US-China Strategic and Economic Dialogue

[skyson]

anyone paying attention to the US-China Strategic and Economic Dialogue?

The US has agreed to loosen restrictions on the export of hi-tech goods to China and speed up its recognition of the nation's market economy...

China's Central Bank Governor Tuesday called for greater voice and representation for emerging and developing economies in the international financial institutions...

China and the United States pledged on Tuesday to expand economic and financial cooperation amid the world's worst economic recession in decades....

China told the US it hopes the nation will cut its colossal fiscal budget in order to stifle inflation and protect China's dollar-denominated assets

Oh, last one:

China, the biggest foreign holder of US Treasuries, increased its holdings of US government notes and bonds by $38 billion to $801.5 billion in May.

why they do this? the popular belief is that china is trying desperately to dump US dollar assets...

And this important summit is not news worthy to be covered in any US major media outlet, only in a blog:
Geithner: China Needs to Be Less Dependent on U.S. Consumer

what is up?

[ASH]

Re: US-China Strategic and Economic Dialogue

anyone paying attention to the US-China Strategic and Economic Dialogue?

Oh, last one:

why they do this? the popular belief is that china is trying desperately to dump US dollar assets...

And this important summit is not news worthy to be covered in any US major media outlet, only in a blog:
Geithner: China Needs to Be Less Dependent on U.S. Consumer

what is up?

My impression is that the Chinese government believes it can save more of the purchasing power of its dollar assets by managing the decline of the US dollar than by trying to pull out of those assets. I also get the impression that China feels America is so dependent upon Chinese financial assistance at this juncture that China can exert sufficient leverage over future American fiscal policy to be successful in helping us save the dollar. The Chinese are acting like they think they can compell America to be fiscally responsible, once a recovery takes place. Lastly, it appears that China is testing its leverage by extracting somewhat incidental trade concessions.

If this is the case, then I think the Chinese government will be disappointed by the degree of control that the American executive branch -- and the American political elite in general -- have over American politics. Everything is riding on an American economic recovery -- with jobs -- within a short span of time. If the fiscal stimulus is wasted without enabling a self-sustaining recovery, politics will devolve in a populist direction, and whatever assurances our government has offered the Chinese in exchange for their assistance will be forgotten.

I'm not suggesting that Chinese cooperation with America on this issue is foolhardy. Actually, it is probably the only rational choice. They are trying for the best outcome, even though the chance of success may be low.

[touchring]

Re: US-China Strategic and Economic Dialogue

I'm not suggesting that Chinese cooperation with America on this issue is foolhardy. Actually, it is probably the only rational choice. They are trying for the best outcome, even though the chance of success may be low.

Once the hi-tech goods are sent over, they will be reverse engineered and in 3 years, the Chinese would not need to import them.

The Europeans have learned this the hard way for green energy tech.

[touchring]

Re: US-China Strategic and Economic Dialogue

I'm not suggesting that Chinese cooperation with America on this issue is foolhardy. Actually, it is probably the only rational choice. They are trying for the best outcome, even though the chance of success may be low.

Once the hi-tech goods are sent over, they will be reverse engineered and in 3 years, the Chinese would not need to import them.

The Europeans have learned this the hard way for green energy tech. After they built their factories, the knowledge is siphoned out and the chinese built their own.

[skyson]

Re: US-China Strategic and Economic Dialogue

Once the hi-tech goods are sent over, they will be reverse engineered and in 3 years, the Chinese would not need to import them.

The Europeans have learned this the hard way for green energy tech.

this is probably true. just look at the Russian fighter jets like SU-30s that exported to China. now China is exporting their own 3rd generation fighter jets to parkistan and countries in south-east asian, africa. the Russia-China military trade is almost dead.

[ASH]

Re: US-China Strategic and Economic Dialogue

Once the hi-tech goods are sent over, they will be reverse engineered and in 3 years, the Chinese would not need to import them.

The Europeans have learned this the hard way for green energy tech.

