US Financial Crisis/Bailout, China's Role

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btw some of the articles I ran across, coincidentally, those folks calling for China inject capitals to save the US are namely from Korea, Canada, and UK. They want CHina to foot the big bill saying that it's good for everybody... talk about ulterior motives.

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It is in China's interests for the US economy to remain afloat. China's own economic growth hinges on America's purchasing power. By injecting capital into the US economy, China can hope to halt, or at least slow the decline in demand for Chinese exports. Also, they can hope to get returns on their investments once the US economy begins to recover.

China is injecting its capital now toward Europe, not US. After all, Europe is CHina's largest trading partner. Also Europe's attitude is more relaxed toward CHina. unlike the hawkish US.

FugitiveVisions said:

Decoupling how? The trade deficit has shrunk, but so has China's economic growth. It's projected to be around 9.5% this year and possibly even lower next year. Keep in mind that China needs high growth to keep churning out jobs for the .6 billion people that have very little purchasing power, education or any kind of training. That's a huge burden. If you think the Chinese consumers, with the wealth disparity that exists in China, is going to pick up the slack for American consumers, that would be a very dangerous miscalculation.

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I don't believe that it is a dangerous miscalculation. You are essentially giving loans to someone so they can buy your product. What makes you think that it has to be the American consumer? The money can go to Chinese to make their own domestic consumer base, to SEA and third world countries.

I'm not saying that the housing market is fine. It is not. But as I said before, housing prices are close to dropping to the pre-bubble levels, as all bubbles have before, so to suggest that somehow this is an endless blackhole is not correct.

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As a person who actually has some investment in US real estate, if you have loaned or mortgaged for that land, you either have the income to pay for the interest and principal for that loan, while that land is non productive asset, or that land better be rented so the rent can help pay that interest and principal.

Both require a good economy, a business or a career that can pay for the former, or a renting customer, like a business or someone with a real income, and the two requires a good economy.

Sorry to say, but if the economy goes not go up, housing and land prices can easily fall below the pre-bubble level with no end in sight.

In Asia, land prices go up due to the constraints of land, creating a limited supply. In the US, there is too much land, except in cities, and that provides a break against the demand. Plus it appears that in the US you may have already overbuilt.

The reason why people foreclose is because they lost jobs, and they lost jobs because companies downsize or close down. They also sell their houses and land because cost of transportation has gone so high, they wanted to be closer to places at work.

The vibrancy of the economy is very closely correlated with the financial system. As long as guys like Chad Hurley and Steve Chen can get start up capital from institutions like Sequoia to start businesses like Youtube, the economy will be vibrant. Right now the problem is associated with a depletion of capital on the books of banks that has restricted their ability to make out loans like that, and this problem in a way is very much associated with strict accounting rules that do not reflect economic reality. So if China were to inject some capital right now, it would have the chance to reap the benefits of American productivity.

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But these are service industries. You don't have to buy companies like Youtube when you can start your own, like China's "Yu-Tube", and in Europe, VEOH TV or MegaVideo.

I'm not saying that we don't invest in our own industries but rather invest in foreigners. That's not what I'm saying at all. But when you have that much hot money/current account surplus that is being injected back into the money supply, the government has to find wiser ways to invest that money. If they aren't willing, I think like I said on the top of the page, create a national brokerage and give that money back to the Chinese people so that they can invest it on an individual basis.

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No one is going to invest in US dollar denominated assets because they know the US dollar will go down and their values with it. Likewise, global investors are going to look for a non-US safe haven, and that's going to mean China, Japan or the EU. That will put pressure on the currencies to rise. Sooner or later US companies will be ripe for the picking. The problem is, they won't be coming in as saviors, but to vulture what's left and the pieces after the crash.

FriedRiceNSpice said:

It is in China's interests for the US economy to remain afloat. China's own economic growth hinges on America's purchasing power. By injecting capital into the US economy, China can hope to halt, or at least slow the decline in demand for Chinese exports. Also, they can hope to get returns on their investments once the US economy begins to recover.

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China does not have the responsibility to save the US economy and consumer and even if she wanted, she simply does not have that power. The total impact can be as much as 2 to 3 trillion US dollars, and China does not have that much money. As a matter of fact, the total world reserves is around 3 to 4 trillion, while the US debt is rising to over $11 trillion after the bailout. The $700 billion dollar is for damage control. It does not fix the fundamental problems and on its own, its trading the future for the present because it will have consequences in the future.

