China's female workforce: Factory girls

EconomistMagazine

China's female workforce: Factory girls

China Surpasses U.S. in International Trade

In 2012, China became the world's biggest trading nation, with the total value of that nation's exports and imports surpassing those of the United States. Bloomberg reports:

U.S. exports and imports of goods last year totaled $3.82 trillion, the U.S. Commerce Department said last week. China’s customs administration reported last month that the country’s trade in goods in 2012 amounted to $3.87 trillion.

Since we have the data, we thought it might be interesting to see just what portion of China's volume of trade is with the United States. Our charts below show the component data for what the U.S. has imported from China, and also what the U.S. has exported to China in each month since January 1985, in terms of each nation's currency (click the images for larger versions):

Taking the data just for 2012, we find that the total value of goods and services China either imported from or exported to the U.S. adds up to $536.2 billion U.S. dollars. With a total trade volume of $3.87 trillion U.S. dollars in 2012, China's trade with just the United States accounts for 13.9% of all its international trade activity. Applying similar math for the United States reveals that the U.S.' trade with China accounts for 14.0%, or just under 1/7th, of all its international trade activity.

More at politicalcalculations >>

China Surpasses U.S. in International Trade

Data Freak: Behind mild China data, signs rebound is intact

ReutersVideo

Data Freak: Behind mild China data, signs rebound is intact

Pollution highlights the price China is paying for rapid development

foxnews

Skyscrapers are obscure by heavy haze in Beijing Sunday, Jan. 13, 2013. (AP Photo/Ng Han Guan)

By David Piper

Beijing has developed into an impressive modern city over the past two decades. But a tourist visiting the Chinese capital over the past four days would have difficulty seeing many of its ancient and modern landmarks because of the horrendous pollution hanging over the city.

China's capital has been notorious for its smog over the past few years, as have most northern Chinese cities.

In Beijing, the smog unexpectedly appears and is likely to be when there is no wind to blow away the pollution, as is the case at the moment.

At first you believe, charitably, it’s just morning mist.  But it doesn't disappear and just lingers all day.

More than 20 years ago, when I first visited, Beijing, like many Chinese cities, was a very different place.

There was only the odd skyscraper and factory. Most people used bicycles to get around rather than the car.

The smog seems to have just enveloped the city, making it dangerous for people to even go outdoors.

With the current levels of pollution, it might be healthier to sit in your car for hours in a traffic jam and let the air filters do their work rather than breathe in the polluted air as you cycle around Beijing. 

The smog seems to have just enveloped the city, making it dangerous for people to even go outdoors.

The Beijing Municipal Environmental Monitoring Center is recommending that children and the elderly stay indoors.

Read more: http://www.foxnews.com/world/2013/01/14/pollution-highlights-price-china-is-paying-for-rapid-development/?intcmp=trending#ixzz2Hxpx3aV9

Pollution highlights the price China is paying for rapid development

Factory data highlights China's balancing act

ReutersVideo

Factory data highlights China's balancing act

Inside China's Secret Arsenal

Peter W. Singer 

popsci.com

In a single generation, China has transformed itself from a largely agrarian country into a global manufacturing and trading powerhouse. China’s economy is 20 times bigger than it was two decades ago and is on track to surpass the United States’ as the world’s largest. But perhaps most startling has been the growth of China’s ambitious and increasingly powerful military.

Just 10 years ago, the budget for the People’s Liberation Army (PLA) was roughly $20 billion. Today, that number is more like $100 billion. (Some analysts think it’s closer to $160 billion.) The PLA’s budget is only a sixth of what the U.S. devotes to defense annually, but defense dollars go much further in China, and in the years ahead, Chinese military spending will grow at the same rate as its economy. Meanwhile, Chinese president Hu Jintao has called for the PLA to carry out “new historic missions” in the 21st century—to move beyond the traditional goal of defending the nation’s sovereignty and develop the global military reach of a true world superpower. In some cases, China’s increasing international presence could lead to greater cooperation with the U.S., as it did in 2008 when China joined antipiracy patrols off Somalia. But if American and Chinese forces end up in the same place with different goals, the result could be a standoff between two of the best-equipped militaries in the world.

Read the full article >>

Photo: Shenlong Space Plane

Inside China's Secret Arsenal

China’s $3.8 Trillion Hemorrhage

Follow The Money

http://dailyreckoning.com/chinas-3-8-trillion-hemorrhage/

As we covered yesterday, China is starting to hemorrhage money.

How much?

Over the past decade, about $3.8 trillion has left China illicitly. The trend, if you’ll recall yesterday’s discussion, is accelerating. Somewhere around $50 billion per month is flooding out of China.

Today I want to cover the final ramifications of this monetary hemorrhage, and why it matters to your investments and your wealth…

At the individual level, what’s a Chinese saver to do? Over the past decade, the Chinese have sought wealth preservation, if not investment returns, in China’s stock market, as well as in Chinese property markets. These ideas worked out well for some Chinese investors, but not for others. Plus, as I mentioned yesterday, the Chinese buy gold — lots of it.

