Chinese Economics Thread

[cloyce]

For China, the true issue is political, not economical.
What if China stops to buy oil in dollar?
Who is going to "protect" chinese supply chain of energy and raw material?

You know, Bretton Woods is more or less like a US lordship onto the world.
By forcing everybody to use dollar to buy oil is like an indirect tax, if China stops to pay this tax, I fear something bad will happen.

Oil tankers may start to sink misteriously...

 

[Spartan95]

If I wasn't already clear in my previous posts, China's economy will accelerate into domestic consumption in the absence of the US and EU. China is already taking steps toward more domestic consumption and a collapse of the western economy will only hasten that goal. As I said, in the short term a western economic collapse will hurt China, but China has the option of growing their trade with Africa and other developing countries to make up for the loss of western trade. Since China doesn't really rely on the western countries for much raw materials (except maybe for Australia, which by the way is technically an "Asian" country due to its geography) then if trade slows or even stops due to a western economic collapse, how would that really hurt China in the long run if they still have their supply chain of raw materials and their massive internal market to rely on?

Massive domestic internal market in the next decade or 2 perhaps. But not right now. China's per capita GDP is ~6k (PPP) at the moment. Hardly enough to have a mass base for luxury items that is anywhere sufficient to compensate for EU and US' consumption. Furthermore, internal consumption is a fraction of what external trade is for China's economy.

There is also the issue of China's holdings of US Treasury bills and other foreign exchange. If US and EU goes into prolonged recession, what do you think is the effect on these holdings? US Treasury bills held by China is probably more than US$500 billion, not counting China's holdings in Euro. How much of these can the central government afford to lose and still remain in power with no social unrest?

There is also the related issue of the valuation of the Chinese Yuan. Whilst there have been some reforms for greater flexibility, the Yuan is still essentially pegged to the US$. When US$ drops, so does the Chinese Yuan, which makes Australian ore, Middle Eastern oil and any number of other commodities more expensive for China to buy. In such a scenario, China will end up running a current account deficit, much like the US now. What do you think is the effect of that on the Chinese Yuan in the long term?

And that's just the macro economics side of the house.

Whilst it is true that China is moving towards a larger share of domestic consumption as part of their economy, it is a long process that also requires structural reforms of the economy. Having masses of people who are known as "ant tribes" isn't going to do much for domestic consumption. In fact, it is a ticking time bomb for social problems down the road. The recent strikes over wages in numerous parts of China is an indication of what can happen if these issues are not handled properly.

 

[Hendrik_2000]

Massive domestic internal market in the next decade or 2 perhaps. But not right now. China's per capita GDP is ~6k (PPP) at the moment. Hardly enough to have a mass base for luxury items that is anywhere sufficient to compensate for EU and US' consumption. Furthermore, internal consumption is a fraction of what external trade is for China's economy.

Using per capita GDP to gauge China's buying power is very misleading. Right now Zhejiang, Guangdong, Jiangsu, already have percapita GDP of $10,000 or 20,000 PPP Soon Shandong, Inner Mongolia and Fujian will reached the same level. Total you end up with 150 to 200 million of people which is much larger than France or any other European country. Plus in typical China household Mom and Dad, Children work They pooled their resource to buy major purchase like House of Car

There is also the issue of China's holdings of US Treasury bills and other foreign exchange. If US and EU goes into prolonged recession, what do you think is the effect on these holdings? US Treasury bills held by China is probably more than US$500 billion, not counting China's holdings in Euro. How much of these can the central government afford to lose and still remain in power with no social unrest?

I don't believe it nothing will happened because it is not the money you can use anyway. You cannot repatriate that money without causing inflation, Just like you Mutual fund holding you don't count day by day any loss in Stock market is just paper loss

There is also the related issue of the valuation of the Chinese Yuan. Whilst there have been some reforms for greater flexibility, the Yuan is still essentially pegged to the US$. When US$ drops, so does the Chinese Yuan, which makes Australian ore, Middle Eastern oil and any number of other commodities more expensive for China to buy. In such a scenario, China will end up running a current account deficit, much like the US now. What do you think is the effect of that on the Chinese Yuan in the long term?

