Chinese Economics Thread

[Martian]

China's retaliatory measures

[I have amended my comment to include a more detailed explanation of China's options.]

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"But if the tension between the US and China gets really nasty, we cannot rule out the possibility of the US refusing to honour all or part of its foreign debts. A future Congress might claim they were unfairly accumulated – that China abused its trading relationship with the US – and therefore should be repaid at a discount."

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My reply in the comment section:

This is a flawed idea. China has collateral in the form of U.S. foreign direct investment in China. If the United States renege on its debt to China, the Chinese government will retaliate and seize sufficient American factories (e.g. GM plants), service businesses (e.g. KFC), and intellectual property (e.g. Coca Cola bottling plants producing secret Coke formula) to offset the reneged debt.

It would be incorrect to believe that China is powerless in the event of an American repudiation of its debt.

China can take the following retaliatory measures:

1. For compensation, seize American corporate physical properties, service businesses, and intellectual properties located in China.

2. Sue the United States government at the world court and pursue American government assets worldwide.

3. In the event that Europeans refuse to recognize China's legitimate legal claims for repayment of defaulted U.S. debt obligations, China has the option of seizing European corporate physical properties, service businesses, and intellectual properties located in China. In return, China will assign the fair value of the European assets located in China to the appropriate European countries. Europeans will become owners of American debt through an involuntary China offset.

4. China is free to replicate Coke and American pharmaceuticals for sale worldwide until China has recouped its American debt and interest.

 

[bladerunner]

And thats a equally flawed response.Privately owned American based corporates with international share holdings arent responsible for U.S. government debt.
It must be that time of the month as there seems to be an invitation to be stupid so heres a equally silly idea as a response, THe Fed Reserve wacks a few more noughts on their computerised bank balance simply by depressing the zero key on the keyboard a few times and then writes out a cheque. THere all paid back in a few secs.

P.S.whoops what am i thinking about ,cancel the cheque , electronic transfer... much faster

 

[Quickie]

And thats a equally flawed response.Privately owned American based corporates with international share holdings arent responsible for U.S. government debt.
It must be that time of the month as there seems to be an invitation to be stupid so heres a equally silly idea as a response, THe Fed Reserve wacks a few more noughts on their computerised bank balance simply by depressing the zero key on the keyboard a few times and then writes out a cheque. THere all paid back in a few secs.

P.S.whoops what am i thinking about ,cancel the cheque , electronic transfer... much faster

The Zimbabwean government got a headstart on this. Also, they got the zero key stuck on the keyboard.

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Hyperinflation in Zimbabwe began in the early 2000s, shortly after Zimbabwe's confiscation of white-owned farmland and its repudiation of debts to the International Monetary Fund, and persisted through to 2009. Figures from November 2008 estimated Zimbabwe's annual inflation rate at 89.7 sextillion (1021) percent.[1] By December 2008, annual inflation was estimated at 6.5 quindecillion novemdecillion percent (6.5 x 10108%, the equivalent of 6 quinquatrigintillion 500 quattuortrigintillion percent, or 65 followed by 107 zeros – 650 million googol percent).[2] In April 2009, Zimbabwe abandoned printing of the Zimbabwean dollar, and the South African rand and US dollar became the standard currencies for exchange.

 

[Martian]

Ushering in China's Yuan as the new world reserve currency

Quickie, that is an illuminating post. If the U.S. government followed Bladerunner's suggestion of printing dollars, the U.S. dollar will collapse. China's Yuan will become the new world reserve currency.

 

[Maggern]

Re: Ushering in China's Yuan as the new world reserve currency

Quickie, that is an illuminating post. If the U.S. government followed Bladerunner's suggestion of printing dollars, the U.S. dollar will collapse. China's Yuan will become the new world reserve currency.

Whoa. Hold your horses. They wouldn't be able to make the yuan the new reserve currency overnight. They'd have the euro first and foremost. Second would be some kind of international IMF-regulated currency. The Yuan is currently only barely possible to use in trade in a few neighbouring countries to China. It has a long way to go yet before being accepted world-wide.

And let's not forget that losing the US completely as a market would be severly crippling to the Chinese economy. Even if they established a whole row of new stabilization funds. All those factories and workers in souther China cannot change industry and market overnight. Economic restructuring doesn't happen overnight.