That, at least, is some value they can extract from their position, even if recovery of principal is uncertain. However, the Chinese were already on this trajectory (acquiring technology) and were obviously enjoying a lot of success; I don't imagine their success in modernizing and accessing foreign technology is really that contingent upon supporting American borrowing at this stage in the game. They may have gotten leverage with which to accelerate the process of technology transfer, but it seems to me that the access-to-technology angle was more important earlier in the relationship. I don't think China is indifferent to the value of their accumulated dollar holdings, and at some point, the purchasing power at stake in those holdings will probably dwarf the costs of independently developing the technology they'd like to reverse-engineer. For that matter, it seems likely to me that it would be easier for them to get ahold of American technology if the dollar were weaker. I still think intervention to shore up the dollar is mostly about preserving the value of their existing dollar holdings, and technology access is more periferal.

[c1ue]

Re: US-China Strategic and Economic Dialogue

this is probably true. just look at the Russian fighter jets like SU-30s that exported to China. now China is exporting their own 3rd generation fighter jets to parkistan and countries in south-east asian, africa. the Russia-China military trade is almost dead.

This statement does not appear to be true.

You imply China is building its own SU30 fighters and also selling them to Africa and SE-Asia.

China has been licensed to assembled some SU fighters, but creation of the titanium parts and radar/weapons systems is a very different matter.

The only sales I can see are of supersonic, but much older variants such as the F7:

http://sudanwatch.blogspot.com/2005/...-sudanese.html

The only purchases of Sukhoi fighters I see are Malaysia, India, and Vietnam and these were bought from Russia, not China.

http://blog.limkitsiang.com/2007/05/...mething-fishy/

http://www.angkasa-online.com/read/n...i.fighter.jets

http://sgforums.com/forums/1164/topics/63171

http://www.deccanherald.com/content/...30-sukhoi.html

Note a substantial portion of the Indian purchase is also assembled in India.

There is a supposed cooperation between Pakistan and China to produce a 4th generation fighter, but honestly this is extremely unlikely to produce anything as the costs are simply too high (for Pakistan at a minimum).

Then there's the whole export version vs. home defense version issue...

[ASH]

Re: US-China Strategic and Economic Dialogue

Then there's the whole export version vs. home defense version issue...

Say c1ue... what is your take on the original question at the root of this thread? What do you make of China's interests as regards the US dollar and trade -- and the recent announcements? I think I just regurgitated the iTulip position (China will try to prevent a dollar crash, but will use its leverage to extract strategic and trade concessions, and won't give us a lot of slack on the rope). Do you have a differing view, or something to add?

[touchring]

Re: US-China Strategic and Economic Dialogue

is mostly about preserving the value of their existing dollar holdings, and technology access is more periferal.

The Chinese are capitalists first and foremost. Technology means quick bucks - hundreds of millions of dollars. You don't even need to earn money, just sell the tech story and list the company on the stock exchange. Look how much WB has earned on a company that has battery technology, never mind another company is suing them for stealing their tech.

[c1ue]

Re: US-China Strategic and Economic Dialogue

Say c1ue... what is your take on the original question at the root of this thread? What do you make of China's interests as regards the US dollar and trade -- and the recent announcements? I think I just regurgitated the iTulip position (China will try to prevent a dollar crash, but will use its leverage to extract strategic and trade concessions, and won't give us a lot of slack on the rope). Do you have a differing view, or something to add?

I think I've already stated my view - not dissimilar to iTulip's:

China will outwardly continue to support the US via ongoing Treasury purchases. The $20B to $40B/month China is spending buying Treasuries doesn't seem like much compared to 2 years ago, but on the other hand is more than anyone else ROW is doing.

China clearly realizes that the US will at least somewhat default on its Treasury obligations, and is working to disintermediate some of China's Treasury risk by using said assets to buy commodities, commodity companies, jump start yuan denominated trade, etc etc. It will be impossible to disintermediate all of it, but one does what one can. I believe in fact that China will try to reduce its overall risk - i.e. cover at least its monthly Treasury spend.

