He has not gone public very often with his views, but when he does Gao Xiqing, president of China Investment Corporation (CIC), is sure to be heard. He spoke out this month with a range of opinions including his expectation that the US dollar would resume a downward trend soon.
In an interview with the December edition of the magazine “Atlantic”, Gao said that markets had not bottomed yet and that the recent strength of the US dollar was only temporary.
“It’s simply because a lot of people need to cash in, they need US dollars in order to pay back their creditors,” he said. “But after a short while, the dollar may be going down again. I’d like to bet on that.”
Gao said that the financial situation in the US was changing and it would change fundamentally in many ways.
“Think about the way we’ve been living for the past 30 years. Thirty years ago the leverage of the investment banks was 4-to-1, 5-to-1. Today it’s 30-to-1. This is not just a change of numbers. This is a change of fundamental thinking.”
Asked about the use of derivatives, Gao said: “If you look at every one of these products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people” I think we should do an overhaul and say “Let’s get rid of 90 per cent of the derivatives”. Of course, that’s going to be very unpopular because many people will lose jobs.”
Gao said that something needed to be done about the pay structure in the financial system. People in financial services earned “way too much money”.
“Individually, everyone needs to be compensated,” he said. “But collectively this directs the resources of the country. It distorts the talents of the country. The best and brightest minds go to lawyering, go to MBAs. And that affects our country, too. Many of the brightest youngsters come to me and say: “Okay, I want to go to the US and get into business school or law school”. I say “Why? Why not science and engineering?” They say: “Look at some of my primary school classmates. Their IQ is half of mine but they’re in finance and now they’re making all this money”. So you have all these clever people going into financial engineering where they come up with all these complicated products to sell to people.”
The CIC was set up last year with $200 billion to invest Chinese reserves more aggressively than in the US treasuries where the bulk of the funds have been invested to date.
Two of the direct investments it has revealed are stakes in the Blackstone IPO, and subsequent top-up, and Morgan Stanley.
Gao, 55, has a law degree from Duke University in the US and has worked as a lawyer and professor.