John Key is tipping that China will inevitably be forced to devalue its currency in a move that will increase its competitive tensions with the US.
At a briefing hosted by the International Business Forum in Auckland, the Prime Minister - stressing his was a "personal view" - said the Chinese were in "complete denial because they are trying to do what the Swiss did and it won't work".
"In part, they won't want to devalue because with the Americans that just gets [Donald] Trump more focused and screaming," Key said.
"But there is just no other road out of this stuff."
There has been increasing anxiety in global capitals that China will engineer a major currency devaluation to offset its slow economic growth and make its exports more competitive.
Assurances by Chinese Premier Li Keqiang and central bank chief Zhou Xiaochuan to a recent G-20 finance ministers meeting in Shanghai led IMF managing director Christine Lagarde to say Beijing had sent a clear message that it had no intent to devalue.
But Key contends the shift to a service-based economy is not moving swiftly enough to offset devaluation pressures.
He cited China's regional banks pouring money into loss-making businesses, the over-capacity in areas like the steel industry and some parts of manufacturing, and over-investment in the wrong provinces.
If a Chinese devaluation goes ahead, it would put a lot more pressure on the rest of the Asia-Pacific region.
"Because fundamentally it makes China more competitive with the US and Europe ... it also makes them more competitive with Asia."
Key remained confident that the US Congress will pass the Trans-Pacific Partnership into law and that it will be widened out to include more member nations such as China.
The US Trade Representative's Office last week nominated the passage of the Trans-Pacific Partnership agreement as the Obama Administration's top trade priority this year in its annual trade agenda.
The Prime Minister noted that while aspiring Republican candidate Donald Trump was opposed to the deal, his expectation was that a face-saver would be adopted if the businessman ultimately took presidential office.
"The US creates intellectual property and sells its goods and services to the rest of the world," Key said.
He also suggested that as the US had a trade deficit with China it was in its interest to forge a free trade agreement with China.
While some of the steam has come out of the Chinese market, Key contended that the strong consumer demand would continue to spur growth elsewhere in Asia.
In other comments he noted New Zealand was well-placed to benefit as Asia moved to a services-based demand curve, particularly in the education and tourism industries.
He nominated Burma, Sri Lanka and Colombia as three economies to keep an eye on.
"These are three that I as a personal investor might take some risks with money - three places that are on the move."