Renminbi (RMB)/Yuan Appreciation & Internationalization

BoraTas · Apr 13, 2023

tphuang said:
basically, you end up seeing your currency appreciate from the surpluses and have to abandon some of the lower end manufacturing. In China's case, China would normally run a huge tourism deficit, so some of the surplus money will go back to the other countries.

And then, you probably also have to do currency swap with the other countries so they can have more RMB. And then you end up holding a bunch of their currency, which you can use to buy assets in their country or exchange it for another currency or use it to buy more resources. I think in China's case, it will be like the Saudis and end up buying a lot of assets or just generally investing in many global south countries, so that they remain dependent on Chinese supply chain and such. You can also use that money to finance infrastructure projects in the other country.

I am not sure how sustainable would that be. China would end up with a lot of volatile and relatively useless assets. China's trade surplus is 1% of global GDP. It is not something you can shuffle around easily, especially if it becomes a collection 80+ local currencies. China would exhanging real goods for useless abstractions of value. So China has to increase its imports for optimal economic performance in such a world.

AFAIK China's trade surplus is one of the worst utilized assets in the world even today. It is largely used for holding a lot of forex and treasury bonds in other countries, mainly the US. A significant chunk of it is used for borrowing even more assets of the same nature. Its return is usually negative against inflation and is vulnerable to sanctions. It is fairly apparent why the Chinese govt is working to decrease USD cycling from China back to the USA and is expanding relations with developing countries. Consumerist turn is also a part of this (in addition to pure GDP growth goals)

tphuang · Apr 13, 2023

BoraTas said:
I am not sure how sustainable would that be. China would end up with a lot of volatile and relatively useless assets. China's trade surplus is 1% of global GDP. It is not something you can shuffle around easily, especially if it becomes a collection 80+ local currencies. China would exhanging real goods for useless abstractions of value. So China has to increase its imports for optimal economic performance in such a world.

It's doing that right now with a whole lot of worthless UST

BoraTas said:
AFAIK China's trade surplus is one of the worst utilized assets in the world even today. It is largely used for holding a lot of forex and treasury bonds in other countries, mainly the US. A significant chunk of it is used for borrowing even more assets of the same nature. Its return is usually negative against inflation and is vulnerable to sanctions. It is fairly apparent why the Chinese govt is working to decrease USD cycling from China back to the USA and is expanding relations with developing countries. Consumerist turn is also a part of this (in addition to pure GDP growth goals)

sure, the problem is that China's industrial strength is too important to it, so it doesn't want to give that up. So it will end up with IOUs or loans to countries that have a hard time paying back or assets in other countries or just their currencies.

TK3600 · Apr 14, 2023

tphuang said:
It's doing that right now with a whole lot of worthless UST

sure, the problem is that China's industrial strength is too important to it, so it doesn't want to give that up. So it will end up with IOUs or loans to countries that have a hard time paying back or assets in other countries or just their currencies.

Buying land and natural resources is one way. At some point country not offering anything valuable should cease to get trade. No one is entitled for industrial goods if they do not offer what China needs. If say certain country refuse to offer tech for sale, and only offer overpriced goods nobody desire, then they get simply get charged more or don't get anything.

As China becomes more self sufficient they will increasing realize their domestic options are better. This becomes a dilemma. World has less and less to offer because they refuse to develop. China would be forced to engage in imperialism or develop other country for basically free so they have something to offer. This is something that will happen by 2040s. China will need to give up growing and stagnate, or govern the world.

Overbom · Apr 14, 2023

TK3600 said:
World has less and less to offer because they refuse to develop. China would be forced to engage in imperialism or develop other country for basically free so they have something to offer. This is something that will happen by 2040s

The answer to the above is that China isn't against IMF. China actually likes the current world order model, it just wanted more power sharing from the US and some tweaks here and there. But overall, China would be pretty happy with the IMF as long as it gained more voting shares

TK3600 · Apr 14, 2023

Overbom said:
The answer to the above is that China isn't against IMF. China actually likes the current world order model, it just wanted more power sharing from the US and some tweaks here and there. But overall, China would be pretty happy with the IMF as long as it gained more voting shares

Are you saying China should engage in predatory loans to buy all national sovriegnty? It will work until either they ran out of stuff to sell or they fed up with you and nationalize what they sold to you. At that point you either take your loss or engage in imperialism. Once again the ultimate option are 3: (imperialism, stagnation, global governence). This world is too small for China to keep growing.

TK3600 · Apr 14, 2023

Moderators please excuse me for going off topic. Nowhere else to discuss this.

China if keeps growing at 5% will hit 50 trillion dollar economy by 2040. World simply cannot accomodate that. Right now EU and US absorbs a lot of these output by giving us high tech product and service. Now we are not getting them so we must have domestic options. Then we will steal their lunch and be the most prominent tech power and service power. Then what. We will run out of things to sell, for the world cannot offer much back. This in my opinion is an existential threat to China, the currency problem is just a minor reflection.

Option 1: stop working so hard. Very tempting but will ruin the country. Water rot when stagnate. China must keep growing unless it want people grow lazy, eventually forget how to innovate. This is the proven failed path of US.

Option 2: imperialism, get the world to develop and serve the ever expanding economy. Evil and costly to be aggressive. One misstep and country overextend and fail.

Option 3: Global governing. Do the same as 2 except you don't own other country directly. Imagine doing BRI but there is no threat of American blockade. People might not even appreciate that because being lazy is nice. Developing is pain. They might even use your investment against you.

I struggle to imagine how China can survive being too succesful.

Minm · Apr 14, 2023

TK3600 said:
Are you saying China should engage in predatory loans to buy all national sovriegnty? It will work until either they ran out of stuff to sell or they fed up with you and nationalize what they sold to you. At that point you either take your loss or engage in imperialism. Once again the ultimate option are 3: (imperialism, stagnation, global governence). This world is too small for China to keep growing.

