Firat Ünlü

Why Krugman Is Wrong About the Yuan

Has it ever occured to some observers that maybe, just maybe the American trade deficit with China is, in some parts, due to Americans spending more than their income? After all excessive credit was used to buy products which were manufactured abroad.

Country by country the picture for America looks as follows:
(Imports above exports)

China ... US$323.1 billion
China ... $61 billion

Canada ... $312.5 billion
Canada ... US$213.1 billion

Mexico ... $210.2 billion
Mexico ... $119.4 billion

Japan ... $144.9 billion
Japan ... $58.1 billion

Germany ... $94.4 billion
Germany ... $44.3 billion

United Kingdom ... $56.9 billion
United Kingdom ... $45.4 billion

South Korea ... $45.4 billion
South Korea ... $33 billio

France ... $41.2 billion
France ... $25.8 billion

Whilst the case with China is indeed extreme it doesn't really look better when looking at other countries.
Is the whole world supposed to be undervalued?

China's Nine Nations

Great to see someone not fall into the trap of mistaking China as one giant monolith. Agree with most 'nations/colours'.
Hopefully more people catch up on this!

It's easy to dismiss the Chinese consumer by looking at the gdp/capita figure for China but that figure like averaging the income of Britons by adding Albanians into the mix.

The Importance of China's Foreign Exchange Holdings

@Living4Dividends

There's two sides to this, while some people may look at recent numbers that show an increase in Chinese Treasury holdings and thus conclude that they are in fact even getting further entangled others could point to the move into the short term and thus conclude that despite superficially seeming to increase holdings they are preparing their way out of them. Sometimes in order to move forward you need to take a step back.

China: Replenishing Bank Capital

Where did you shop? In my experience the opposite is the case, after several months I could have easily lived on a 'Chinese-budget' (i.e. 150€). You could get a cab in China for the same money you pay in the UK for a bus ticket.
In fact I stopped buying things in Europe and get almost anything in China as it's that much cheaper over there, flying over tomorrow and will be stocking up in Shanghai.


On Mar 16 05:22 PM James Lewis wrote:

> Having just spent the last few months in the UK, it has amazed me
> at how much cheaper consumer goods/food is in the UK compared to
> China.

re the article:
Your argument reminds me of the one used by US economists which left the US with a severe lack of productive capacity now. There's a certain merit to it but I think rather than try to increase the wealth of its people and risk alienating some, they're trying to keep it somewhat equal.
The reports about inequality in China are mostly useless, what matters is not inequality within China but inequality within social structures. Comparing villages in Guanxi that can only be reached by tractor to Pudong makes no sense.
Shame I missed your blog while I was at Beida, could have had a decent chat.

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

I think it's fair to say that there's substance behind Wen's comment, there is a siginificant danger in holding US Treasuries. Japan is a totally different entity when compared to China, Japan needs the US whilst China is at best a strategical partner. It is not in Japan's or South Korea's interest to endanger the US as it provides securtiy for both countries on the ground and via a nuclear umbrella, China is not even close to being in such a situation, they're at best a strategical partner.
Many countries will be in dire need of US Dollars, e.g. Russia still has huge reserves but already spent $200bn in defending its currency and many poor countries might be crowded out this year, China could help those countries out with its reserves. The US can't really print its way out of this mess as the price of natural ressources would immediately rise for US citizens. There's no point in accepting worthless pieces of paper.
The US is a big export market, yes, but Taiwan and Tibet are even more important than exporting to the US.


On Mar 14 02:52 AM Crocodilian wrote:
> Folks with long memories will recall the same story used to be told
> about Japan-- that one day the Japanese would stop buying Treasuries,
> and the dollar would collapse.
>
> Didn't happen, and the Japanese kept right on buying Treasuries,
> as I suspect the Chinese will do. My suspicion would be that they
> _will_ try to get more from the US than the Japanese did (because
> they have much greater strategic ambitions), but its a safe bet that
> crashing their most important export market is not one of their desired
> outcomes.

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

I'm surprised that nobody's mentioned the political side on this issue so far, as it's all intertwined. Bascially, from a foreign-policy point of view, there is no way the US can afford to significantly default on the debt, should high inflation occur it would be considered as a partial default. Should this happen China will make life for the US very, very hard. There will not be any meaningful cooperation on issues like North Korea or Iran, in fact they will make sure to strengthen their position. Any analyst has to be fully aware of the political situation an understand that it would be utter madness to have the Chinese in rage.
I don't like this situation one bit, far too unstable.
Having said that, things nearly never pan out as bad as feared and I'm sure they'll find ways to cooperate (Taiwan is huge to the Chinese...).

China's Economy Isn't in the Same Boat as the 'Developed' World

Good article but I have to disagree on one count, just because the value-added is low does not mean that the impact is less severe.
Closed factories result in lost jobs no matter the rank on the value chain, Japan's exports suffered from exporting too many goods that rely on discretionary spending, China is 'lucky' in the sense that people will not cut as much back as much on the goods they export.
Would like to see though how the little land reform that's been accomplished so far influences the options for returning workers.

