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mat
Board Royalty
Joined: Apr 26, 2004
Posts: 6969
Location: Loooooooooooose!
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June 22, 2005 - 04:06 PM |
 
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SirFiddler
Board Legend
Joined: Mar 30, 2004
Posts: 11445
Location: Very close to a bottle of chilled Boags
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June 22, 2005 - 04:08 PM |
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maybe i dont get it , but for years nobody gave a sh1t , and now it looks like the americans get seriously pissed off with the success of china .... |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
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June 22, 2005 - 04:15 PM |
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What is funny is that the net result of this no matter whether the RMB is revalued or Chinese goods are hit with a tariff is that the American consumer will pay more for their goods.
Matthew |
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mat
Board Royalty
Joined: Apr 26, 2004
Posts: 6969
Location: Loooooooooooose!
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June 22, 2005 - 04:49 PM |
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I have to disagree with Fidel.
To have two of the biggest industrialised countries in the world having their currencies tied to one another. Not good.
I understand why they are reluctant to float, but maybe gradually reprice it over 1 or 2 years, then gear towards a full float of the Yuan. |
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GeoffOz
Fire-eater
Joined: Apr 28, 2005
Posts: 2778
Location: Lost in Shanghai
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June 22, 2005 - 06:53 PM |
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Top ten nations which the US has a trade deficit with:
Year To Date Deficit in Millions of U.S. $ shown.
China - -56,744.50
Japan - -28,088.21
Canada - -22,406.39
Mexico - -15,235.60
F R of Germany - -15,563.05
Venezuela - -8,244.23
Nigeria - -6,578.02
Malaysia - -6,495.85
Saudi Arabia - -5,768.04
Ireland - -5,751.02
Clearly, this is not sustainable in the longer term. These are serious amounts of greenback. |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
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June 22, 2005 - 07:52 PM |
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The question is how much of that trade deficit has to do with the low RMB? If the RMB was reevaluated I doubt it would decrease the trade deficit. The deficit is present because the US has a appetite for cheap imported goods -- not because the RMB is low. I would guess that if this goes through and the RMB is revalued one of two things will occur: 1/ The US will import the same level of goods from China, and the deficit will increase. 2/ Some other country will step in (such as India or Mexico) with low cost goods and the deficit will not change.
Regards, Matthew |
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wolfy
Fire-eater
Joined: Sep 13, 2004
Posts: 2510
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June 22, 2005 - 09:01 PM |
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The Yuan needs to be floated at some point and it should be sooner rather than later.
Leaving the peg could have devastating long term effects on the economy. |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
Status: Offline
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June 22, 2005 - 10:58 PM |
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A very well put and persuasive argument wolfy! I love how you've explained all the nuances of the economic reasons behind that assessment.
Matthew |
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busyexpat
Talker
Joined: May 20, 2005
Posts: 101
Location: Hong Kong
Status: Offline
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June 22, 2005 - 11:40 PM |
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| Post subject: They were going to do it anyway... |
All indications from the Chinese government was that they were going to 'revalue' the currency anyway.
I've been betting on a second half 2005 revaluation myself, given all the news alerts I'm constantly reading regarding revaluation, stock market, real estate etc. It was also the opinion of a market analyst I chatted with at Standard Chartered in Shanghai a few months back...but perhaps he was talking-up capital inflows for the company's bank accounts, I wouldn't be sure.
From the first post, China therefore has six months to revalue before any tariffs could actually be imposed by US law. It will happen: the RMB will be revalued...and I would say it will happen within six months. Don't be conned that it was anyone else making the decision for China.
The biggest question is how much the RMB will be revalued and any other terms and conditions that will come into effect. What I am interested in is finding out if there are any specifics regarding a minimum revaluation that the US would like to see. I would appreciate hardlinks to the actual bill if dezshira can provide that.
If China can control speculative outflows in the 'fallout' of a revaluation, then there shouldn't be much of a problem for the Chinese economy...and we all know how good Chinese are at bureaucracy and paperwork!
I also don't think even a 10% revaluation would do much harm to Chinese exporting companies, since just about all Asian countries currencies have gained at least that over the last 2 or so years, and they therefore will not present any competitive advantage to global sourcing companies. People in the west will pay more.
Asia is just about to become more expensive.
p.s. Bank of America just bought USD$3bil into the Bank of Communications around a week ago. Investments like these mean that the American economy has a vested interest in insuring that the Chinese economy does not go down and that the banks do not make a nose-dive. Today is also the IPO of BOC shares on the HKSE. It's a further indication that China is readying itself for currency flexibility.
p.s.s. I can't really see RMB revaluation occuring before the trial IPO's of four selected state-owned companies takes place, aswell as more bank IPOs. Six months should do it. |
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Last edited by busyexpat on June 22, 2005 - 11:47 PM; edited 1 time in total |
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busyexpat
Talker
Joined: May 20, 2005
Posts: 101
Location: Hong Kong
Status: Offline
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June 23, 2005 - 12:17 AM |
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My impression from the article was that the bill had been passed. I should double-check this in future. This is old news if in fact it hasn't been passed.