That being said, printing dollars is not the solution. As mentioned, at some point the value of the dollar will fall dramatically, which will have severe effects on the US (and the world) economy. The list is long of countries in the past (even quite major ones) that has printed money to escape the debt quagmire. Let's just say the experience has not been positive.

PS: As to world currencies, I think that the concensus in most countries is that relying on a currency governed by a single country is not a good thing. As it is now, the dollar is so entrenched that changing right now would be costly and impractical. When they decide to go away from the dollar, I doubt the world would fall in the same trap once more and move to a different currency that would be under the exclusive control of another single country. A multipolar world requires a multipolar currency. At least the euro is under the control of a plethora of countries (though managed through the ECB).

 

[zoom]

Special drawing rights (SDR) will most probably step in as the Global reserve,at least for the short term if anything catastrophic was to happen to the US dollar. >

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Another potential for a global reserve could be the Wocu (world currency) >

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The transition from the dollar to ? as the global reserve certainly would not happen overnight but what you must realise is, it already is happening as we debate this issue and moves have been taking place for years now.It took decades for the US dollar to replace the £ with regards to all the backroom manoeuvering but when it happened,it was relatively quick and sudden.Furtheremore,we may not get to choose what gets the honour.If China overtake the US as no.1 economy and are looking rock solid.Where will the investors go to as a safe haven in future crises? Maybe the markets will decide.The Yuan is immature but it definitely is positioning itself to take on the role should it be called upon and at the very least will be an equal player in any future basket.

 

[Martian]

"Americans now consider Asia more important than Europe by a 47%-to-37% margin"

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"America's China Fix
by Tom Silva
Senior Vice President of Marketing and Strategy, The Alter Group
Posted: February 16, 2011 01:02 PM

America's interest in China has reached the level of obsession. So much so that growing numbers of Americans now see China -- incorrectly -- as the world's leading economic power. According to Pew Research's January survey, 47% of respondents cite China has a bigger economy than the US. And this is only the tip of the iceberg. The media is fixated on China, surpassing the previous high watermarks of China coverage -- in 1972 during Nixon's détente, and 1989 when a lone protester with a shopping bag faced down a column of tanks in Tiananmen Square. Americans now consider Asia more important than Europe by a 47%-to-37% margin (in 1993, those numbers were reversed). Asked about their interest in news from overseas, 34% of Americans say they are very interested in news from China, while far fewer say the same about France (6%), Germany (11%), Italy (11%) and even Great Britain (17%). [article continues]"

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My reply in the comment section:

"Growing numbers of Americans now see China -- [correctly] -- as the world's leading economic [manufacturing] power."

To verify for yourself that China has been the world's largest manufacturer since 2008, click on the link to U.N. statistics:

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Under the category of "GDP and its breakdown at current prices in US Dollars," select "All countries for all years - sorted alphabetically."

After opening the spreadsheet, look at cell #691 for "China (manufacturing)." Look at the two right-most columns on the spreadsheet. It will show that China's manufacturing sector produced $1.87 trillion dollars in 2008 and $2.05 trillion in 2009.

In comparison, look at cell #3471 for "United States (manufacturing)," the U.N. data show that U.S. manufacturing accounted for $1.79 trillion dollars in 2008 and $1.78 trillion in 2009.

The U.N. data conclusively show that China has been the world's largest manufacturer since 2008.

 

[Maggern]

Re: "Americans now consider Asia more important than Europe by a 47%-to-37% margin"

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"America's China Fix
by Tom Silva
Senior Vice President of Marketing and Strategy, The Alter Group
Posted: February 16, 2011 01:02 PM

America's interest in China has reached the level of obsession. So much so that growing numbers of Americans now see China -- incorrectly -- as the world's leading economic power. According to Pew Research's January survey, 47% of respondents cite China has a bigger economy than the US. And this is only the tip of the iceberg. The media is fixated on China, surpassing the previous high watermarks of China coverage -- in 1972 during Nixon's détente, and 1989 when a lone protester with a shopping bag faced down a column of tanks in Tiananmen Square. Americans now consider Asia more important than Europe by a 47%-to-37% margin (in 1993, those numbers were reversed). Asked about their interest in news from overseas, 34% of Americans say they are very interested in news from China, while far fewer say the same about France (6%), Germany (11%), Italy (11%) and even Great Britain (17%). [article continues]"

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My reply in the comment section:

"Growing numbers of Americans now see China -- [correctly] -- as the world's leading economic [manufacturing] power."