Who is the driver of exchange rate here China or US . The way China maintained the rate is by buying the US Dollar with Yuan. If tomorrow they change their mind they can stop buying dollar anytime that will make their export more expensive But the cost of living in US will skyrocket and inflation hit the roof.
The day dollar maintained hegemony is probably numbered. China has initiated swap agreement with ASEAN, Brazil and some other country to facilitate trade . Soon Saudi and middle east country will join and slowly Yuan will be convertible

Increasingly China recycle their vast dollar holding by buying mineral, oil and other strategic asset the world over at bargain basement price . They shop like there is no tomorrow, Hardly a day goes by without some announcement of major buy by Chinese strategic company like Sinopec

And that's just the macro economics side of the house.
Whilst it is true that China is moving towards a larger share of domestic consumption as part of their economy, it is a long process that also requires structural reforms of the economy. Having masses of people who are known as "ant tribes" isn't going to do much for domestic consumption. In fact, it is a ticking time bomb for social problems down the road. The recent strikes over wages in numerous parts of China is an indication of what can happen if these issues are not handled properly.

That is a straw man argument I heard it countless time.The west will never completely stop importing good from China. Specially during hard time people try to save and pinch as much as you can and who is the cheapest provider good in the world . Yup China just check your local Walmart. Plus China export are mostly daily necessity that people has to buy recession or not .

You also forget that ASEAN and Japan are the third largest and fourth largest export destination of China and they grow by leap and bound. so whatever reduction in export to the west will be more than make up by increase export to those countries.

Recently the ASEAN and China free trade agreement come to realization and just last week China sign free trade agreement with Taiwan . Soon the Japanese and Korean will be clamoring to join the bandwagon because right now they are at disadvantage when their competitior enjoy zero tariff in China!

The strike is not disaster to China. If anything, it will hasten the transformation of Chinese economy from low value added export to much more sophisticated export. And at the same time speed up the the development of internal consumption. So all in all a blessing to China
Therefore the goverment doesn't crush the demonstration if anything they provide moral support to the striker and do nothing

After all they are the initiator of this strikes by reforming the labor contract with more stringet provision beneficial to the workers about a year ago . Only now is this information disseminate among the workers

Another thing is OEM profit margin is razor thin 2-3% The reduced export to the west will forced those company to sell domestically under their own brand name where profit margin is much large. One toy company succesfully transform itself by selling domestically. The chairman of the company said his profit margin zoomed to 20%.So again blessing in disguise

 

[Maggern]

Re: European Economic Zone preceded European Union

Let's ask an European to shed some light on the matter of political integration in the European Union.

Ok, Geography 101. Norway is in Europe. I am, therefore, a European. And using the EU as presedence is false, as almost all academic circles consider the increasing integration through the EU as extraordinary. In Europe, EU politics is only rarely related in the media (except when there's something big going on). At least here in Norway. Usually, country-wise politics overshadows everything (except in the economic sphere). The EU is still living on the goodwill of its member states.

 

[Martian]

China's Manifest Destiny

Ok, Geography 101. Norway is in Europe. I am, therefore, a European. And using the EU as presedence is false, as almost all academic circles consider the increasing integration through the EU as extraordinary. In Europe, EU politics is only rarely related in the media (except when there's something big going on). At least here in Norway. Usually, country-wise politics overshadows everything (except in the economic sphere). The EU is still living on the goodwill of its member states.

Fair enough. Your objection has been noted. Let me try two other analogies.

Please, Log in or Register to view URLs content!

"Who would have anticipated that an unveiling ceremony for the erection of a segment of the Berlin Wall, which Germany presented to the Taiwan Foundation for Democracy (TFD), would have caused an embarrassment. On Monday, Legislative Speaker Wang Jin-pyng, who is also the chairman of the TFD, presided over the ceremony. After the ceremony, a journalist suddenly asked him if the segment of the Berlin Wall erected in the TFD’s yard signified that Taiwan and the Mainland would eventually be reunited.
...
Fortunately, President Ma did not attend the unveiling ceremony for the erection of the segment of the Berlin Wall in the TFD’s yard. Otherwise, he would have had to decide how to answer the journalist’s question about the meaning of the dismantling of the Berlin Wall--the collapse of communism or unification for the two Germanys?"

