An interesting piece in Asia Times

[Supercilious]

I've found a very interesting piece in Asia Times. I don't agree completely with the author, and his views may be a bit to communist, but IMHO it's worth reading, at least to see how things look from the other side:

Breaking free from dollar hegemony
By Henry C K Liu

[...]
World trade is now a game in which the US produces fiat dollars of uncertain exchange value and zero intrinsic value, and the rest of the world produces goods and services that fiat dollars can buy at "market prices" quoted in dollars. Such market prices are no longer based on mark-ups over production costs set by socio-economic conditions in the producing countries. They are kept artificially low to compensate for the effect of overcapacity in the global economy created by a combination of overinvestment and weak demand due to low wages in every economy.

Such low market prices in turn push further down already low wages to further cut cost in an unending race to the bottom. The higher the production volume above market demand, the lower the unit market price of a product must go in order to increase sales volume to keep revenue from falling. Lower market prices require lower production costs which in turn push wages lower. Lower wages in turn further reduce demand.

To prevent loss of revenue from falling prices, producers must produce at still higher volume, thus further lowering market prices and wages in a downward spiral. Export economies are forced to compete for market share in the global market by lowering both domestic wages and the exchange rate of their currencies. Lower exchange rates push up the market price of commodities which must be compensated for by even lower wages.

[Supercilious]

Re: An interesting piece in Asia Times

Another great piece showing the view from the other side:

http://seekingalpha.com/article/8964...na-next-to-pop

The Great Bubble of China: Next to Pop?
[...]
Here we have all of the ingredients for a classic bubble – massive hysteria on faulty facts.

[...]
I am a Chinese. For centuries, Chinese have had nothing to cheer about. For a brief blip in history, China had the largest economy on the earth. We invented paper, the printing press, the compass and gun-powder. Yet after years of internal fighting, the Chinese society disintegrated. In the 1800s, China fought Britain twice over opium, yet the Chinese lost both times. (The Opium War was over British selling of opium to the Chinese, and the Chinese government wanted to ban the trade). Yet due to the losses to the Brits, the Chinese emperor agreed pay heavy ransoms to the Brits, which led to British control over Hong Kong. China fought the Russians and lost. China fought the Japanese, and lost. The most humiliating thing that ever happened to the Chinese was the aftermath of the Japan- Russia war. Teddy Roosevelt was awarded a Nobel Prize in 1906 for bringing a cease-fire agreement between Japan and Russia in avoiding a world war. Yet do you know what Teddy’s solution was for this so-called peace treaty? Awarding China’s northen territory to Japan. Japan was awarded a resource-rich area for winning a war over Russia. China ended up paying for the war.
After years of war and resentment of foreigners, we finally thought we could have some peace and prosperity in 1949, but we ended up having Mao. Mao was an evil genius who dreamed of becoming an emperor at a very young age. He killed his political allies and enemies on suspicions, and he starved millions of people to death.
But now, "it’s different this time". China finally has an Olympics to cheer about. Due to the economic reform of the last twenty years under Deng, China actually has an economy that’s growing at a much faster rate than the rest of world. Because of this euphoria in China, resources are grossly misallocated. In fact, China has built too many factories and too many houses. People think that if they ever get into trouble, the central government in Beijing will bail them out. I have heard phrases such as "how could Beijing possibly let the stock market fall ahead of Olympics?". Everyone thinks he/she will get bailed-out if things go wrong before the Olympics.
In Shanghai, a city of 20 million people, there are 1 million units of homes being built this year alone. There are thousands of skyscrapers being or planning to be built. Home prices have tripled in less than 5 years. Housing has become extremely unaffordable in China. There are speculative orgies going around the property markets in China, which include many foreigners all over the world. In China, home price vs. median household income ratio is way out of whack in recent years. In many cities, that ratio is like 30, or it takes 30 years for a Chinese family to work not eating to pay off a home loan. Many Chinese called homes "slaves".
China is well known for its corruptions. I was told by someone that in Shanghai, realtors, buyers, builders and bankers are all colluded to make big money. Banks lend to anyone who applies and to any builder who builds, as long they get piece of the pie. Banks belong to the government and corrupted bureaucrats are in charge of handing out loans
Subprime in the U.S. was a disgrace, but in China, its lending standards are much worse the subprime. Banks lend to who they know or lend to anyone for social reasons. The primary lending decision is not based on whether borrowers can repay.
I don’t have the figures, but l know too many foreigners are investing in China, reminiscent of the Gold Rush in 1849. Decisions to expand manufacturing capacities in China are not based on economics, rather for social reasons. One indication of excessive capacity is this: now you can buy a 52 Hitachi (HIT) LCD TV for $1,500 in store, I don’t know how the manufacturers can make any money in making that TV.
The commodity bubble is fueled by the Chinese construction bubble. Building roads, skyscrapers and expanding manufacturing plants take lots of steel and energy. But underneath every bubble, there’s a pin. I think it will burst very soon. China's stock market bubble has already burst. When the real estate bubble bursts, then the whole economy might fall into a very deep recession.
When you have a true bubble, nobody sees it. We only recognize it when the bubble is over. The American housing bubble is small scale when compared to China. Everyone warned about the American housing bubble for years before it popped; therefore, I don’t think it can be called a housing bubble.
China is a true bubble. No one believes that a slowdown is even possible. Investing in China is a sure thing to many foreigners. Yet history has told us that foreigners are the dumb money and they have been very consistent: buying high and selling low.