Fidel, I just gave 10% as an example...revaluation, most agree, will be between 2-5%...aswell as the other flexibility changes.
Also, Fidel, the banks need to be in a stronger position as the RMB goes up over the coming years...since if export companies (which are the lion's share of China's economy) are majorly affected by global sourcers choosing other, cheaper, countries to source products, then they start to default (further) on bank loans and then the banks go under...IPOs/stock-market reform therefore have a fair bit to do with RMB 'revaluation', though of course they aren't everything.
Also, from what I last heard, USD reserves are at about half a tril. That is a currency war-chest if ever I saw one. |
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skyline5k
Shanghai Royalty
Joined: Sep 06, 2004
Posts: 8686
Location: i am ERROR
Status: Offline
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June 23, 2005 - 06:58 AM |
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| Quote: |
Republican Phil English of Pennsylvania, who introduced the bill with three other Republicans in the House of Representatives, said the measure reflected growing frustration over China's practice of pegging
its currency at 8.28 yuan to the dollar. |
Go Fat Phil!!! |
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wolfy
Fire-eater
Joined: Sep 13, 2004
Posts: 2510
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June 23, 2005 - 08:35 AM |
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| dfoo wrote: |
A very well put and persuasive argument wolfy! I love how you've explained all the nuances of the economic reasons behind that assessment.
Matthew |
I didn't think you needed it spelling out, son. But obviously you do.
The peg has fostered a series of internal economic destortions which, left unchecked would cause inflation and rocketing real estate prices as well as causing exporters to ignore domestic markets.
Failure to revalue could not only send China into a recession but the global economy would suffer too. |
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Michael
Moderator
Joined: Mar 22, 2002
Posts: 5289
Status: Offline
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June 23, 2005 - 09:00 AM |
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Seriously,
I think they are TRYING to crash the US economy.. they going out of their way.. its beyond stupidity...
Thought this was interesting.
U.S. BULLIES CHINA - DOLLAR CRISIS LOOMING
Bill Ridley
"Financial war is a form of nonmilitary warfare which is just as terribly destructive as bloody war, but in which no blood is actually shed...when people revise the history books...the section on financial warfare will command the reader's utmost attention."
-Unrestricted War: China's Master Plan to Destroy America,
People's Liberation Army, Colonels Liang & Xiangsui
A few months ago in my report "China and the Final War for Resources" I pointed out that the Government of China realizes that in order for their country to grow and survive in the years ahead, they must secure resources, primarily oil supplies. They also view the United States as a major hindrance to this objective, not only because the U.S. is the world's biggest consumer of oil but the U.S. government itself is viewed as being unpredictable, aggressive, and warlike as far as the Chinese leaders are concerned.
To win this war, the hard line doctrine taken from the treatise "Unrestricted War: China's Master Plan to Destroy America" instructs that currency revaluation or devaluation is a primary weapon which when initiated, will create financial turbulence and economic crisis within the U.S. and thus give the Chinese the opportunity to advance their own version of national security.
In analyzing the precarious predicament that has $1.94 trillion U.S. Treasury debt owned by foreign banks, most notably China, the overloaded U. S. debt burden is already teetering on a fine line. Any hint of a problem in maintaining support of U.S. bonds would create an instantaneous meltdown of the greenback with a simultaneous surge in the price of gold.
However despite this, the Treasury Department warned China last month they have until November to make their exchange rate more flexible or they will be labeled as currency manipulators. This charge would start bilateral talks on the exchange rate and possibly retaliatory action.
Currently the yuan is pegged with the U.S. dollar at 8.3:1 giving China, with its low labor costs, an excellent trade advantage which both Republican and Democratic politicians have been strongly complaining about for the last few years.
I would have to conclude that these bureaucrats are only looking at the trade imbalance with China and ignoring the tenuous nature of the important reliance on foreign debt purchases. As Business Week warned, a revaluation of the yuan could have other serious repercussions for the dollar. "With a stronger currency peg versus the dollar, China would purchase fewer bonds, as would Asian central banks if they were to cut back on currency market intervention. And further weakness in the Treasury market with a resulting bump higher in interest rates, could weigh on the long-gestating US recovery. In that regard, US lawmakers should be very careful what they wish for."
