The Fraying U.S.-China Co-Dependency

Edward H. Ladd, Chairman Emeritus, Standish

This special report by Standish Chairman Emeritus Edward H. Ladd is based on November 2008 meetings in Hong Kong, Fuzhou and Beijing with a broad array of China observers, senior elected officials, and Chinese central bankers. Mr. Ladd also draws on experience gained during regular visits to China over the past 15 years. Highlights of the report include findings that:

The economic downturn is forcing an end to the longstanding co-dependency between the U.S. and China that helped drive growth in both countries.
China’s exposure to the global business cycle has been growing, and evidence points to a sharper slowdown than consensus forecasts for 2009.
As China’s foreign reserves diminish, it and other Asian countries will supply the world less capital. Investment capital could become much scarcer.
The domestic private sector, especially household savings, will likely have to increase abruptly by more than $1 trillion to replace lost foreign inflows and fund the expected stimulus package.
China is well positioned for the downturn and should be among the first countries to recover. The fraying co-dependency could prolong the recession for the U.S.

For more information and a hard copy, please contact David Zigas at 617 248-6202.

The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular BNYM AM product.