[ASH]

Re: An interesting piece in Asia Times

I've found a very interesting piece in Asia Times. I don't agree completely with the author, and his views may be a bit to communist, but IMHO it's worth reading, at least to see how things look from the other side:

I was under the impression that wages were actually rising in low-cost manufacturing centers... or is that only in nominal terms?

[ASH]

Re: An interesting piece in Asia Times

Another great piece showing the view from the other side:

http://seekingalpha.com/article/8964...na-next-to-pop

"Yet history has told us that foreigners are the dumb money and they have been very consistent: buying high and selling low."

That seems right to me. Japanese buying overpriced American assets in the 1980's. Europeans buying American mortgage-backed securities during our housing bubble. It's time some incautious American investors in China got burned.

It seems to me that often the less you know about something, the more enthusiasm you can muster for it. We're all too familiar with the problems at home, and therefore all too ready to believe that someone else is doing it "right." The grass is always greener...

Optimism about the unfamiliar is no substitute for good research and some level-headed thinking.

[phirang]

Re: An interesting piece in Asia Times

I would never invest in mainland chinese assets, since I know:

1) The easy money has been made.
2) If there is a legal contest, I'll most likely lose.
3) I have 0 control of liquidity.
4) The place is obnoxiously corrupt.

That said, does it matter? Everything the author has said has been true for years. Why would it change now? Because China exports less to the US and EU? What about the GCC? What about Africa?

[ASH]

Re: An interesting piece in Asia Times

I would never invest in mainland chinese assets, since I know:

1) The easy money has been made.
2) If there is a legal contest, I'll most likely lose.
3) I have 0 control of liquidity.
4) The place is obnoxiously corrupt.

That said, does it matter? Everything the author has said has been true for years. Why would it change now? Because China exports less to the US and EU? What about the GCC? What about Africa?

Well said.

[The Outback Oracle]

Re: An interesting piece in Asia Times

$#* Henry liu is no communist and has written some perspicacious articles. I think in this case, in the modern world, due to both technology and the inclusion of hundreds of millions of chinese workers into the world production system, we have a surplus of labour. So, whatever happens in terms of prices of commodities etc, the wage earner is in the weak position in the pipeline. I think that is all Henry Liu is saying. He has got the bit about paper USD being worth nothing pretty right. So help me i cannot for an instant think of a single reason why the rest of the world is accepting the damned things as payment for commodities or labour.
Twenty years ago wages in China were about USD1.00 per day or about USD25 per month. Wages now vary a lot from place to place. As of about four years ago, at a Taiwanese friend's factory in Guangzhou province, a good sewing machinist could earn over USD400 USD per month. My impresasion is that this number would now be about $500 - 600 per month. In the central and northern parts of china wages are lower and my memory tells me about USD$6-7 per day. This is for the relatively unskilled.
I employ a couple of Chinese women who supervise in various factories for me up there. Our wages to them are increasing at about 15 percent per year. We think this is not really covering the inflation.

These things vary a lot from place to place, and even factory to factory. There is no number here about which I am adamant, so anyone else please feel welcome to add your two bits worth.

[Supercilious]

Re: An interesting piece in Asia Times

$#* Henry liu is no communist and has written some perspicacious articles.

