What does China won't feed large part of its population mean? I did not realize there is mass starvation going on in China.
Certainly not yet. I get that China isn't someone Europe wants to borrow from but if Europe continues to cave in under debt laden governments, it really won't have much of a choice. For that matter, its not like every European government was thrilled to rely on the US after World War II, it just fell in such a way to where they didn't have a choice. The issue is that only China has the cash on hand to actually make a loan large enough to bail out something like Italy. If Italy circles the drain like Greece, then Europe really won't have much of a choice since there's no way Germany can save them. Add Spain to the mix and you're doubly screwed. Not sure if currency strength is the right barometer here. The issue is simply having cash on hand. China is the world's largest creditor nation right now and has billions on hand that it needs to put somewhere. China's incentive to lend to Europe is its own currency. It's the same reason why the buy our treasury bonds despite a terrible rate of return. The biggest reason is artificially weakening their currency and buying treasury bonds is the safest way to do it. China's investments in our bonds is strategic. Their currency depends on it. My point is that one can conceive a strategic value to bailing out Europe if it gets to that point. Europe won't want to take money from China but if Italy and Spain take a turn for the worst they wont have a choice. The US used its leverage with our loans to recreate the international system at the time. Certainly China can't replicate that but bailing out a sinking Europe would give them significant bargaining power over Europe and that's enough to wrest control of something like the IMF which is European controlled. (while the World Bank is controlled by the US) As for Japan, they were our largest creditor until 2004 or 2005. The issue with Japan was they were loaning to us during a period of stability. There hasn't been an opportunity to bailout an economy this large since post-World War II Europe. This could be an unprecedented situation if Italy and Spain go the way of Greece. Once that happens it'll be out of Germany's hands and it will be forced onto the global community.
What you're saying will happen eventually barring a Chinese collapse socially or economically. As cautious as the PRC has been, I think they're hesitant to take on the bailout role even if it gives them added leverage. They already have the influence/respect they need and the economic system isn't in a revolution Bretton Woods-like state yet. Evolution is not enough for them, and bailing out an aging riot happy welfare state doesn't seem like a good return on investment. I'd bet China would rather let some Euro members collapse than bailing them out. They've been proposing for more currency alignment through the IMF by phasing out the dollar as the unofficial currency reserve while pegging currencies through the IMF's SDRs. This would disrupt the current system which China is a hostage to in the long term. In the short term, the dollar would be stronger which is nice for their export industry. Then again, doing nothing could have depression-like implications and affect their 8% growth social appeasement strategy. So it'd probably be more in the middle where they're forced to be the lender of last resort. But I still don't think they'd do it for more influence on the global system. They're not ready to take on the beast and keep it, and they know that in due time, it'll happen if the status quo continues.
Not sure how you extrapolated his statement into this. Chinese people can feed themselves by working, or have their kids feed them if they make money. But they're certainly not getting welfare checks or social security or medicare. Because that money goes to China's big $2 trillion savings fund.
60% of Libya's GDP comes from oil reserve and it has a 25% unemployment rate. I think China's biggest worry is inflation and people buying vastly overpriced real estate and assuming its a "safe asset" for their financial savings.
I agree with you to some extent but the PRC is much larger than any of the other Asian Tigers. Consider Singapore both built up infrastructure and a consumerist culture but it has to be export driven since it is so small of a country. The PRC though is vast enough that they can build up their consumer markets. My impression of the PRC from my recent visit is that they are in a transition phase from depending on exports to having a strong domestic market. There has been a lot of talk that the PRC has lost its overwhelming export edge regarding cheap labor so that many companies now are even relocating back to the US and even Chinese companies are building facilities in the US for the US market. That leaves still leaves a giant domestic market whose standard of living is rising on average daily. I think that is a big question and a topic that came up in a private discussion with one of my Chinese host. Right now the feeling is the government will step in and some of that huge cash reserve will be for helping the the elderly. Keep in mind Chinese workers and their employers do already pay into something like a social security fund but how good it is I didn't hear.
Your info is a bit outdated. China now actually have social security and nearly universal health care, even in rural area. The co-pay for peasants for major medical procedures are still high (20% -50%), but it is much better than before.
Cost of living in Chinese cities is ridiculously expensive right now after years of record inflation. Indeed, many people are saying the currency is now overvalued.
My personal opinion, not grounded but I actually think China needs a large population of it's migrant workforce to provide the cheap labor to support its growing standard of living of the middle class in the cities. The population is too large to have too much foreign cheap illegal labors like U.S. does with Mexico but if they can have a similar system between it's rural and urban populations, it can work.
If the currency is overvalued, things would be cheaper in China due to the fact that you can buy more with one yuan. The fact that they're keeping it artificially low is what's causing inflation.
That is what is happening currently, but as the standard of living in rural area rises, there will be less and less people willing to work as migrant workers in the cities. China still have plenty of poor farmers willing to work as migrant workers in the near future.
Overvalued w.r.t. to US $. Things in China is getting more expensive than in US. So the exchange ratio for RMB/USD is no longer low as so many people claimed in the US.
