Will China Sell?

[c1ue]

Re: Will China Sell?

Interesting point.

There are a lot of people who have said that the Tiananmen riot put-down was so brutal simply because the government had strayed too far from its strong-arm position.

This school of thought posits that the government in China is actually only keeping control by leading the herd - i.e. keeping to the mandate of the people.

Thus China's inability to constructively deal with the Taiwan question even though any actual military confrontation with Taiwan would surely deal a massive blow to China economically.

I remember the incident with the US spy plane colliding with a Chinese fighter - there were a lot of angry voice in China ready to kick some US butt.

Being seen as an economic stooge to the US would almost certainly fall into this same category, especially if accompanied by real decreases in growth and/or standards of living.

[bill]

Re: Will China Sell?

Intriguing comments from Craig Paul Robers:

China's Threat to the Dollar is Real

Consider also, that as revaluation causes the yuan to move up in relation to the dollar (the reserve currency), it also causes the yuan to move up against every other traded currency. Thus, the Chinese cannot revalue as Paulson has ordered without making Chinese goods more expensive not merely to Americans but everywhere.

Compare this result with China dumping dollars. With the yuan pegged to the dollar, China can dump dollars without altering the exchange rate between the yuan and the dollar. As the dollar falls, the yuan falls with it. Goods and services produced in China do not become more expensive to Americans, and they become cheaper elsewhere. By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.

Now consider the non-financial costs to China’s self-image and rising prestige of permitting the US government to set the value of its currency. America’s problems are of its own making, not China’s. A rising power such as China is likely to prove a reluctant scapegoat for America’s decades of abuse of its reserve currency status.

China will more than likely keep the peg within a tight range, keep the dollar holdings and take the tariffs. Another option would be asset ownership in the US , which was one of my questions http://www.itulip.com/forums/showthr...13273#poststop for EJ to ask Martin Mayer. Any update as to when that interview will be posted?

[unlucky]

Re: Will China Sell?

There's another theory which I haven't seen mentioned in polite company. We don't get to see the political infighting behind the decisions made in China, but the infighting assuredly occurs just as it does in any other nation. There's a lot of influential people there right now who have made their fortunes in exports. These people earn money in dollars or other foreign currencies and owe money in Yuan. Given the ample supply of cash, a lot of their investments are likely marginal. They won't want to a strong Yuan, even if that is what is now required to rebalance the economy towards the domestic sector. There's nothing in it for them.

Think about the political influence such people would have in the US in an analagous situation, especially if the voice of consumers was completely silenced.

Maybe China is politcally unable to act to prevent a serious economic problem which is foreseeable but not yet realized. Maybe they are not that different from the US after all...

[FRED]

Re: Will China Sell?

China will more than likely keep the peg within a tight range, keep the dollar holdings and take the tariffs. Another option would be asset ownership in the US , which was one of my questions http://www.itulip.com/forums/showthr...13273#poststop for EJ to ask Martin Mayer. Any update as to when that interview will be posted?

We're shooting for Monday.

[c1ue]

Re: Will China Sell?

There's another theory which I haven't seen mentioned in polite company. We don't get to see the political infighting behind the decisions made in China, but the infighting assuredly occurs just as it does in any other nation. There's a lot of influential people there right now who have made their fortunes in exports. These people earn money in dollars or other foreign currencies and owe money in Yuan. Given the ample supply of cash, a lot of their investments are likely marginal. They won't want to a strong Yuan, even if that is what is now required to rebalance the economy towards the domestic sector. There's nothing in it for them.

Think about the political influence such people would have in the US in an analagous situation, especially if the voice of consumers was completely silenced.

It is true that there are people with money in China, and also true that the Party is listening more to them than before.

It is not true, however, that the wealthy have any influence on important issues.

Because if this were so, then China would long since have lifted their currency restrictions - allowing these rich and influential people (as well as foreign corporations' profits) to be able to take some or all of their money out of China.

At the end of the day, power is still held by the Party with the PLA as armed backup.

If China is willing to risk making martyrs out of unarmed and mostly non-violent students at Tiananmen, do you really think the suffering of the rich would really be a concern?

Don't confuse US/European style oligarchy with the autocracy in China.

It may be enlightened, but that is just a bulldog wearing a dress.

[BiscayneSunrise]

Re: Will China Sell?

Will China use the Nuclear option?

It depends on whether they see themselves at "war" with the US in order to achieve economic and political supremacy around the world.

Remember, wars are won by the country with the most determination coupled with the most robust economy.