In addition to investing in Chinese assets — stocks, property, gold, etc. — there’s long been anecdotal evidence of Chinese moving funds offshore in shady ways, as illustrated by the Vancouver story about suitcases full of cash. In other times and other places, I’ve heard similar stories of Chinese suitcase money: in Russia, across the Middle East, in Africa and South America.

There’s an old saying in the field of statistics that “The plural form of the word anecdote is data.” And recently, a number of investigators have gained access to much more hard data about how much Chinese money has moved overseas. The amount of money is huge, to the point of shocking.

When it comes to funds that have moved away from China — and the fate of the individual owners is something else entirely — we’re dealing with what The Economist magazine recently called a form of “voluntary exile.”

The bottom line is that large numbers of Chinese are moving money offshore, by hook or by crook. According to Hurun Report — a Shanghai-based service that caters to a very upscale clientele — the average wealthy Chinese (defined as having a net worth over 10 million yuan, or about $1.6 million) holds 19% of his assets overseas.

Meanwhile, per Hurun, 85% of wealthy Chinese plan to send their children to school outside China, while 44% have plans to emigrate at some point in their life. In and of itself, that’s hardly a ringing endorsement for the future livability of China.

Also, according to a report issued Oct. 25, 2012, by the Washington, D.C.-based Global Financial Integrity (GFI) group, almost $3.8 trillion (yes, trillion!) illegally exited the Chinese economy between 2000 and the end of 2011. About $602 billion left China in just 2011, so the trend is accelerating.

Indeed, if about $50 billion per month ($602 billion divided by 12 months) left China in 2011, it’s no wonder that, for the past year, we’ve seen market-moving reports that China’s economy is slowing down. Perhaps China’s economy isn’t so much “slowing down,” in many respects, as it’s decapitalizing due to illicit outflows.

In the GFI report, the authors state that there are “serious questions about the stability of the Chinese economy.” Furthermore, per the report, “If outflows continue to ratchet upward, adverse repercussions on social and political stability cannot be ruled out.”

In other words, the massive, illicit capital outflows from China contribute to a growing sense of economic inequality, as well as pervasive corruption. The principal author of the GFI report, Dev Kar, formerly of the International Monetary Fund (IMF), opined that “The Chinese economy is a ticking time bomb. The social, political and economic order is not sustainable in the long run given such massive illicit outflows.”

The Chinese system is “not sustainable”? Now, that’s a problem.

China’s $3.8 Trillion Hemorrhage

What China's slowdown means

More >>

What China's slowdown means

The Economist China Hangout

EconomistMagazine

On Thursday 20th September The Economist hosted a live Google+ Hangout on the subject of the rise of China. The conversation was led by our Community Editor, Mark Johnson, and our China Editor, Rob Gifford.

Can China's rise be a peaceful one? Will the country's new leaders transform its politics? How is Chinese society changing?

The Economist China Hangout

Don't look to China to save the economy this time

Visit msnbc.com for breaking news, world news, and news about the economy

Read >>

Don't look to China to save the economy this time

China slowdown threatens US factory revival

By John W. Schoen, Senior Producer

An emerging renaissance in American manufacturing is staring at the oncoming threat of a global economic slowdown.

After investing hundreds of thousands of dollars in high tech equipment last year, Drew Greenblatt’s manufacturing business is beginning to see a return on that investment. Business was up 20 percent in 2011 at Marlin Steel, which makes wire baskets for industrial customers.

Exports are helping a lot. Greenblatt’s company just shipped to China a $20,000 order made at his Baltimore, Md., factory with steel supplied by a mill in Illinois.

Low wages and low-cost manufacturing used to make Chinese markets tough for U.S. manufacturers to break into. Today, rising wages in China are giving American companies second thoughts about moving their manufacturing jobs to China, Greenblatt said. More >>

China slowdown threatens US factory revival

China's economy suffers 'sharp slowdown'

Ryan Pyle  /  The New York Times

A construction worker near Xi'an, China. Many have lost their jobs because developers have been caught in a squeeze for money.

By KEITH BRADSHER

XI’AN, China — A nationwide real estate downturn, stalling exports and declining consumer confidence have produced what a Chinese cabinet adviser, quoted on the official government Web site on Thursday, characterized as a “sharp slowdown in the economy.”

Though the Chinese economy continues to expand, construction workers are losing jobs in droves and retail sales grew last month at the slowest pace in more than three years. Investments in fixed assets have increased more slowly this year than in any year since 2001.

The most striking feature of the slowdown is that it extends beyond the coastal provinces, which depend on exports and are closely linked to the global economy, to the country’s far more insular interior, including cities like Xi’an here in northwestern China.

China’s unexpected economic difficulties are starting to unnerve investors in world markets, especially commodity markets, as China is the world’s largest consumer of most raw materials and the second-largest consumer of oil.

