Andrew Polk is a founding partner of Trivium/China, a Beijing-based research firm, which produces a daily newsletter on China. He was formerly director of China research at Medley Global Advisors and chief economist at the Conference Board’s China Center.
Young China Watchers (YCW): Where did your enthusiasm for China come from, and why did you choose to pursue a China-oriented career? Why were you drawn to Beijing rather than Shanghai?
Andrew Polk (AP): I moved to Hong Kong in 2006 when a friend convinced me to go teach abroad with him. That’s when I first caught the China bug, but it wasn’t intentional. I kind of just fell into it. But after seeing China’s development up close, and visiting the Mainland a few times during that year, I decided to go to grad school for China studies at SAIS in DC. The rest was pretty much history.
I took over the job of Resident Economist at The Conference Board’s China Center in Beijing in 2011, so that was the impetus for moving to the city. In general, I find that the political and policy discussion around China is much richer in Beijing than in Shanghai, or anywhere else really. So in terms of understanding what’s happening in the economy, policy sphere, and business environment, I find Beijing provides a certain level of insight that you can’t get elsewhere. I also find Beijing has more grit and character than Shanghai, which I like.
YCW: How and when did the idea of Trivium China come about? Where does Trivium sit in an increasingly crowded landscape for intelligence on China?
AP: The idea for Trivium was conceived in, I believe, 2013 over hutong beers in Beijing with my (now) business partner Trey McArver. For the next four years the idea germinated. We continued discussing it until the eventual launch of the company had essentially become a fait accompli. The stars finally aligned—in terms of finances, readiness to quit our jobs, and convincing our other partner Ether Yin— in early 2017. And we never looked back.
In terms of where Trivium sits, we think we do a few unique things well. Given that we are macro folks by training, we are able to contextualize detailed policy developments in a way that many other firms can’t. Some folks are very good at the macro, but don’t follow the policy details closely and some do the opposite. Very few consistently connect the two.
More importantly, we just spend a lot of time reading government and Party documents. The sheer amount of information available in and about China now is mind-boggling. But most people treat the country like a black box. They don’t take the time to really dig into policy documents in depth, to understand the goals, tactics, and timelines that various government entities lay out for policy. We do it, and we find there is a lot of knowledge available if you are willing to dig for it. There’s no real secret sauce, we just take the time to do what others often don’t.
YCW: Are you optimistic or pessimistic for the likelihood that China undertakes much-needed economic reforms in 2019? Do you have any predictions for the U.S.-China trade war in the first half of 2019—and what are the particular issues which might ratchet up tensions?
AP: To be honest, I don’t like the word “reform” because it is such a loaded term that means different things to different people. I think that China will likely continue to open its financial system to foreign participation, which should help to further professionalize the industry. I also think efforts to contain leverage in the economy and incentivize the financial system to offer credit to small, private companies will continue to move forward. All of these things, I’d probably label as reform; but fundamental changes to the fiscal system and SOE corporate governance are unlikely to see much movement.
On balance, then, I think China will definitely look to 开放 (kaifang, or open up) in 2019, but perhaps not push through so much genuine 改革 (gaige, or reform). In terms of the trade war, I think those tensions are one big factor pushing Chinese policymakers into a more pragmatic stance when it comes to opening the economy. That said, I try not to predict the short-term prospects of any U.S.-China trade deal, because the main actor in that drama, President Donald Trump, is inherently unpredictable.
What I will say is that no matter what happens specifically on the trade negotiations in 2019, the era of strategic cooperation between the two countries is firmly over. The U.S.-China economic competition, especially over key technologies, is likely to define the next decade.
It’s important to remember that President Xi Jinping talks about the Belt and Road Initiative (BRI) as the project of a century. I think there is a tendency to focus on short-term developments in FDI and ODI, and based on those fluctuations, declare the BRI a success or failure. We have certainly seen a right-sizing of FDI outflows from China, as of mid-2017. But that was in large part because flows were growing astronomically fast in 2015-2016, and Chinese companies were making huge deals on things like sports clubs and hotels at crazy valuations. The government saw that as a vulnerability, especially since some of the companies making such acquisitions were heavily indebted, like Anbang and HNA. So they decided to put the brakes on ODI for a while. The government also seems to have begun to understand the political risk that some BRI projects are facing.
So it appears as if there has a been a temporary recalibration of the overall BRI/ODI push—toward more targeted investments at a more measured pace. But overall, I’d still expect to see some small level of growth in 2019.
YCW: What China-related materials would you recommend to our readers? What are the most helpful articles, books or podcasts to help the young China-watching community learn more about the Chinese economy?
AP: My greatest recommendation is to go to the source. To understand developments in China’s economy and financial system I highly recommend reading The Financial News (the People’s Bank of China’s official newspaper) and the 21st Century Business Herald. The latter is my favorite Chinese economic newspaper that, alongside Caixin, has the most original and reporting on a regular basis.
Caixin’s English-language news coverage has greatly improved in the past couple of years, and I find it to be a thorough resource, as well. They also have a daily economics and business newsletter that is worth subscribing to (but not as good as Trivium’s Tip Sheet!).
I am also a very big fan of Dinny McMahon’s writing on the Chinese financial system for MacroPolo at the Paulson Institute. His book, “China’s Great Wall of Debt,” was published last year, and it is worth a read to wrap your head around the key challenges that China’s economy is currently facing.
YCW: Recommendations for further reading:
AP: For understanding China’s fast-growing bond market: The Future of China’s Bond Market.
For understanding how foreign asset managers think about the structural challenges to investing in China: Foreign Institutional Investment In China: An Asset Management Perspective.
— Interview by Alice Slevison