Tag: China

Don’t Get Giddy About China

There is a Russian proverb that says our fate plays out on the exact path we take to avoid it. This is the story of China in a nutshell. Policy makers have accumulated forex reserves in large part to avoid a balance of payments crisis, and yet the massive reserve accumulation has meant a parallel accumulation of high-powered money and an epic credit expansion over not just the past year, but over the past four or five leading to dangerous asset and credit bubbles manifesting throughout China’s real economy and financial markets.

Chinese policymakers appear to be trying to spur private consumption by building out social safety nets. While better social safety nets are an important and positive development, the fundamental answer for policy makers to improve the allocation of capital (and in so doing to shift China Inc. away from its export/production orientation to a more sustainable consumption driven model) is only going to come from a combination of four key policy initiatives, in order of importance:
·         Interest rate liberalization
·         Exchange rate regime liberalization
·         Major reform liberalization in the service sector, especially in financial / banking sector, which is currently dominated by state players.
·         Liberalization of rural land ownership rules.
None of these is likely to happen soon, unfortunately, given the political reality – even in a one-party country like China – that it is difficult to implement tough-medicine reforms during a period of global economic stress, and this is especially true for President Hu Jintao and Premier Wen Jiabao as the country gets closer to its next leadership transition cycle in 2012.

If I am wrong about the bearish scenario for China above, I think it will be because I am too optimistic. A possible worst-case scenario is that the bursting of China’s credit bubble leads to a second-wave global credit crisis and a freeze in global financial markets no matter what the People’s Bank of China or the US Federal Reserve does to reflate markets – and we get a classic global liquidity trap scenario and a major debt-deflation Great Depression redux.

via Asia Sentinel – Don’t Get Giddy About China.

Avatar Banned in China

Hong Kong’s Apple Daily reported that the state-run China Film Group had instructed cinemas nationwide to stop showing the 2-D version of Avatar from January 23 on orders from Beijing’s propaganda chiefs.

The newspaper said: “Reportedly, the authorities have two reasons for this check on Avatar: first, it has taken in too much money and has seized market share from domestic films, and second, it may lead audiences to think about forced removal, and may possibly incite violence.”

via Avatar on road to Oscars after Golden Globe wins (contains video).

Secret U.S.Tests Fight Web Censorship

The U.S. government is covertly testing technology in China and Iran that lets residents break through screens set up by their governments to limit access to news on the Internet.

The “feed over email” (FOE) system delivers news, podcasts and data via technology that evades web-screening protocols of restrictive regimes, said Ken Berman, head of IT at the U.S. government’s Broadcasting Board of Governors, which is testing the system.

The news feeds are sent through email accounts including those operated by Google Inc, Microsoft Corp’s Hotmail and Yahoo Inc.

“We have people testing it in China and Iran,” said Berman, whose agency runs Voice of America.

via U.S. tests technology to break foreign Web censorship | U.S. | Reuters.

Future Predictions From Geography

People and ideas influence events, but geography largely determines them, now more than ever. To understand the coming struggles, it’s time to dust off the Victorian thinkers who knew the physical world best. A journalist who has covered the ends of the Earth offers a guide to the relief map—and a primer on the next phase of conflict.

via Foreign Policy: The Revenge of Geography.

China Largest Meat & Poultry Producer

Meat Production And China is the largest aqua-culture producer of seafood and the largest Wheat grower in the world (for all those Dim Sums and noodles to feed  their 6 Billion mouths). Click on this link to see an animation on the Chinese populationn trend and their oncoming aging problem, similiar to Japan’s. To read more about the latest surprising population trends read the linked article under “Muslim Birth Rates Falling Worldwide”.

A ‘Copper Standard’ for the world’s currency system? – Telegraph

One thing is clear: Beijing suspects that the US Federal Reserve is engineering a covert default on America’s debt by printing money. Premier Wen Jiabao issued a blunt warning last month that China was tiring of US bonds. “We have lent a huge amount of money to the US, so of course we are concerned about the safety of our assets,” he said.

This is slightly disingenuous. China has the world’s largest reserves – $1.95 trillion, mostly in dollars – because it has been holding down the yuan to boost exports. This mercantilist strategy has reached its limits.

The beauty of recycling China’s surplus into metals instead of US bonds is that it kills so many birds with one stone: it stops the yuan rising, without provoking complaints of currency manipulation by Washington; metals are easily stored in warehouses, unlike oil; the holdings are likely to rise in value over time since the earth’s crust is gradually depleting its accessible ores. Above all, such a policy safeguards China’s industrial revolution, while the West may one day face a supply crisis.

The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources

via A ‘Copper Standard’ for the world’s currency system? – Telegraph.

China & US – Two two-trillionaires

China hold 2 trillion of our debt according to this analysis ( simply SAFE is the Bank of China and the RMB is their currency).
Because a lot of the vulnerabilities that built up in the US economy between 2003 and 2007 can be linked – in part – to large purchases of dollars by SAFE during that period. Holding the RMB down discouraged investment in tradables, and encouraged investment in non-tradeables (think homes). And the rise in China’s surplus even as the oil exporters surplus was growing implied large offsetting deficits in the US and Europe – deficits that were found in the US household sector. Brad Setser: Follow the Money » Blog Archive » Two two-trillionaires

Bush’s Positive Legacy

The lack of a serious U.S.-China confrontation in the years since 9/11 is the most important dog that did not bark across the Bush-Cheney administration.

In the grand sweep of history, this is arguably George W. Bush's greatest legacy: the encouragement of China to become a legitimate stakeholder in global security.

This sort of effort at grooming a great power for a greater role in international affairs is a careful balancing act, and the Bush team sounded most of the right notes, from reassuring nervous allies in Asia, to avoiding the temptation of trade retaliation while simultaneously pressuring Beijing for more economic liberalization, to drawing China into the dynamics of great power negotiation over compelling regional issues like the nuclear programs in both North Korea and Iran.

We can always complain that Bush-Cheney didn't do more to solidify this most important bilateral relationship of the 21st century, but we cannot fault them for any lasting mistakes, and that alone is quite impressive.

Indeed, history will likely judge this success as greater than the Bush administration's failures in Iraq.

via Barnett: What Bush- Cheney got right with China : Columnists : Knoxville News Sentinel

Chins Has Its Own Systemic Market Problems Too

At the heart of the crisis that toppled Lehman Brothers Holdings Inc. is an out-of-control system built on debt. At the heart of China’s problems is frantic development that also cuts corners to meet overambitious targets. The habits of both have huge implications, but aren’t easily changed because they are ingrained. The common dynamic is greed, meeting over-inflated goals, creative accounting and a sense of hubris.

Just as the credit crisis has shaken Wall Street to its core, safety concerns are a bigger problem for China than many realize. It’s one thing to fake DVDs and Prada bags. When a lack of regulation and oversight forces companies such as Unilever, Cadbury Plc and Japan’s Kanematsu Corp. to recall goods, China has a true dilemma on its hands.

A critical mass of China’s 1.3 billion people isn’t ready to create a domestic market. Nor can China easily find other export markets to offset Group of Seven economies. China can keep cutting rates, increasing infrastructure spending and tweaking taxes, yet that may not be enough.

The worst financial crisis since the Great Depression won’t leave China unscathed. If things get that bad, Chinese officials will have more to cry over than tainted milk.

via Bloomberg.com: Opinion