Will China Continue to Buy U.S. Debt?

"estimates 2009 net borrowing needs could reach as high as $2.500bn"

Most recently 50% of newly-issued debt was financed by foreigners. China's January surplus was at around $40bn, with Japan facing a deficit, oil-exporting countries no longer raking it in where is the money supposed to come from? Pension funds?

More Terrible Trade Numbers from China

Just to add a little thought, how much do the Chinese really care about their Treasury holdings? Given their surplus and ability to absorb any loss within a short timespan is it not worth an idea to assume that they're taking a calculated risk whereby they willingly acknowledge possible future losses (even in the region of thirty percent or more) in foreign reserves for preserving social stability by keeping the US consume machine afloat. Losing a huge amount could, of course, spark unrest...

If they make 300 billion a year what's to say they'll not take a deliberate loss of 200 billion? America's savings rate is going up so China's new engagement may even fall, but that all depends on figures...

More Terrible Trade Numbers from China

Can't wait for next semester's lecture on contemporary Chinese Art just to see what's to it ;)

Good piece, however is it really unfair that China runs such a high surplus? I know that politically it will be considered unfair and thus a debate on this is only academical but still, what is 'unfair' about China selling more goods than it imports? Nobody's being forced to buy those products. Granted, it would be nice if China 'made some space' for other countries' exports but if it's being more competetive so be it.
How large is the surplus if you take out the surplus with the US? How large is it if you consider the drop in raw material prices? Most of China's surplus comes from trade with the US and the drastically lower import bill will, in large parts, be due to falling commodity prices. So it really isn't that bad is it?
As for treasuries, there have been several comments by the Chinese recently, none of them pulling in one direction, I'd rather have some figures as the Chinese sold some Treasuries most recently and are supposed to have made moves into gold.
Having said all that I want the Deutschmark back, to fall against the Dollar under these circumstances is just...

China to Ask for U.S. Treasury Guarantees

Back in the day (pre-Republic) one option was to simply have another tribe's prince in your court and vice versa.
Geithner in exchange for Yu? ;)

China's only recently become America's biggest creditor, Japan is not far behind and I can see this opening up a process that could turn out very problematic in terms of a) assets and b) public opinion.

Will China Have to Choose Between Social Stability and Long-Term Growth?

Banks seem to be on the receiving end of policy again. Remember them being 'forced' to lent to SOEs during the restructuring, even to those that were likely not to repay the loan. In the end the final bill came in at around 300 billion if I remember correctly but the Chinese had a large enough surplus to cover that.
I wonder if similar thinking is going on again, they're full out trying to get the domestic economy going up and with such an historical background it is a definite possibility that they're choosing this option again.
However, even though it may impact long-term growth it is not going to be nearly as disastrous as the effects on America or Japan who chose a different way out of it. Imo they're trying to grow out the unhealthy loans that are inevitable now.
Where's the credit nowadays going? Wasn't it in huge parts to real estate before whilst now it's moving to companies?

What Is the U.S. - China Economic Outlook Under Obama?

Oh, and making housing more afforable it the single biggest key to getting Chinese within the cities to spend. Owning property is almost mandatory if you're serious about getting married.

What Is the U.S. - China Economic Outlook Under Obama?

"The RMB 4 trillion stimulus package obviously is not enough – otherwise, why do they keep introducing supplementary packages?"

Because they have the means to do so and are hell-bent on preserving social stability.

"The key reason that it cannot recover quickly is that there is nothing “to recover”: with unemployment rising, people will not spend, so any stimuli along the lines of making housing more affordable are simply missing the point."

They have competetive industries and are slowly moving up the value-chain, retail spending has been rising.

"A quick solution for China, for instance, would be to introduce universal, free health insurance: that would remove the yoke of having to save in case of illness."

They are, they even brought plans to do forward.

"So you will see co-operation in geo-political issues like Korea, but protectionist rhetoric in trade issues on both sides of the Pacific."

China will use North-Korea as long as America has troops in South-Korea, Japan and provides help to Taiwan. There is no chance of Chinese help on that front. In fact, China will try to keep America 'occupied' in Iran and North-Korea in an attempt to weaken it.
No value judgment here, just plain facts on realpolitik.

The Great 'Fall' of China?

You are aware that China will be the of the rare economies to still grow in 2009 and that its fundamentals (solid manufacturing base, increased infrastructure spending, better-educated workforce each year, increasing knowledge, working its way up the value-ladder etc...) remain sound, aren't you?

The problem is that growth at less than 8% means that the private sector does not create enough jobs, however, they have ample room to maneuver and come up with short-term solutions.
Any information on how stocks are affected by market sentiment would be much more lucrative considering the Chinese market tanked by 60% despite much better fundamentals than those of most 'developed' economies.

Also, exports didn't fall by that much, did they?...