The end game is when the US default begins in earnest - i.e. the cycle of inflation and printing achieves explosive growth. As that happens there are going to be nasty allegations made by the US: trade sanctions/protectionism, etc etc.

But China will be able to beat its breast and say:

We supported the US.
We warned the US that its policies were bad.
We're now being threatened despite our support.
Let's (ROW) all get together and overcome this problem the US has created despite the support of its friends.

One of these ways will be increased yuan denominated trade since the yuan will ironically be one of the more stable currencies as the dollar falls (its engineered undervaluation puts a base on its value vs. other currencies).

This nicely paves over the effects of China's mercantilism on the ROW and gives China some dividends in the form of free ROW trade carry...

[skyson]

Re: US-China Strategic and Economic Dialogue

Thanks for all the inputs. Now my mind is clearer than before...

One of these ways will be increased yuan denominated trade since the yuan will ironically be one of the more stable currencies as the dollar falls (its engineered undervaluation puts a base on its value vs. other currencies).

This nicely paves over the effects of China's mercantilism on the ROW and gives China some dividends in the form of free ROW trade carry...

From articles I read from Chinese sources, the attempt to be a major player in the new financial world order and to push Reminbi to be a heavy weight world currency is the focus of the Chinese strategy in the future. Some even suggests that the price of 2 trillion US dollar is well worth it, if China does reach her goal.

However, I am still intregued by the phenomenon that headline stories about this summit are all over Chinese media, yet receives essentially no coverage in the US media. Very strange.

Regarding the Chinese export of fighter jets, I was talking about the Jian-10, and JF-17 series. From what I know, the development of these two aircrafts was impossible without the knowledge about design and various technologies(especially the engine, radar, and weapon systems) the Chinese gained from the SU fighter jets imported from Russia.

[c1ue]

Re: US-China Strategic and Economic Dialogue

Jian 7 = Mig 21
Jian 10 = F 16 - at least according to Chinese defense officials. Roughly equivalent to the Mig 29.

Pakistan has purchased some Jian 10s, but again the question is how strong the supporting parts are: i.e. avionics, weapon systems, etc.

Certainly China has made great progress in warplane development, but the gap with US and even Russian aeronautics is still quite wide.

[D-Mack]

Re: US-China Strategic and Economic Dialogue

UPDATE 1-China reveals it has 1,054 tonnes of gold -Xinhua
04.24.09, 02:56 AM EDT

...

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes.

'It's not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis,' he said.

'The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage.'

..
http://www.forbes.com/feeds/afx/2009...fx6333368.html

...

4. Beijing is resorting to increasingly clear and bold announcements, always gradual, sometimes even followed by vague denials, coming from less important sources but soon widely circulated by the international financial media. It is thus increasing its freedom of speech (and of action, as, when it comes to monetary issues, what is said can be a lethal weapon or a soothing remedy) without significantly affecting the value of US Treasuries or the Dollar.

This last aspect is indeed the ultimate requirement of the Chinese government: to avoid by any means a collapse in the value of US Treasuries and the Dollar before it has escaped the « Dollar trap ». LEAP/E2020 believes that, in the coming months, China will reveal the exact meaning of this requirement. Is it a goal or a necessity? If it is a goal, then Washington, London and the international financial media are right: Beijing will follow in Washington’s footsteps, merely trying to enhance its influence on US decisions. On the contrary, if it is a necessity, then our team is right and Chinese leaders will strive to sell off their US-Treasuries and Dollars at the best « possible » price, choosing the best « possible » moment, avoiding creating turmoil likely to lower the value of these assets for as long as « possible » (of course, China has been thinking about all the « possibilities » before launching its « escape » plan). But, in contrast to the first option, once all “possibilities” have expired, Chinese leaders will all of a sudden contribute to accelerate the end of the Dollar-era; or, more likely, they will calmly announce that for a number of reasons beyond their control (11), they can no longer continue to play the role of US imbalances’ stabilizers.

...
http://www.leap2020.eu/When-China-pr...009_a3582.html

Let's see what happens