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EXCLUSIVE: Aaron Boesky on What China Must do to Surpass the US

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EXCLUSIVE: Aaron Boesky on What China Must do to Surpass the US

Managing the longest running Shanghai Equity Fund and one of Asia’s oldest Hedge Funds, Aaron Boesky is an expert on all things China. In an exclusive interview with Benzinga, Boesky outlined what it takes for a country to reach superpower status and what that means.

Why be a Superpower

Boesky started by identifying that countries want to be the world superpower because they dictate the terms of trade. Using an analogy, “Rome tells you it’s going to be four barrels of wheat for five barrels of wine and that’s the deal.... I don’t want it to be too unfair because you’ll rebel, but i’m still going to dictate the terms of trade that are going to be favorable to me, and thats the reward of being the super power.”

Related: Barron's Recap: China's Looming Credit Crisis

Boesky went on to explain how currencies and superpowers work together in the modern world. “So the United States says, ‘I’m going to print you a piece of paper that says US treasury, 30 billion dollars, 30 year maturity. I’m going to give this to you, and you are going to give me all your oil for the next ten years and I’m going to give you a piece of paper that cost me one penny to print.’”

What it Takes

Countries take these bizarre deals because Superpowers provide some unique perks. 

“The super power must perform on two key responsibilities: protection and innovation. So, anybody who's doing that deal whom is threatened, the USA rolls up with three aircraft carrier groups. Japan gets threatened by North Korea, the USA rolls up. If Saudi Arabia is threatened by Iran, the USA rolls up. Whoever is in the syndicate, feeding the USA’s demand in return for the paper, is protected.”

“The second thing the USA or any superpower must provide is innovation. If you are going to suck up most of the world’s resources, the constituent countries begin to ask, what did you do with them?”

How Can China Win

In order for China to contend the United States, several circumstances need to change. First, China would need to allow its currency to be opened. As will be outlined in a future piece with Boesky, the Renminbi cannot currently leave and re-enter the country freely. Because of this, China would not be able to openly enjoy the rewards of being a superpower until their Capital Account is opened.

Second, for countries to vote for China as the world superpower by accepting their currency, China needs to prove they will protect their partner countries and innovate effectively.

 

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