Wen Jiabao Worried About the Safety of US Treasuries

Is this the summer of 2007? Many people says it had been by then. People - smart rich people from Goldman Sachs of the world, and other big important banks, - were telling us about China/India "decoupling". Jim Rogers was telling us to get rid of dollars, buy euros, and plow all money into emerging markets.

Then what happpened? Oh yes, all of this is proven to be dramatically and incredibly wrong. Emerging markets take it on the chin even worse than developed markets. So not only are they not decoupled, they're shown to be more coupled than ever....coupled to the 14 trillion US gorilla (china's is 3 trillion)

Catch 22 - how do you think the Chinese economy will "continue to increase"? Hint: Having a 25% drop in exports does not do it. Slowing growth rates will also not do it.

Could it? sure. Do signs point to it happening anytime within the near future- the answer over the last two years is an emphatic and resounding NO.

 

I certainly don't see it happening in the near future. But 20-30 years down the road is a totally different story. During the last thirty years the Chinese economy have increased by 70 times. I certainly don't see it go up by that much, but it is certain capable of becoming larger than the US market in 30 years if things go right. Actually it might help the world economy to have two horses leading it instead just one.

 

The problem with that is that if the Chinese market continues to develop and GDP per capita increases, then Chinese labor becomes more expensive, and it will get outsourced to cheaper wage countries like Bangladesh or maybe even places in Africa to manufacture those goods. It will be a race to the bottom in terms of who can build the stuff for the least cost.

 

Of course you know China have plenty of untapped cheap labor yet. The production center might shift from the rich eastern coastal parts to the dirt poor western part. The standard of living between large cities like Shanghai where average wage is maybe 3000 dollars plus a year and western villages where the average income is only 100-200 dollars a year is huge.

 

To a large degree that is what has happened already - most of the bottom end laborers in coastal factories come in from the inland regions. Moving factories inland doesn't open up many new resources and increases costs.

Second, even if you were right, it doesn't matter because bigtexxx is largely correct. As the chinese economy gets richer, the cost of production goes up - that's just an unavoidable occurrence, they can manipulate the yuan to try to keep exports cheaper (which, conversely, makes them poorer, unless they buy foreign currencies i.e. dollars), but other than that you can't stop it.

 

I don't get to say this often, but excellent analysis by Sam and bigtexxx here in this thread.

 

Of course what you say is true generally, I am only saying that China still have massive amount of human resource to tap yet and the time to shift production to Africa is still sometimes away yet.

 

You are making the assumption that China won't be able to move up the technology ladder and into higher-valued goods, just as the Japanese and the "Asian tigers" did. You may want to read up on a Chinese firm called BYD Auto. Could be a glimpse into the future.

Besides, as Pirc1 already points out, China still has plenty of cheap labour pool even as the coastal areas prospers and moves up the food chain. Also, as a businessman I can tell you that it's not just about low-cost, it's also about the value you get for that low cost, such as a stable environment, already good and still rapidly improving infrastructure, a relatively well-educated work force, etc. I just don't see Africa providing any of that. The only country which has copied China with any success so far is Vietnam, but it's far too small to take anything but a small bite out of the China pie.

It's not inconcievable that one day China may be able to corner the world market on both high- AND low-valued goods.

 

Then it is time for WWIII !

 

The funny thing is that China has to do something with all those dollars it has been accumulating.

In a grand twist of irony - China buys american t-bills because if they realy did try to diversify, it would cause the dollar to tank and do two things:

The won would have to tank as well or float which would make their exports a lot more expensive.

The value of all the debt would plummet.

 

It's cliche, but China's on the verge of another social revolution. Their population is aging. Young and affluent Chinese have more freedoms. The internet still offers a wealth of information the government can't control. I can't make guesses on how all of it will turn out.

As for being an orange eater, I think the best case is for the Chinese government to loosen its restrictions on property rights, both physical and intellectual. I don't think it's a matter of manufacturing proficiency anymore. They can make quality goods but lack the branding and innovation to merit buying that product over stronger competitors. No one is going to come up with a brilliant idea and take the risk of making it happen if it's going to be stolen a week later.

That's how it has always been, and moreso after the mid-90's Asian financial crisis. The Bush admin led a strong drive to weaken the dollar, yet Asian and Mid Eastern banks kept on buying.

 

You're just jealous because there is nothing on the Bible or baseball for you to show off your erudition.

 

Actually it may prevent WWIII.

I honestly don't see the current situation as being that bad. It ties the major powers of the world tightly together, thus forcing them to tread cautiously and prevents potential conflicts. The Naval incident in the South China Sea is just one such example. Obama just invited the Chinese Foreign Minister for an Oval Office meeting, going above and beyond diplomatic protocol to defuse the situation. Otherwise, we could be living in an extremely dangerous world. A resident superpower and a rapidly rising superpower rubbing shoulders with each other was usually a recipe for disaster historically, but not if their livelihoods are dependent on each other.

 

I do like the tone of this thread, no one is trolling and everyone discuss things in a civilized manner. Hard to see in D&D.

 

man, i'm not a bible expert!! i don't want to ever have anyone think of me as that!!! it's way too difficult for me to call myself an expert in it.

 

What you say is the common thinking in the West, that the Chinese people just cann't wait to rebel against their "oppressors", as soon as the economic situation turns sour or as soon as they get access to Western media and know the "truth". As a person who spends half of his time in China, I can tell you that the West is going to be disappointed. While everyone grumbles about corruption and social injustices (and has remarkable freedom in airing those grievances), the CCP and the central government remains remarkably popular and is usually viewed as a solution to the problems rather than a source of problems. Premier Wen, for example, is an extremely popular figure, far more so than any democratically-elected Western leaders. As for the myth that the Chinese people would "wake up" only if they knew the "truth", well, just take a look at the Chinese members of this board, most of whom are overseas Chinese and are far more exposed to Western media than Chinese media.

All this is not to say that China will never democratise. It will, just that the end result from that democratisation process may surprise a lot of people in the West.

I agree with your point on intellectual properties. China cann't remain copy-cats forever. But I should remind you that Japan and the Asian Tigers also started as copy-cats.

 

I think younger Chinese are highly nationalistic and the recent prosperity makes them hopeful of the future and are trusting of the system. There's probably a lot of parallels with that generation and the American millennials. I'm not sure how either cultures will cope with worldwide stagnation.

Again, I can't make any solid guesses of how China's future will turn out. It's very dynamic, and the people are willing to take ideas from all over.

 

I agree with you. The West will be completely disappointed. Just look at what happened in San Francisco last year.

 

Independent surveys (one is by Jonathan Anderson, Managing Director of UBS) show that China's economy is much less dependent on export than popular belief. Basically, when converted to value-added shares, real export revenue accrued only amounts to just under 10% of China's GDP, much less than the 35%-40% "headline figure." What this means is while China isn't immune to the current global economic downturn, its underlying economic structure may absorb the impact a lot better.

 

GDP doesn't tell the whole story. China's GDP is still growing at more than 6%, figures the rest of the world would die for. However, China's export sector has a disproportionate share of the labour-intensive low-cost industries, which means the decline of the export industry causes a disproportionate number of job losses, with the low-income people with little means particularly hard-hit, which is why this is being treated so seriously in China.