Primavera’s Fred Hu Says China Is Seeing ‘Meaningful Slowdown’

Fred Hu, founder and chairman of Beijing-based financial advisory firm Primavera Capital Group and a former chairman of Greater China for Goldman Sachs Group Inc., comments on China’s economy and the nation’s holdings of U.S. Treasuries.

He spoke in a Bloomberg Television interview from Beijing today.

On a slowdown in the Chinese economy:

“All the battery of data that have come out in recent months clearly paint a picture of a meaningful slowdown of the economy, whether it’s in manufacturing, in the service sector.

“Small and medium-sized enterprises in China now are really, really suffering from a credit crunch and are under severe pressure, laying off people and even shutting down their operations.

“There has been a clear slowdown. But that might be just what the doctor has ordered to bring inflation under control.”

On whether China is selling U.S. Treasuries:

“I don’t think so.” The growth in China’s foreign-exchange reserves “is a reflection of China’s overall balance of payments and macroeconomic and structural policies. As long as China continues to pile up foreign reserves, there’s little choice but holding massive U.S. debt.

“But a possible downgrade of U.S. debt also means investors would have to assess the underlying credit quality a lot more carefully.”

On China’s diversification of its foreign-exchange reserves:

“Diversification is necessary but it only goes so far. After all, what are the better alternatives for China? A reassessment of China’s macroeconomic and structural policies would be far more important than merely portfolio diversification.

“There’s no realistic chance China would ever have a dramatic shift in selling U.S. debt.”

On China’s reaction to yesterday’s approval by the U.S. House of Representatives of legislation to raise the debt limit:

“Beijing has clearly greeted this news with a sigh of relief.”