There's plenty of room for China to increase investment in global south countries. There just isn't that much room for profitable lending. But if the trade surplus needs to be spent somehow, then accepting small losses should be ok. Most African countries clearly can't afford a railway line like the one China built in Kenya. So why not build more railways and keep them owned and operated by Chinese companies? There's no need for the recipient country to get a loan or somehow give a sovereign guarantee that the investor will make a profit. But in the long term, even if the initial investment will make a big loss, the GDP growth in new markets will enable more exports to make it worth it.

We can see today how great South east Asia has become as an export market. If Africa, West Asia and South America are to become the same anytime soon, they will need help.

Marshall aid after the war wasn't profitable either. But it built up markets and bought loyalty. Of course it was also tied to conditions. China could ask for the same, for example, a free trade agreement under which all trade is done in RMB and support for Chinese territorial integrity.

But in today's financial situation of the world economy, what you can't do is continue traditional BRI lending that only quickly developing countries like Vietnam or India would be able to pay back.

TK3600 · Apr 14, 2023

Minm said:
There's plenty of room for China to increase investment in global south countries. There just isn't that much room for profitable lending. But if the trade surplus needs to be spent somehow, then accepting small losses should be ok. Most African countries clearly can't afford a railway line like the one China built in Kenya. So why not build more railways and keep them owned and operated by Chinese companies? There's no need for the recipient country to get a loan or somehow give a sovereign guarantee that the investor will make a profit. But in the long term, even if the initial investment will make a big loss, the GDP growth in new markets will enable more exports to make it worth it.

We can see today how great South east Asia has become as an export market. If Africa, West Asia and South America are to become the same anytime soon, they will need help.

Marshall aid after the war wasn't profitable either. But it built up markets and bought loyalty. Of course it was also tied to conditions. China could ask for the same, for example, a free trade agreement under which all trade is done in RMB and support for Chinese territorial integrity.

But in today's financial situation of the world economy, what you can't do is continue traditional BRI lending that only quickly developing countries like Vietnam or India would be able to pay back.

Doing Marshall aid grows factional power to counter ussr. It was a security investment. What if there is no security threat? It would be dumb to build another country who is not even loyal. In the same vein people tolerate BRI because it offers security. People will be upset if their tax money is wasted like that.

Overbom · Apr 14, 2023

TK3600 said:
Are you saying China should engage in predatory loans to buy all national sovriegnty? It will work until either they ran out of stuff to sell or they fed up with you and nationalize what they sold to you. At that point you either take your loss or engage in imperialism. Once again the ultimate option are 3: (imperialism, stagnation, global governence). This world is too small for China to keep growing.

As I said China is ok with the IMF. What It wants its more voting shares. Same with the World Bank as well. Of course it also wants some tweaks, for example IMF is too predatory for its own good. It opens new markets, makes business environment more fair, foreign investment treated better etc, that's good and that's what China likes as well.

What China doesn't like (in addition to having low voting shares) is that IMF keeps nations poor to be continuously harvested whereas China's national interest wants these countries to become richer so that they buy more products from China

That's where the fundamental contradiction happens between the US and China. And that's also what I mean when I say that China doesn't want to destroy the international order, but merely adjust it to better suit its national interests.

Of course, this adjustment would be fatal to the West which relies on harvesting the developing countries which is one of the big reasons why you see the US trying to suppress China

Biscuits · Apr 14, 2023

TK3600 said:
Moderators please excuse me for going off topic. Nowhere else to discuss this.

China if keeps growing at 5% will hit 50 trillion dollar economy by 2040. World simply cannot accomodate that. Right now EU and US absorbs a lot of these output by giving us high tech product and service. Now we are not getting them so we must have domestic options. Then we will steal their lunch and be the most prominent tech power and service power. Then what. We will run out of things to sell, for the world cannot offer much back. This in my opinion is an existential threat to China, the currency problem is just a minor reflection.

Option 1: stop working so hard. Very tempting but will ruin the country. Water rot when stagnate. China must keep growing unless it want people grow lazy, eventually forget how to innovate. This is the proven failed path of US.

Option 2: imperialism, get the world to develop and serve the ever expanding economy. Evil and costly to be aggressive. One misstep and country overextend and fail.

Option 3: Global governing. Do the same as 2 except you don't own other country directly. Imagine doing BRI but there is no threat of American blockade. People might not even appreciate that because being lazy is nice. Developing is pain. They might even use your investment against you.

I struggle to imagine how China can survive being too succesful.

Growing larger isn't the only way China can surpass the west in gdp per capita. Most of the west just has inflated per capita due to a small number of ultra rich that own most of their assets. In terms of middle and lower class life quality, China is already on par with US/eastern EU.

So the unspoken answer to Chinese problems regarding growth cap is that when you have 10 chairs in the room and need to seat 8 Chinese and there's 6 Americans already sitting there, the easiest solution isn't to build 4 more chairs, it's to tell 4 Americans to get up.

The inflated gdp of the west must become smaller, China growing endlessly is not feasible.

There is no option for China to "not work so hard" because the population aren't the ones working especially hard, it's the whole apparatus which is an EU sized country but far more effective than the EU.

For now, just like EU has its underdeveloped hinterland, so too does China, and for the foreseeable future, China will work on bringing them up, unlike EU which has just accepted that places like Romania, Baltics or Ukraine are shit.

Renminbi (RMB)/Yuan Appreciation & Internationalization

BoraTas

Major

tphuang

Lieutenant General

TK3600

Major

Overbom

Brigadier

TK3600

Major

TK3600

Major

Minm

Junior Member

TK3600

Major

Overbom

Brigadier

Biscuits

Colonel