By Chris Matthews, MarketWatch
Weijian Shan says that reducing the trade deficit will be more
complicated than the Trump administration hopes
The stock market rallied this week on headlines that suggested
progress was being made toward solving the long-running U.S.-China
trade spat: One report indicated the Trump administration was
considering pre-emptively reducing tariffs as a gesture of
goodwill, another that the Chinese had a plan to get the U. S-China
trade deficit down to zero
(http://www.marketwatch.com/story/china-has-offered-to-ramp-up-us-import-purchases-to-1-trillion-per-year-report-2019-01-18)
by 2024.
See:U.S. mulls easing tariffs against China in order to calm
markets, pave way for deal
(http://www.marketwatch.com/story/us-mulls-easing-tariffs-against-china-in-order-to-calm-markets-pave-way-for-deal-2019-01-17)
But Weijian Shan, chairman and chief executive of PAG, China's
largest private-equity firm with $30 billion under management,
thinks that a resolution to the standoff won't be achieved easily.
"I'm hopeful for the best, but I am prepared for the worst," he
told MarketWatch.
Shan argued that the Trump administration's insistence on a
swift reduction of China's $323 billion trade surplus could be a
demand to great for even the powerful Chinese government to
meet.
"The government in China can't force private consumers to buy
American goods, and they can't force American companies to sell to
Chinese consumers," he said. "We really have to see the specific
measures they have in mind, not just their goals" before investors
can be sure that progress will be made in negotiations to reduce
trade barriers.
Though markets may suffer in the short term as difficult
negotiations play out, he is optimistic in the long run for both
the Chinese and U.S. economies. While he worries that Chinese
reforms aimed at transitioning the economy away from dependence on
exports and investment toward one based on consumer spending isn't
proceeding quickly enough, he notes that the private sector in
China now accounts for 60% of gross domestic product, and said that
the growing power of the private sector will compel reforms that
promote market-driven innovation.
Read: Brazil is making a play as the emerging market destination
of choice in 2019
(http://www.marketwatch.com/story/brazil-is-making-a-play-as-the-emerging-market-destination-of-choice-in-2019-2019-01-18)
Shan, who's newly published memoir Out of the Gobi
(https://www.wiley.com/en-ba/Out+of+the+Gobi%3A+My+Story+of+China+and+America-p-9781119529491)describes
his journey from teenage victim of the 1960s Cultural Revolution to
the highest echelons of global finance, has a long-term view on
China's evolution from a command economy to a center of capitalist
innovation.
It's this perspective on the historic wealth creation China has
seen since embracing private markets 40 years ago that makes him
believe that the logic of furthering reform will win out in the
end.
Investors will be focused on the question of Chinese economic
reforms in the week ahead, following the release fourth-quarter GDP
numbers on Monday Jan. 21, when U.S. markets will be closed for the
Martin Luther King Jr. Day
(http://www.marketwatch.com/story/which-stock-markets-and-bond-are-closed-for-martin-luther-king-jr-day-2019-01-18)
holiday. Beijing will also be releasing numbers reflecting growth
in industrial production, retail sales and fixed investment.
Economists are expecting annualized growth in the fourth quarter to
come in at 6.4%, a slight decrease from the 6.5% in the third, but
well below the 7.5% growth averaged between 2011 and 2017.
"China is to be watched carefully," Bob Doll, senior equity
strategist and portfolio manager at Nuveen told MarketWatch. "Given
their size, it's incredibly important to the global scene--the vast
majority of global, incremental GDP comes from China."
The data is particularly important for U.S. multinationals,
which increasingly derive much of their revenue abroad
(http://www.marketwatch.com/story/china-slowdown-will-weigh-on-us-stocks-in-2019-barclays-2019-01-08).
Unfortunately, there isn't much reason to be optimistic about
the Chinese economy in the near term, according to Marc Ostwald,
global strategist and chief economist at ADM. He predicts the data
will show retail sales growth at a seventeen-year low, throwing
cold water on the idea that Chinese officials are having success
transitioning their economy to one based on consumer spending.
"Markets will be rather more interested and sensitive to any
further specifics on stimulus measures, and above all progress on
trade talks with the U.S.," he wrote in a Friday note to
clients.
It's this forward-looking news that could either help U.S.
markets extend their four-week winning streak, or dent investor
hopes that the Chinese economy will avoid a trade-war induced hard
landing.
On Friday, the Dow Jones Industrial Average rose 336.25 points,
or 1.4%, to end at 24,706.35
(http://www.marketwatch.com/story/us-stock-futures-extend-gains-as-investors-cling-to-hope-of-trade-resolution-2019-01-18)
for a weekly gain of 3%. The S&P 500 index advanced 34.75
points, or 1.3%, to 2,670.71, gaining 2.9% for the week. The Nasdaq
Composite added 72.76 points, or 1%, to 7,157.23, finishing out the
week 2.7% higher.
Earnings season heats up
After the long weekend, investors will be served up a fresh
batch of fourth-quarter corporate earnings beginning Tuesday,
including results from Johnson & Johnson(JNJ), Haliburton Co.
(HAL), International Business Machines Corp. (IBM) and Capital One
Financial Corp. (COF).
Wednesday will feature reports from the Procter & Gamble Co.
(PG), Comcast Corp(CMCSA), and United Technologies Corp. (UTX),
among others.
Thursday earnings include Intel Corp. (INTC), Union Pacific
Corp. (UNP), Starbucks Corp. (SBUX), and Bristol-Myers Squibb Co.
(BMY), while Friday will feature reports from AbbVie Inc. (ABBV)
and Colgate-Palmolive Co. (CL)
What data are ahead?
Data on the U.S. economy will be light next week, especially if
the government shutdown continues and forces the delay of durable
goods orders numbers, core capital equipment orders and new home
sales, all due Friday.
See:MarketWatch Economic Calendar
(http://www.marketwatch.com/economy-politics/calendars/economic)
On Tuesday, investors will get a reading of existing home sales,
while Thursday will feature weekly jobless claims numbers, Markit's
purchasing manger's index for both the manufacturing and services
sector, as well as the Conference Board's leading economic
indicators.
There will be no speeches from Federal Reserve officials next
week, as they prepare for their Jan 29-30 meeting.
(END) Dow Jones Newswires
January 19, 2019 13:44 ET (18:44 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.