A Chinese Ronald Reagan could win the "war" against the US and never fire a shot by just applying economic pressure on the US.

This would happen slowly so the Chinese could develop other export markets so as not to displace Chinese workers in export oriented industries, thereby creating civil unrest in China, potentially overturning the Communist leadership.

[c1ue]

Re: Will China Sell?

Will China use the Nuclear option?

My own opinion is actually that China will use it in steps if China gets cast as the bad guy by US politicians.

I actually believe that keeping the workers in factories happy is less of an issue than the massive rural unrest presently occurring.

After all, the Communist revolution did not start in the cities in China, it started in the countryside.

In some respects you could say that a US created manufacturing recession could benefit the rural China population; trade wars usually benefit internal inefficient producers.

[Rajiv]

Re: Will China Sell?

Good article by Mike Whitney - "The Grim Reaper Pays a Visit to Wall Street"

That ought to stop congress in a hurry. China has $1.3 trillion of US paper they can toss into the jet-stream and crash the greenback whenever they choose. That’s why they’ve stockpiled dollar-backed assets for the last decade — not because they like us. They don’t. They intend to use their massive FOREX reserves like a cattle-prod to keep us in line. That’s how bankers always do it. And China is now America’s banker. That’s why it pays to run the country the old fashioned way; by strengthening the manufacturing sector, increasing exports and building up national savings. Debt is just the fast-track to slavery.

China is now calling the shots. If they even get a whiff of US-imposed tariffs, they’ll bring the US economy to its knees. And there’s nothing congress can do about it either. They’d be better off just pulling up a lawn-chair and watching as US jobs and wealth go chugging off to the Far East.

But China is probably the least of our worries. The looming credit crunch is a much bigger immediate concern.

[medved]

Re: Will China Sell? - No, it will buy.

My own opinion is actually that China will use it in steps if China gets cast as the bad guy by US politicians.

Here is my scenario:

1. The politicians get spooked by the current financial crisis.
2. Paulson and Co organize a new round of negotiations with China, this time with the congress out of the way (or, even, supporting the Administration).
3. FED, Chinese and other CBs negotiate the compromise: China gets to dictate the pace of yuan devaluation, US congress stops the demagoguery, and so do Europeans. Nomo pressure on China. Maybe, China even gets to buy some oil companies.
4. China uses its funds (through Blackstone and other proxies) to provide liquidity for the credit markets (e.g., buying a few failed institutions or just a ton of MBS pools).
5. Confidence returns, markets go up and so does bonar. Dollar bears get squeezed. Gold did not rally at the time of panic, so it's a useless barbaric relic. Big sell orders are placed in the gold markets, gold drops.
6. At the same time long term rates go up, because China buys less Treasuries. The spreads go down.
7. Slowdown continues at a measured pace. Fed expresses concern about "the real economy" and drops the rates by 0.25%, bonar rally stops.
8. Within half a year everything goes back to normal, the Ka stage is over, the new Poom begins.

So, this time some of our black helicopters will bear signs "Made in China".

http://www.usatoday.com/money/world/...estments_N.htm

m.

[c1ue]

Re: Will China Sell?

1. The politicians get spooked by the current financial crisis.

Possible, but honestly do you think the Democrats are all that eager to right the ship during a Republican lame duck presidency?

There is a lot of jockeying going around for Presidential and congressional elections next year, and helping the 'average guy' via trade restrictions seems to be more on the Democratic agenda.

3. FED, Chinese and other CBs negotiate the compromise: China gets to dictate the pace of yuan devaluation, US congress stops the demagoguery, and so do Europeans. Nomo pressure on China. Maybe, China even gets to buy some oil companies.
4. China uses its funds (through Blackstone and other proxies) to provide liquidity for the credit markets (e.g., buying a few failed institutions or just a ton of MBS pools).

The question I have is just how much of these questionable MBS/CDOs are actually held by China? and Japan and Taiwan?

I cannot believe that only Americans and Europeans were stupid enough to buy stuff without reading the fine print.

If there are a significant number of these types of investments already held with corresponding losses, I can only presume that the country(ies) holding the bag would be less cooperative of efforts to get them to buy MORE bad investments.

[unlucky]

Re: Will China Sell?

Well, looking over the wikipedia articles on government and politics in China, I would actually think that "oligarchy" is a fitting description.

Be that as it may, I'm just not willing to bet money that these people have a plan. Especially not a cunning, devious plan. Faced with difficult decisions, they will most likely do nothing for as long as possible.