China

[Diekan]

I was listening to the radio the other day and heard a snip of a news report that said China was no longer going to recog the American dollar...

Anyone hear something like that?

[mofish]

No, but I did see this :

http://www.salon.com/tech/htww/index.html

No more Treasury bonds, thank you, I'm full

Can you hear the sound of the global economy turning on its head? The Wall Street Journal and the Financial Times reported today that China is "hinting" that it might start diversifying some of its foreign exchange holdings out of U.S. Treasury bonds.

The Journal only devoted a few paragraphs to the news, which is a little surprising, because if China actually did start shunning U.S. Treasuries, the result could be, oh, just the end of the U.S. housing bubble. And the crippling of the American consumer. And maybe, just maybe, the beginning of a global downturn.

How does this work? Basically, it's like this: The U.S. government spends more than it makes. It funds the difference by selling Treasury bonds. China, right now, is the most voracious purchaser of those bonds. By the end of last September, China's foreign exchange reserves hit $769 billion. Some $247.6 billion of that was in U.S. Treasury securities. And China keeps buying, by some estimates as much as $15 billion worth a month. So, in essence, China is funding American profligacy.

Right now, that's good for China and good for the U.S. By keeping demand for the U.S. dollar high, China bolsters the value of the dollar, especially in comparison to the Chinese yuan, which helps make Chinese exports more competitive. But before you join the crowd of China critics demanding that China revalue the yuan, remember, China's purchase of U.S. bonds also helps to keep U.S. interest rates low. And that's good news for the American real estate market, and for American consumers saddled with lots of debt.

If China stopped buying bonds, so the theory goes, the laws of supply and demand would kick into action: The dollar would be worth less, and interest rates would finally start to go up. But low interest rates have been fueling the go-go housing bubble of the past few years. Money has been cheap -- it's easy to get a loan, and even easier to refinance a mortgage you might already have. All that liquidity has kept the economy humming. But what happens if the cheap money spigot gets turned off?

If the American consumer runs out of cash, then the whole world shudders. All the export capability in the world means nothing if there is no one to buy, and Americans are the world's No. 1 shoppers.

So why would China screw with the status quo? After all, without the American market, China's economy gets hit as hard or harder than anyone's.

The first answer is that it is not at all clear how drastic a move China plans, if any. China tends to move cautiously when it comes to macroeconomic policy changes. The Journal quoted Hu Xiaolian, director of the State Administration of Foreign Exchange, as saying only that China wants to "perfect management of our foreign-currency reserves and to actively explore more efficient use of our reserve assets, to improve the currency structure of our reserves, and to continue to expand the investment areas."

That's a reasonably qualified statement. But could there be a little taste of iron beneath the velvet? China is under constant pressure from American politicians who want it to reform its economy to suit domestic U.S. interests. By threatening to take its foreign exchange business elsewhere, China may be signaling that enough is enough.

I promise I will use the following quote only once in this blog, but now seems an eminently appropriate occasion. Napoleon Bonaparte is said to have remarked that "China is a sleeping giant. Let her sleep, for when she wakes she will shake the world."

China, in 2006, is awake. Now we wait to see what happens as she starts to stretch.

-- Andrew Leonard

[Eziekial]

I can hear the sky falling.

[The Kizzy]

Time to move to Canada, Zanchief, can I crash on your couch?

[Sorina S]

I doubt that China would kill their cash cow so quickly, when we bleed so redily. There's a big market out there for the things that we have now. But the wheels turn slowly, and if you know anything about China you know, the will take their time.

The 3rd world market is still some distance away from what China has to offer. It makes no sense for them to force our economy to falter now, although they could, if they wanted to.

In 30 years, well yes. China will rule the world economy. Be ready for that.

[KaiineTN]

Good. Maybe the US will fall off its imperial perch after losing economic superiority and mind its own business for once. 30 years eh? Wish it was sooner.

[Zanchief]

Time to move to Canada, Zanchief, can I crash on your couch?

Sure, but it'll cost ya.

[kaharthemad]

Ok I need more sleep or more coffee in the morning I thought this.....

Time to move to Canada, Zanchief, can I crash on your couch?

Was this:

Time to move to Canada, Zanchief, can I crash on your crotch?