Two important groups of people, both current world economic powers (e.g. China is the world's largest exporter; Germany is world's second-largest), were separated after World War II. The ethnic West and East Germans had the support of the United States in their desire to reunify, which was accomplished in 1990. See

Please, Log in or Register to view URLs content!

The United States permitted and even encouraged reunification because a reunified Germany would strengthen NATO and the European Union. In American eyes, a reunified Germany is good for America.

In sharp contrast, the US has steadfastly opposed the reunification of ethnic Mainland and Island Chinese. The US passed a national law called the Taiwan Relations Act to keep the Chinese apart as long as possible. See

Please, Log in or Register to view URLs content!

"The act stipulates that the United States will "consider any effort to determine the future of Taiwan by other than peaceful means, including by boycotts or embargoes, a threat to the peace and security of the Western Pacific area and of grave concern to the United States".

This act also requires the United States "to provide Taiwan with arms of a defensive character", and "to maintain the capacity of the United States to resist any resort to force or other forms of coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan." Successive U.S. administrations have sold arms to the ROC in compliance with the Taiwan Relations Act despite demands from the PRC that the U.S. following legally non-binding Three Joint Communiques and the U.S. government's proclaimed One-China policy (which differs from the PRC's One-China Policy). The Taiwan Relations Act does not require the U.S. to intervene militarily if the PRC attacks or invades Taiwan, and the U.S. has adopted a policy of "strategic ambiguity" in which the U.S. neither confirms nor denies that it would intervene in such a scenario."

The United States will do everything possible to prevent a reunified China. A more powerful reunified China is not in the interest of the United States; which wants to remain as the world's sole superpower. A reunified China is definitely bad for America.

As the Germans have shown, even after decades of forced separation, ethnic kinship cannot be denied; it can only be merely delayed. For ethnic Chinese that celebrate Qinming Festival / Ancestors Day, "blood is thicker than water (i.e. family relations are more important than all other relationships...)." See

Please, Log in or Register to view URLs content!

How much longer can US influence keep the Chinese apart is anybody's guess. The outcome, however, is not in doubt. The pattern of reunified Yankee and Confederate America and reunified West and East Germany is clear. History knows that Mainland Chinese and Taiwanese compatriots are destined to live in a reunified China.

After American (e.g. 1865) and German (e.g. 1990) reunifications in the 19th and 20th centuries respectively, China is next in line for reunification in the 21st century. This is China's Manifest Destiny.

 

[Spartan95]

Using per capita GDP to gauge China's buying power is very misleading. Right now Zhejiang, Guangdong, Jiangsu, already have percapita GDP of $10,000 or 20,000 PPP Soon Shandong, Inner Mongolia and Fujian will reached the same level. Total you end up with 150 to 200 million of people which is much larger than France or any other European country. Plus in typical China household Mom and Dad, Children work They pooled their resource to buy major purchase like House of Car

The per capita GDP of the booming coastal cities is many times more than that in the inland cities. However, despite having such a large population with a high per capita GDP, consumption currently accounts for ~10% of China's economy, whilst exports account for many times more.

Why is that the case?

Even if the per capita GDP in the coastal region doubles, consumption won't double (which means it will still be less than 20% of the economy) because part of it will become savings in banks.

I don't believe it nothing will happened because it is not the money you can use anyway. You cannot repatriate that money without causing inflation, Just like you Mutual fund holding you don't count day by day any loss in Stock market is just paper loss

Well, tell that to Premier Wen and the innumerable China netizens, who has expressed concerns on their holdings of US treasury bills. So much so that many are calling for China to sell the holdings rather than suffer billions in "paper loss".

As an interesting comparison, the current official defence budget for China is in the region of US$60 billion. Thus, China's holdings in US treasury bills is sufficient to fund such a military budget for ~ a decade. Thus, a 10% paper loss translates into a year's worth of defence budget.

IMO, the real danger here is that with a large enough paper loss, there may be a plit in the CCP, as happened during the Tiananmen incident that resulted in Zhao Ziyang being under house arrest until he died.

