Crocodilian

The Great Shift: China Rising, U.S. Falling

We've heard this story before . . . twenty years ago it was "Japan as Number One". Buying Rockefeller Center, buying Pebble Beach, rolling up massive surpluses . . . how'd that work out for them?

China, like Japan, has made its economic fortune through export-led growth. This actually can work OK when you're Japan, a nation about half the population of your largest market. It can't continue to work for China: there's simply no way for the US and Europe to demand enough for China to achieve Japan's numbers. For China to lend American consumers money to buy more Chinese stuff they can't afford is a mirage of demand . . . and absent that mirage, there aren't industrial jobs for the hundreds of millions of Chinese who'd like to enter the industrial workforce.

China has a billion people. A billion people in a one party state whose legitimacy is shaky, which has no meaningful ideology ("Communist" Party of China? Really? What's the "Communist" party?) and with ethnic conflicts which boil over into violence unpredictably, and which has massive environmental degradation.

The latter is significant-- the weakest link in state capitalism/Sovietism is that the Government won't regulate the pollution of state owned firms -- the regulator and the regulated are the same entity.

So people breathe foul air, drink foul water: this poisoned the Soviet Union, and its true in China, and a major source of unrest.

My two renmbinbi's worth is this: China's political and economic models, borrowed like a Disney DVD from the other Asian Tigers, can't be sustained. You can't say when it will crack, but crack it will.

Geithner on Yuan: Misstep or Warning Shot?

On Jan 25 01:15 AM HaavBline wrote:
> We are in the midst of a US Treasury bubble
> which smart monies are already betting against. The nervousness
> of the market shows that the Treasuries are in a very delicate situation.
> Any signn that the Chinese will retaliate could cause a big sell
> off of the Treasuries.

Its worth considering that the Chinese' _best_ investment for 2008 was probably US Treasuries. Not only did they go up, while everything else cratered, they enabled the purchases of US Treasuries by the Chinese essentially helped the US finance the purchase of Chinese goods.

Longer term, that can't continue, but seen from a Chinese perspective, their Treasury purchases to date have been a huge success, financially and in terms of the macroeconomic effects.

Geithner on Yuan: Misstep or Warning Shot?

On Jan 23 10:25 AM Lok Sang Ho wrote:

> Factories in China are closing in tens of thousands, and many migrant
> workers who used to work in these factories have lost their jobs
> and returned to their towns and villages. There is a popular blog
> in China that is advocating greater savings as a new lifestyle(as
> if the Chinese were not saving enough already!). Job insecurity
> will hurt China's consumption and will reduce imports. China has
> canceled orders or frozen further orders for planes from Boeing.
> I just do not see how a stronger yuan would benefit America.

Thank you for that good reference-- its not easy to know how the Chinese see all this without being able to read Chinese.

China and the US have built a system that's not necessarily good for either country: China is selling the US consumer more than he really can afford, on credit . . . the problem is that the credit really isn't all that good.

An economic expansion in China based on the solvency of the US consumer has to end badly. China needs to look to domestic demand for growth . . . a Yuan which is too cheap gives Chinese industry & American consumers all the wrong signals.