[Zanchief]

Ok I need more sleep or more coffee in the morning I thought this.....

Time to move to Canada, Zanchief, can I crash on your couch?

Was this:

Time to move to Canada, Zanchief, can I crash on your crotch?

That's pretty much how I interpreted it anyways, Kahar.

[kaharthemad]

ok...so my coffee in take does not need to be increased?

Ill tell the nurse...errr secretary.

[The Kizzy]

haha no way, no how.

[kaharthemad]

sorry hun...my mind is in the gutter and I am recovering from the flu. Its just what I thought it said.

As for your sig...you realize that kid has the same look most men do when looking at hookers.

[Zanchief]

haha no way, no how.

You're practically begging for it, lady.

[The Kizzy]

Yeah, Kahar, thats why I posted it, it made me laugh the first time I read it.

Zanchief, no.

[Tikker]

it's more pleading than begging

[DESX]

SHANGHAI, China - China's trade surplus surged to $101.9 billion in 2005, more than triple the $32 billion gap recorded the year before, according to customs figures released Wednesday.

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Exports rose 28.4 percent year-on-year in 2005 to $762 billion, while imports rose 17.6 percent to $660 billion, the General Administration of Customs said in a report posted on its Web site.

With total global trade of $1.42 trillion, China is now the world's third-biggest trading nation, the report said. China announced earlier that it had overtaken Japan in terms of merchandise trade and remained behind the United States and Germany.

The figures were largely in line with expectations, but they were likely to intensify pressure for Beijing to loosen foreign exchange controls that U.S. officials and other critics contend keep the Chinese currency, the yuan, undervalued, making Chinese exports relatively cheap in overseas markets.

A leading U.S. lawmaker, Sen. Max Baucus (news, bio, voting record), said during a visit to Beijing that he had warned senior Chinese officials that the persisting trade imbalance with the U.S. was bound to draw a backlash.

"The imbalance simply exists. It's there. It's a fact, and it has to be dealt with. And it is a major irritant in U.S.-China relations," said Baucus (D-Mont.), a member of the powerful Senate Finance Committee. "It is in China's interest to make concrete progress in reducing the trade imbalance."

China's trade surplus with the United States in 2005 is forecast to top $200 billion, up nearly 25 percent from the record high surplus in 2004. The report issued Wednesday gave no breakdown for imports and exports with the United States and other major trading partners.

It said that China's biggest trading partner was the EU, with two-way trade estimated at $217.3 billion, up 22.6 percent from the year before. The U.S. was second, with imports and exports totaling $211.6 billion, up 25 percent year-on-year. Trade with Japan rose 9.9 percent to $184.5 billion.

The government forecast this week that growth in exports would slow significantly this year due to higher oil prices and trade friction.

The main planning agency, the National Development and Reform Commission, estimated in a report published Wednesday in the state-run newspaper China Securities Journal that exports would rise about 15 percent year-on-year in 2006, with imports climbing about 18 percent.

Robust exports have been a key factor behind China's feverish economic growth in recent years. The commission estimated that growth hit 9.8 percent in 2005, and says it is expected to slow to a still stunning 8.5 percent to 9 percent this year.

The customs figures showed strong growth for China's high-tech exports, which rose 32 percent year-on-year to $218.3 billion. Exports of electronics products also rose 32 percent on-year to $426.8 billion, accounting for 56 percent of the value of total exports for the year.

China's consumer price index, its main measure for inflation, is expected to rise only 1 percent this year, and maybe yield to deflation later in the year, due to overproduction in many industries and slow domestic demand, the report said.

Autos, steel, cement and construction are among many industries facing a glut due to soaring investment in recent years. Aluminum smelters, also targeted for cutbacks, plan to cut annual output by 335,000 tons, or about 10 percent of total capacity, to counter excess production, the China Nonferrous Metals Industry Association said in a report on its Web site Wednesday.

Meanwhile, the planning agency said China would spend at least 12 trillion yuan, or $1.5 trillion, in the next five years on energy and transport, areas severely strained by the breakneck pace of growth in recent years.

More than half will go to road and railway construction, the commission said in a report carried by the official Xinhua News Agency.