Who is the driver of exchange rate here China or US . The way China maintained the rate is by buying the US Dollar with Yuan. If tomorrow they change their mind they can stop buying dollar anytime that will make their export more expensive But the cost of living in US will skyrocket and inflation hit the roof.
The day dollar maintained hegemony is probably numbered. China has initiated swap agreement with ASEAN, Brazil and some other country to facilitate trade . Soon Saudi and middle east country will join and slowly Yuan will be convertible

Fair point. But it isn't going to change over-night. And even than, EU and US will still remain 1 of China's largest trade partner.

Thus, whilst I'm sure China would like to spend money elsewhere rather than buying US$, if they stopped doing so, it will wreck havoc with their exports. Which incidentally, is still the largest driver of China's economic growth.

Thus, the real question under what conditions will China want their exports (currently the largest driver of their economic growth) to suffer?

Increasingly China recycle their vast dollar holding by buying mineral, oil and other strategic asset the world over at bargain basement price . They shop like there is no tomorrow, Hardly a day goes by without some announcement of major buy by Chinese strategic company like Sinopec

Since they have so much dollar holdings, they might as well put it to good use to secure the resources they need. Especially when few others can afford it at the moment. Fewer competition should result in better prices for the buyer.

That is a straw man argument I heard it countless time.The west will never completely stop importing good from China. Specially during hard time people try to save and pinch as much as you can and who is the cheapest provider good in the world . Yup China just check your local Walmart. Plus China export are mostly daily necessity that people has to buy recession or not .

You also forget that ASEAN and Japan are the third largest and fourth largest export destination of China and they grow by leap and bound. so whatever reduction in export to the west will be more than make up by increase export to those countries.

Recently the ASEAN and China free trade agreement come to realization and just last week China sign free trade agreement with Taiwan . Soon the Japanese and Korean will be clamoring to join the bandwagon because right now they are at disadvantage when their competitior enjoy zero tariff in China!

The existence of a growing ant tribe in China is a "straw man" argument? This ant tribe issue is potentially explosive.

As for exports, take iPhone as an example. It is made in China. How many people in China can afford a genuine (as opposed to counterfeit) iPhone in China? The workers who make them certainly can't since their monthly pay is less than the cost of 1 genuine iPhone. The same applies for MacBooks, consumer electronics, etc.

As for Japan, they aren't growing very much. Hardly a fore-front candidate to take up export slack from EU and US.

As for ASEAN, whilst there is growth, large parts of ASEAN is poorer than China itself. Population-wise, ASEAN is marginally smaller than EU, but the per capita GDP is considerably lower. Furthermore, ASEAN depends on China to buy their commodities. If China imports less commodities from ASEAN due to slowing export demand from EU and US, ASEAN suffers too, as evidenced in 2008-09.

If ASEAN suffers economic slowdown, I hardly think they are the proper candidate to make up the export demand that EU and US provides.

The strike is not disaster to China. If anything, it will hasten the transformation of Chinese economy from low value added export to much more sophisticated export. And at the same time speed up the the development of internal consumption. So all in all a blessing to China
Therefore the goverment doesn't crush the demonstration if anything they provide moral support to the striker and do nothing

The strikes are small in scale and not coordinated. And yes, it is a minor disruption so far. But, I'd hardly call iPhones, MacBooks, Honda cars, LCD TVs, etc as "low value added export".

If there is a proper labour union that coordinates a nation-wide strike, I'd think the PLA will move in to restore order instead of the central leadership providing moral support.

After all they are the initiator of this strikes by reforming the labor contract with more stringet provision beneficial to the workers about a year ago . Only now is this information disseminate among the workers

Another thing is OEM profit margin is razor thin 2-3% The reduced export to the west will forced those company to sell domestically under their own brand name where profit margin is much large. One toy company succesfully transform itself by selling domestically. The chairman of the company said his profit margin zoomed to 20%.So again blessing in disguise

Did that toy company happen to also be making toys from other more established foreign companies? Law suits are being filed against a toymaker that counterfeits toys and releases it under their own brand name:

Please, Log in or Register to view URLs content!

More are on the way for infringing IP.

 

[Red Moon]

After American (e.g. 1865) and German (e.g. 1990) reunifications in the 19th and 20th centuries respectively, China is next in line for reunification in the 21st century. This is China's Manifest Destiny.