To verify for yourself that China has been the world's largest manufacturer since 2008, click on the link to U.N. statistics:

Please, Log in or Register to view URLs content!

Under the category of "GDP and its breakdown at current prices in US Dollars," select "All countries for all years - sorted alphabetically."

After opening the spreadsheet, look at cell #691 for "China (manufacturing)." Look at the two right-most columns on the spreadsheet. It will show that China's manufacturing sector produced $1.87 trillion dollars in 2008 and $2.05 trillion in 2009.

In comparison, look at cell #3471 for "United States (manufacturing)," the U.N. data show that U.S. manufacturing accounted for $1.79 trillion dollars in 2008 and $1.78 trillion in 2009.

The U.N. data conclusively show that China has been the world's largest manufacturer since 2008.

Manufacturing is very important for an economy indeed. But today, most of the western economies are built around the service economy. Very few of them have significant manufacturing bases left (except the US and Germany). The financial crisis is a clear indicator on how important the financial sector, rather than manufacturing, is for most western European countries. In the end, consumer capacity is perhaps the most important economic factor. Manufacturing itself is waste unless it can be consumed. Large manufacturing economies are dependant on consumers to buy their goods. Of course the ooposite is true as well, a consumer economy can quickly fall apart if there is no manufacturing to satisfy the needs. The advantage of such economies is that they can often create industry to fill the basic needs of its consumers if there is no external producer. Manufacturing economies cannot create a consumer base if there is a lack of consumers domestically.

Norway is the largest economy in northern Europe (at least we were in early 2009), but it has almost no industry to speak of (not in Norway at least).

 

[Martian]

Taiwanese "GDP per capita is forecast to hit a new high of $20,783 in 2011"

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"Taiwan 2010 growth at 24-year high, due to China
By Benjamin Yeh (AFP) – 1 hour ago

TAIPEI — Taiwan said Thursday its economy grew 10.82 percent in 2010, its fastest rate for 24 years, fueled by rapid expansion in the island's main trading partner China.

GDP per capita is forecast to hit a new high of $20,783 in 2011

The data from the Directorate General of Budget, Accounting and Statistics is a slight improvement on the 10.47 percent growth initially announced last month and represents the strongest growth since 1986.

The directorate also revised growth in the final quarter of 2010 upwards to 6.92 percent from the previous estimate of 6.48 percent.

Economic expansion of 10.3 percent in the Chinese economy, now the world's second-largest, stoked mainland demand for Taiwanese-made products.

"China played a role in bringing about last year's stellar growth," said Antony Chang, an economist at Taipei's Shih Chien University.

"Increased demand from the mainland helped offset lost momentum from the United States and Europe."

The finance ministry said earlier that exports jumped 34.8 percent to $274.64 billion last year, with those to China and Hong Kong hitting a record $114.75 billion, or 41.8 percent of the overall figure.

The 2010 growth was made possible by the export sector's 25.59 percent increase, the highest since 1986 when it surged by 28.23 percent over the previous year, said Shih Su-mei, the head of the directorate.

"The export sector benefited from the continued filing of orders from multinational technology companies that have been continuously launching of consumer electronic products," she told reporters.

Also contributing to the better-than-expected economic performance was an active private sector, where investment soared 32.79 percent last year, the highest since 1965, Shih said.

However, the directorate said it expects Taiwan's economy to grow 4.92 percent in 2011, slightly slower than its initial 5.03 percent estimate.

"As the comparison base of last year becomes higher, we decided to lower the forecast figure for 2011," said Tsai Hung-kun, another official at the directorate.

In June last year, Taiwan and China signed the Economic Cooperation Framework Agreement, or ECFA, which is expected to help keep up economic momentum on the island in 2011.

"The positive influence of ECFA was just on the horizon last year, but its impact will become apparent this year," said Chang, the university economist.

"However, with Taiwan increasingly relying on the Chinese mainland for continued growth, political risk will increase as well."

The sweeping trade pact will contribute 0.4 percentage points of economic growth this year, the directorate said, citing figures from the island's top economic planning body the Council for Economic Planning and Development.

GDP per capita is forecast to hit a new high of $20,783 in 2011 while the consumer price index will rise a moderate 2.0 percent year-on-year, largely driven by rising food and energy prices."

 

[zoom]

Also consider that China has no major civilian aircraft sales yet and will certainly improve their arms sales too.Both these things will significantly increase the GDP and the manufacturing figures so the gap will widen by far in the near future.