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Here is a news release that if even somewhat accurate, will have a huge impact on the US dollar and our uncertain position, as major debt holder. If this is accurate, that the Chinese as a nation, are moving this rapidly into the status of a consumer nation, we will all have work again, in a steel plant at .50 cents per hour, exporting beer cans to China. How ironic; at least diabetes, heart disease and obesity will fade as we all shed a few pound at hard labor. Were do I go to exchange my worthless dollars for a few Yuan, the new international exchange currency?
“Fishwick said trade data released by other emerging countries in Asia show that China has been a big importer of a range of other products, outside of commodities, including motor vehicles and parts, along with other consumer durables and electronic products.
The trend bears out in other nations' trade statistics as well. Singapore, for instance, reported its non-oil exports to Europe fell 27% on year in August, but non-oil exports to China dropped just 5.3%. Even Taiwan reported an overall on-year drop of 24.6% in August exports but a more modest 18.5% fall for its exports to China.
Current-account deficit
"China is in a sweet spot ... where suddenly, income levels pass a point of discretionary level of spending on things like computers or LCD televisions or air conditioners, [and it] suddenly starts to expand [as a] multiple of income growth," said Fishwick.
He cited data showing that the yuan value of retail sales in the May-July period grew at 27% on year.
"That is a depiction of just how aggressive that fiscal stimulus has been," he said, referring to the government's 4 trillion yuan ($585 billion) stimulus package, begun last year.
And as the pace of China's investments exceeds the growth in its savings, the current account is also likely to swing from its traditional surplus to a deficit by 2010.
The size of that deficit may be miniscule for a country with over $2.1 trillion in foreign-exchange reserves, but it would be a sizeable shift from the surplus of around $430 billion recorded in 2008, he said.
If China indeed reports a deficit in 2010, it would be its first such current-account gap since 1993.
Bigger problem for U.S.?
Fishwick said that a current-account deficit for China may hardly be noticed at home, but it might prove to be a major problem for the rest of the world, including the U.S.
In recent years, China has been a major purchaser of Treasurys, a factor which has helped in keeping U.S. interest rates lower then they otherwise could be.
"In 2010, China's net purchases might be substantially smaller than they are now. They might even be turning net sellers," said Fishwick.
"That unfortunately means that the vast amount of Treasurys that need to be floated to fund the [fiscal] deficit are going to be absorbed by people who do make an investment decision on the attractiveness of holding these debt instruments," said Fishwick. "That to me means only one thing -- that yields are going to increase."
Furthermore, the global savings rate could also be impacted, as China accounts for about a third of the world's savings surplus.
"As China's savings rate dwindles, it means to me that ... that price of capital will rise,"