The example of Germany is certainly a better example than Europe for your purposes! The American example is somewhat debatable because there are different interpretations. In fact the American north and south were actually quite different in social & economic structure. Some people believe the South was more comparable to Jamaica, for example (a plantation economy). Ethnically, the US was always a big mix, and even if you argue that Anglo-Saxon heritage makes up the majority in both the North and the South, then you might as well argue that the US should be part of England! Anyway, I am just nitpicking here.

 

[tdultima]

China became the world's largest car market last year during a recession and is now the largest market for General Motors cars. The idea that there is no domestic consumption in China is hilarious.

GM's Chinese sales top U.S.

By Chris Isidore, senior writer
July 2, 2010: 6:07 PM ET

NEW YORK (CNNMoney.com) -- China has become the top sales market for General Motors, the iconic American automaker owned by U.S. taxpayers.

Through the first six months of the year GM and its Chinese joint venture partners have sold 1.21 million vehicles in China, the company announced Friday. Its U.S. sales, announced Thursday, came in at 1.08 million.

Last year was the first year that overall auto sales in China surpassed the United States' market.

Please, Log in or Register to view URLs content!

 

[Red Moon]

Well, tell that to Premier Wen and the innumerable China netizens, who has expressed concerns on their holdings of US treasury bills. So much so that many are calling for China to sell the holdings rather than suffer billions in "paper loss".

As an interesting comparison, the current official defence budget for China is in the region of US$60 billion. Thus, China's holdings in US treasury bills is sufficient to fund such a military budget for ~ a decade. Thus, a 10% paper loss translates into a year's worth of defence budget.

IMO, the real danger here is that with a large enough paper loss, there may be a plit in the CCP, as happened during the Tiananmen incident that resulted in Zhao Ziyang being under house arrest until he died.

That's a huge exaggeration! Unless those netizens are totally stupid, many of them will understand that in fact it is a paper loss. The value of various assets can go up and down, and the government cannot control this. As far as accountability, I think it is quite clear the authorities concerned are doing everything they can to diversify, and some of the measures are quite clever. And the idea that there will be a split in the party over this is kind of ridiculous, I don't care how angry the netizens sound, I think it is just hot air.

On the matter of the Yuan's valuation, the relevant statement from the Bank of China was that a basket of goods would be used to decide the value of the currency. In the past, it was based on a basket of currencies. In other words, the value will be set in such a way that the price of export goods is balanced vs various commodities that need to be imported (iron, soybeans, oil, etc). Note that the value of China's reserves is not an issue here.

 

[Quickie]

@ Spartan95

China's consumption in terms of percentage of GDP is much much higher than 10%. Her consumption actually contributes much more to her GDP than her export even if we neglect to subtract off the import figure.

Please, Log in or Register to view URLs content!

China continues to promote consumption
(chinadaily.com.cn)
Updated: 2010-03-15 16:15 Comments(1) PrintMail Large Medium Small

China will take various measures to expand domestic demand and promote consumption, the Shanghai Securities News reported Monday, citing assistant Minister of Commerce, Fang Aiqing.

Expanding consumption in rural areas and spending in vehicle and household appliances, service, recycling and credit sectors fall into the main task of the ministry this year, Fang said.

The year 2010 will witness the implementation of household appliances and vehicles going to the countryside policy, incentives for replacing old vehicles and household appliances as well as preferential levy of 7.5 percent for purchasing small-displacement cars.

Some 100,000 stores and 1,500 to 2,000 delivery centers will be opened in the countryside to expand rural consumption.


Related readings:
Consumption to play bigger role in driving growth
China needs to boost consumption: IMF officer
Foreign firms bet on larger consumption
Festival a pointer to consumption trend



The recycling system of renewable resources, regional terminal markets as well as flea markets will be bolstered to expand recycling consumption and develop low carbon economy.

In order to promote credit consumption, it will be a priority to improve the financing guarantee system and credit insurance mechanism.

A series of measures to promote consumption last year added momentum for China's economic recovery amid the international financial crisis. The year 2009 saw consumption contributed 52.5 percent to GDP, up 6.8 percentage points from 2008.