I agree that Liu is a smart guy and I agree with many of his points ... the problem is that he falls in the same trap of Chinese Exceptionalism (masterfully set up by the Chinese communist rulers). He refuses to see that the currency manipulation scheme engineered by Deng Xiaoping in '92 is a de facto Ponzi scheme and Chinese rapid growth policies are a big part of the problem. That's why I've said his views (expressed in that article) are a bit too communistic IMHO.

I have here two interesting links:
http://blogs.cfr.org/setser/2008/08/...bits-die-hard/

http://piaohaoreport.sampasite.com/c...oney-flows.htm

He has got the bit about paper USD being worth nothing pretty right. So help me i cannot for an instant think of a single reason why the rest of the world is accepting the damned things as payment for commodities or labour.

Well said. But they have buy US treasuries because it's a necessary investment component of the currency manipulation scheme that creates an artificial growth (export-based) engine... The Central Banks who are accumulating huge piles of worthless paper are as guilty as the Fed is for this global imbalance. It takes two to tango ;)

By the way, do you know what the acronym CDO stands for ? I bet you don't, or you know just the classic definition.

The modern definition of the CDO is ... Credit Default Obligation ....

[GRG55]

Re: An interesting piece in Asia Times

Another great piece showing the view from the other side:

http://seekingalpha.com/article/8964...na-next-to-pop

I can see that an article claiming another "bubble" (this time China) would appeal.

Here's an alternate view:

As long as China is increasing market share in any segment, that segment will see the deflationary effect of this "globalization". If aggregate demand falls in that segment, to the degree that China is the low cost producer it will be the last one out insofar as supplier to the world. Anti-globalization trade barriers anyone?

[touchring]

Re: An interesting piece in Asia Times

Well, hasn't the bubble already burst? The shanghai stock market has fallen 56% since the peak about a year ago.

Another great piece showing the view from the other side:

http://seekingalpha.com/article/8964...na-next-to-pop

From the 17th century to the early 20th century, China was under foreign occupation by Manchurians, a Mongolian like tribe well known for horse back riding and archery. They have their own language that is distinct from Chinese. They had no major achievements throughout the 300 years of rule, even the Forbidden city was not built by them.

Yet after years of internal fighting, the Chinese society disintegrated. In the 1800s, China fought Britain twice over opium, yet the Chinese lost both times. (The Opium War was over British selling of opium to the Chinese, and the Chinese government wanted to ban the trade). Yet due to the losses to the Brits, the Chinese emperor agreed pay heavy ransoms to the Brits, which led to British control over Hong Kong. China fought the Russians and lost.

[phirang]

Re: An interesting piece in Asia Times

Well said.

It's also worth noting that the Chinese, in public, like all other Asian countries, loves to understate their achievements and self-deprecate whenever possible. Japan has been supposedly in the gutter since 1987, but somehow, mysteriously, Toyota has managed to dominate the global auto market.

I've seen Chinese AK's and RPG's in Africa: they're very popular there, along with their over-engineered yet cheap prime-movers, bridges, roads, buildings, power-plants, dams, etc, etc.

Most African countries usually get their planes from Ukraine, Bulgaria, Belarus, etc, though. Maybe Ash can help me out on that one.

[Rajiv]

Re: An interesting piece in Asia Times

Japan has been supposedly in the gutter since 1987, but somehow, mysteriously, Toyota has managed to dominate the global auto market.

To answer this conundrum, you have to read Elaine Supkis' rants

e.g.

Bank Of Japan's 2007 Statistics

Paris Hilton, Gnomes And The Yen Carry Trade

Asia Is True Engine Of Global Trade

Weak Yen Status Quo Returns

See also the videos on the yen carry trade

http://www.youtube.com/results?searc...rch_type=&aq=f

[ASH]

Re: An interesting piece in Asia Times

Most African countries usually get their planes from Ukraine, Bulgaria, Belarus, etc, though. Maybe Ash can help me out on that one.

Alas, 'tis beyond my ken.

[phirang]

Re: An interesting piece in Asia Times

Alas, 'tis beyond my ken.

Tovarish, I thought you do beez-ness consulting in Sub-Saharan strategic region?

[ASH]

Re: An interesting piece in Asia Times

Tovarish, I thought you do beez-ness consulting in Sub-Saharan strategic region?

Ha ha!

I am foreign affairs dilettante (but not debutante!) who does beez-ness at the periphery of the American defense industry, designing sensors to see single photons. Oh -- and I was an enlisted Marine reservist from 2003 - 2007. (Technically I still am for another 3 years, but as I am in the IRR, I am basically a civilian again... I should probably update my avatar.)