What every country with cash is going to do is start reserving a budget to act as a buttressing dike or dam when the implosion starts and the shock waves go around the world. Countries like China, Japan, the EU and Russia are already putting money on their own banks to cover losses from buying bonds like Lehman Bros'.

Only the US can save the US, and for that to happen, they need to make a massive turn around in policies from top to bottom. Either that, let things crash, and hope a better "US" arises from the remains.

FriedRiceNSpice said:

It is in China's interests for the US economy to remain afloat. China's own economic growth hinges on America's purchasing power. By injecting capital into the US economy, China can hope to halt, or at least slow the decline in demand for Chinese exports. Also, they can hope to get returns on their investments once the US economy begins to recover.

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I don't think that is necessarily true because there are 3 pillars of Chinese economy Export, Capital investment and Domestic consumption If export slow down The goverment has ample money to speed up the capital investment like Building rail line and water diversion project or more road or Building school or Health care system. Just like FDR did it during depression So no Chinese economy is not hostage to US economy I believe this is blessing in disguise

Now they have to wean away from export and take care of real economy development Anyway depending on export is not sustainable in the long run

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I don't know whether to take this article seriously or not.

Mexican billionaire says China should lead crisis rescue 1 hour, 9 minutes ago



Mexican tycoon Carlos Slim, one of the world's richest men, said Tuesday that China should lead rescue efforts for the US financial crisis, and that worldwide stock markets needed better rules.

"China is now the most important country to help responsibly in this crisis," Slim told journalists at a meeting in Mexico City.

"China has great liquidity, large resources, surpluses in its current accounts and a lot of capital flow," he said.

"There is a systematic crisis in the whole financial system and the problem is that everything is interconnected."

Slim, who has said the current crisis is the worst since the 1929 Wall Street crash, called for improved rules for world financial markets.

"Not more rules but better ones, not more regulation but better regulation," said Slim, whose fortune is estimated at 60 billion dollars according to Forbes.

The billionaire, whose activities represent around six percent of Mexico's gross domestic product, also said that Latin American and other developing countries could help the United States through the crisis.

"In the past, developed countries had reserves and financed developing countries, while today developed countries, especially the United States, are being financed with resources from developing countries," he said.

The son of a Lebanese immigrant, Slim made his first fortune in 1990 when he bought fixed line operator Telefonos de Mexico (Telmex) in a privatization deal.

His company America Movil struck a deal in December with Web giant Yahoo to provide mobile Web services to 16 countries in Latin America and the Caribbean.

Slim declined to say which US candidate he believed would be better as president for Mexico and Latin America, but said the best would be "the one who most quickly restores the US economy."




Copyright © 2008 Agence France Presse. All rights reserved.

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lol, some non-chinese pretending to care in name of unemployed folks in CHina. I can smell that miles away.

:rofl:

China is injecting its capital now toward Europe, not US. After all, Europe is CHina's largest trading partner. Also Europe's attitude is more relaxed toward CHina. unlike the hawkish US.

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Major economies across the Eurozone are undergoing or on the verge of economic recession. In fact, although not a major contributing factor to current US economic woes; decreasing demand for AMERICAN exports in Europe has contributed to slowdown of US economic growth. This will affect the Chinese economy to a far greater degree.

Furthermore, European and American financial markets are very closely tied together... collapse of one and the other will be impacted.

With Europe in recession, and a failing US economy, where will there be a demand for Chinese exports? You cannot boost domestic consumption simply by telling people to buy... 38% of China's GDP is from exports, savings is at about another 30%, you will not be able to start up domestic consumption overnight. China might have a huge labor force and population, but only about 110 million people, about 8% of the population, has any meaningful spending power (Defined by having an annual income of over $5000).

I don't think that is necessarily true because there are 3 pillars of Chinese economy Export, Capital investment and Domestic consumption

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In the current situation, foreign direct investment is decreasing too. Domestic consumption cannot singlehandedly drive growth at this point in time.

So no Chinese economy is not hostage to US economy

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The US and Chinese economies are dependent on each other to a very significant degree. Just as the US economy was able to thrive in the 90's partially because of cheap imports from China purchased on credit; a large part of Chinese economic growth has been driven by American consumption. Such a relationship has had negative long-term ramifications for both economies: in the case of China, it is over-reliance on the export-driven model of growth; in the case of the US, it is a huge trade deficit as well as loss of competitiveness in the manufacturing sector.