Interview: Jim Rogers on Chinese Economy, Yuan Policy, and GM

on August 15 2010 12:29 AM
American investor and financial commentator Rogers addresses a luncheon at the Asian Financial Forum in Hong Kong
American investor and financial commentator Rogers addresses a luncheon at the Asian Financial Forum in Hong Kong Reuters

Jim Rogers is an investor and financial commentator.  He maintains residences in Singapore and Miami.  Rogers first gained fame as the co-founder of the Quantum Fund.  More recently, he is known for his bullishness on China and commodities and for his record-breaking trips around the world.

IBT: Jim, I know you're bullish on China. What economic benefits are there of moving there? Why shouldn't an American just have investment exposure to China?

Jim Rogers: In 1807, if you had moved to the U.K., you and your heirs would have been much, much better off for the next 100 years. If in 1907 you had moved to the U.S., you and your heirs would have been much better off for the next 100 years.

 

In my view, moving to Asia in 2007 means my heirs are going to be much better off in the next 100 years.

 

In 1907, if you had stayed in Poland or China, you would not have had a great future, nor your families. Had you moved to America, [your descendants] would have had a much better future. Who knew what they would do, if they would become doctors or what, in the next 100 years. But whatever happens to them, they were better off. They spoke English, which became the world's language.

 

My view is that the 21st century is going to be the century of Asia, of China. If I'm right about the future, you are going to have a better life [if you move there], better opportunities, and better everything going where the action is, where the assets are.

 

IBT: Do you have a rough time-line of when China's GDP will surpass the United States' GDP? They just passed Japan, according to one Chinese official.

 

Jim Rogers: I have no idea. I know we can sit down and do the arithmetic, but that's rarely the way to do anything because projecting past occurences into the future rarely works. I think the World Bank says by 2020. They're just extrapolating the present trend, first of all. Second, the World Bank has never been right about anything, so I'm sure they're not right about this either.

 

But to answer your question, I have no idea. I know that China is on the rise, and at least relatively, America is on the decline.

 

IBT: You're more bullish on China than India or any other large, emerging market countries. Why is that?

 

Jim Rogers: China has a long tradition of entrepreneurship and capitalism [he is referring to the past few thousand years and not the period from 1949 to 1978, when China's economy was essentially Socialist]. They have been extraordinarily successful several times in history. They are perhaps one of the few, if not the only, country in history that has been great four or five times. They had also been disastrous four or five times.

 

Great Britain was great once. Rome was great once. China has been great several times. They were in decline for 300 years, until about 1978, when Deng Xiaoping said “this is not working, let's try something new” and they started over. I don't know if it's going to work out, but historically, they do have whatever it takes to become a very successful nation. And the overseas Chinese have lots of capital and expertise.

 

It [China's economic future] may not work. But it's the only large country that I can see on the horizon that can dominate the 21st century.

 

IBT: What do you think about China's currency policy?

 

Jim Rogers: No economy can become world class with a blocked currency. That's never happened in history. Throughout history people with blocked currencies have eventually declined. China knows that; I'm not the only person who's read some history.

 

They have been opening their currency for the past five years. Every quarter, every year, they open a little more. I thought they would have made it freely convertible by now. In my view, it's good for China, good for the Chinese [people], and good for the world. The sooner they make it convertible, the better.

 

I cannot tell the Chinese what to do; I don't want to tell them what to do. But yes, they are opening up and it has been good for the world so far. It's certainly been good for many parts of the world [that] sell to China; [they are] much, much better off than they were 20 years ago. So something has gone right. [China is] going to have to open their currency and make it completely convertible some day.

 

Again, I thought they would have done it by now. China doesn't have anything to worry about anymore. They are the second largest economy in the world and they have gigantic foreign exchange reserves. I don't think they should worry, but they seem to be worried for whatever reason.

 

IBT: So you have any idea what that reason is? What are they worried about?

 

Jim Rogers: I know they say in the press that if the currency goes up, China will suffer. That may be correct. I would point out though that the Japanese yen has gone up 400 percent over the past few decades and Japan still has a balance of trade surplus.

 

I would also point out that if the currency goes up in China, many people would benefit. They import all their cotton. They import oil. Everything they import would go down in price, so a lot of people would be better off!

 

They are worried about the people [like exporters] who might be worse off rather than the people who would be better off.

 

IBT: But what about the argument that you should keep production in your country, gain competency, and move up the technology ladder?

 

Jim Rogers: Historically, the countries that have closed off have gone into decline. In 1962, Burma was the richest country in Asia. They closed their economy and country in 1962, and now they are one of the poorest in Asia.

 

In 1957, Ghana was the richest country in the British Empire. But in 1957 they closed their economy, their country, to outsiders and within eight years, they were bankrupt. I can go on and on. Historically, closing off to the outside world has not been a very prosperous way to develop.

 

You need outside ideas, outside capital, and outside competition. Competition makes things better, not worse. Some people obviously suffer. But in the end, the 1.3- billion Chinese are going to be better off, with better products, better quality, and cheaper products. Closing off has never worked.

 

IBT: But what about the automobile industry in the U.S.? Hasn't opening up hurt it?

 

Jim Rogers: The U.S. automobile industry is a perfect case of how not to do it. It's a textbook example. In 1965, General Motors was the largest corporation in the world and the most successful. [They were] debt-free [and had a] gigantic market share.

 

But the Japanese started coming. Brought in cheaper cars, better quality cars. The American automobile industry didn't react, didn't compete. Unions kept on demanding more and more benefits, management kept on giving them away with little vision of what the future would hold, and eventually it led to bankruptcy.

 

By the end, the cost of a GM car had several thousand dollars of workers' benefits in it. No way it could compete with Koreas, the Chinese, or Japanese or anybody else who maintained competitive practices and weren't giving away the store! But when you're fat and fancy, as General Motors was for decades, [well], nobody paid much attention, they didn't care!

 

That's all well and good. Capitalism is replete with examples of companies and individuals that got fat and sassy and didn't see the changes taking place. I mean, you can take a look at the computer industry. Dozens of names that were in the computer industry 15 years ago do not even exist anymore because they didn't pay attention. That has happened in every industry.

 

 

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