt is the total public and private debt owed to nonresidents repayable in internationally accepted currencies, goods, or services] |
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| Total external debt $ | Per capita | % of GDP | |
| China | US $ 710.7 Billion * | 396 | 8.7 |
| USA | US $ 16.7 Trillion | 52170 | 106 |
| EU | US $ 16 Trillion | 27864 | 85 |
* Of the three in this table, only China is the ‘net international creditor.’
While the external debt of USA and EU is very close to being unmanageable, if not already, China is firmly in grip of its finances with US $ 3.34 Trillion of reserves and just $ 710 Billion of debt.
The measurement of the external debt is not in its bulk alone; equally important are its per capita spread and its percentage to GDP.
As we see in the table above, the per capita debt of USA is $ 52170 and it is 106% of GDP. A country much smaller than USA with this kind of debt would have gone under already; because of the sheer size of its economy, USA is being held afloat by the worried investors, one of the being China.
The other indicator is perception – Do the people in other countries consider China a world leader?
To be continued . . .