Provoking China is a dangerous game and could have extremely serious consequences not only for the U.S. economy but the world economy. If China ever pulls the trigger on their "primary weapon" the dollar will crash and gold will break $600 in a heart beat and just keep going.
Zhu Min, general manager and advisor to the President for the Bank of China was quoted in the China Daily last year saying that: "The United States is benefiting from China using its trade surplus to buy U.S. Treasury paper as a reserve currency, along with other Asian nations. But in the long run, this is not sustainable.... China will focus more and more on domestic demand, which is growing fast. Then we won't be able to finance the U.S. deficit."
"All Beijing has to do is to mention the possibility of a sell order going down the
wires. It would devastate the U.S. economy more than a nuclear strike."
Asia Times, 2004
Last year, the Wall Street Journal observed that a sell off of U.S. treasuries from a large debt holder like China would put the U.S. economy into a tail spin. Long term interest rates would climb and bond yields would sky rocket. This could start a stampede of selling which would devastate the stock market. This is the treasury trap America is in.
In May The People's Bank of China said it would not respond to a US Treasury report calling for the central bank to move to a more flexible exchange rate within six months. A bank spokesman stated that "We have no comment whatsoever on this. We have made very clear our policies on China's foreign exchange reform."
China's Premier Wen Jiabao also weighed in saying China will not bow to outside pressure on the exchange rate for its currency.
All this rhetoric has gotten the attention of United Nations economists who have stated that China has an important role in the world wide economy and recovery. However in the same breath they also warned that the U.S. had better reduce it's deficit or there could be serious repercussions not only in the U.S. but globally.
These thoughts have also echoed an International Monetary Fund (IMF) report that described the deficit as "perilous" in the long term and poses "significant risks" to the rest of the world. "The United States is on course to increase its net external liabilities to around 40 percent of its GDP within the next few years - an unprecedented level of external debt for a large industrial country." The bottom line of the report quite correctly forecasts this current dilemma will create a further meltdown of the dollar.
In light of the U.S. government's huge and increasing debt load, the politician's aggressive stance on the free trading issue of the yuan, the need of China and other foreigners to bank roll the $ 1.9 trillion of U.S. debt, warnings from the U.N. and IMF about America's out of control spending - you must wonder what the hell these U.S. bureaucrats are thinking?
These are serious issues which I hope you, dear reader, will take to heart. A strategic analysis of your current equity portfolio would be advisable with emphasis on real assets in the form of precious metals and energy equities. No matter what happens in the future at least you will sleep and night and profits in the process. |
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dfoo
Post Roaster
Joined: Jan 19, 2005
Posts: 4140
Status: Offline
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June 25, 2005 - 08:27 AM |
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Greenspan chimes in. As always, a voice of reason.
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'China trade war must be avoided - Greenspan
(Agencies)
Updated: 2005-06-25 00:02
WASHINGTON: Federal Reserve Chairman Alan Greenspan urged Congress on Thursday to find a “less destructive” outlet for its frustration over China’s trade and exchange-rate policies, saying a proposal to slap tariffs on Chinese imports would have “extraordinarily negative” consequences for the world economy.
Greenspan and Treasury Secretary John Snow sought to head off legislation that would impose tariffs of as much as 27.5 per cent on Chinese imports if China fails to change its fixed exchange-rate system within two years.
“If that ever gets implemented the consequences, in my judgment, are extraordinarily negative,’’ Greenspan told the Senate Finance Committee, referring to a bipartisan bill known as the China Free Trade Act.
Greenspan and Snow counselled Congress to be patient a little longer for China to move to a more flexible currency system.
Snow said tariff increases, if enacted, would not only harm the US economy, but would also delay any action by the Chinese Government to loosen its peg.
Greenspan agreed. “There is no crisis at this particular stage,’’ he said. ``If there’s a crisis we’ll all get together and solve it, but that’s what we’re trying to avoid.’’ Raising tariffs on Chinese imports, he said, would hurt US consumers without reducing the giant US trade deficit or protecting US jobs.
He urged Congress to avoid “actions based on frustration which don’t address the real problem.’’
Greenspan played down the significance of the US trade deficit with China.
“The widening of the United States’ bilateral trade deficit with China, measured gross, has been largely in lieu of wider deficits with other Asian economies, including Japan,’’ he said.
“Measured by value added, our bilateral deficits with China would have been far less, and our bilateral deficits with other Asian exporters would have been far more.’’
Accordingly, a decision by the Chinese Government to revalue its currency, which is also known as the renminbi, would merely “redirect trade within Asia.’’
“Some observers mistakenly believe that a marked increase in the value of the Chinese renminbi relative to the US dollar would significantly increase manufacturing activity and jobs in the United States. I am aware of no credible evidence that supports such a conclusion,” he said.
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Matthew |
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