A deepening slowdown would ripple across the world economy. Until now, China’s economy barreled ahead mostly unhindered as the main engine of global growth, even as Europe struggled with its government debt crisis and the United States limped along with a crippled housing market.

Cash squeeze Government indexes show real estate prices are falling in more than half of the country’s top 70 urban markets, Xi’an among them. Standard & Poor’s Ratings Services and Moody’s each issued reports on Thursday warning that many of China’s real estate developers face a severe cash squeeze as apartment sales slow to a crawl. The developers still owe heavy interest payments on bank loans.

“Weak property developers in China are likely to face a test of their survival this year,” S.& P. said.  More >>

China's economy suffers 'sharp slowdown'

Yuan step shows China reform moving forward

Yuan step shows China reform moving forward

The end of cheap China

By EconomistMagazine

The end of cheap China

The Manufacturing Wage U.S. vs. China Gap is Shrinking

How a 17-Year-Old Girl's Suicide Attempt Changed Everything You Knew About Investing

This story will surprise even the most seasoned investor...
and could lead to the most-important investing trend
since the Industrial Revolution

After working 12-hour days for a month, Tian Yu still had not received her salary card. Totally broke, exhausted and frustrated... she climbed to the fourth floor of her dormitory and jumped.

Unknown to anyone, the 17-year-old changed the world economy forever when she took that desperate leap.

Ms. Yu didn’t die, like she had hoped. But 18-year-old Ma Diangqian did. And so did 16 other Chinese citizens who’ve taken these drastic leaps.

In communist China, suicide is considered a crime against the state. It’s the ultimate form of protest. And Tian, Ma and those 16 other Chinese have made the ultimate sacrifice to protest the low wages and sweatshop-like working conditions.

Together, they’ve incited a small, but growing revolution — one that has already begun to play its part in shifting the investing landscape, not only in China, but right here in America, too.

If you understand the shift that is under way, you’ll be one of the first to take advantage of the most-important investing trend since the Industrial Revolution.

Here’s what I mean...

Slowly, but surely, these protests are working. Chinese wages are now on the rise. Just take a look at this chart from the Bureau of Labor Statistics:

As you see, here in America, we’ve seen slow growth in wages. But Chinese wages are increasing at a much faster clip.

Back in 2005, for example, U.S. manufacturing wages were 22 times those of China. Today, that gap has shrunk to under 10 times.

If China wage growth continues at this rate, the U.S./China wage gap will be under five times by 2015.

But wages are just the start of this story. Here’s what I mean...

The Comeback No One Will Believe

It’s no secret that American companies have outsourced production to China for decades. But with Chinese wages increasing, it doesn’t make as much sense to send those jobs overseas now.

Add in high oil prices and the increased cost of transporting goods from China and you could get the great comeback no one is expecting...

The great revival of American manufacturing.

The world, dear reader, is turning.

For you, this turn could change everything about where you should park your money in the coming years...

Certain entrepreneurs, for example, could gain business from this shift back to American production. Other companies will suffer badly as their source of overseas cheap labor vanishes.

Play this global shift correctly and you stand to grow wealthy. Get it wrong, however, and you’ll sacrifice a fortune.

And know this...

The great revival in American manufacturing has already begun to take off, although most people haven’t noticed yet.

Caterpillar, for example, has built a new plant in Georgia where it will manufacture excavators and small tractors.

Intel is investing $8 billion in building and upgrading plants in Hillsboro, Ore....likely the largest capital project in state history. It’s the first new Intel plant built since 2007...and they chose to build it here in the U.S.

The Chicago Tribune reported in 2011, “Nearly written off after decades of stagnation, job losses and overseas outsourcing, the ‘Made in the USA’ label is poised for a comeback.

“A retooled domestic workforce, paired with rising wages abroad, could lead to a renaissance in U.S. manufacturing within five years.”

The trick to profiting from this shift is to not only study the trend on paper, but to put in the legwork and travel required to research the Chinese culture driving this revolution... and trace the steps back to America.

That’s where we can help. And it’s why I’m excited to offer you something we’ve never offered before...

Hi, I’m Doug Hill — Publisher of Laissez Faire Books.

On April 12, we’re hosting a first in our 40-year history: an online event in which we’ll explore five world-shaking events that are sure to impact your financial future.

Tian Yu and her 17 co-workers who’ve incited the revival of the American industry is just one of those trends.

Other trends we’ll explore are...

- WORLD-SHAKING SHIFTS IN POWER: Since the Industrial Revolution, large gaps have existed — primarily in manufacturing might and military power — between the Western world (America and Europe) and everyone else. But since the late 20th century, these gaps began narrowing and continue to narrow today. This shift could change how investors need to act over the next 30 years

- EMERGING MARKETS BECOMING DEVELOPED MARKETS: Emerging markets now account for 50% of global economic activity. Mexico is bigger than Canada. India is bigger than Germany. Turkey is larger than Australia. This trend will end the era of "emerging markets" and put massive pressure on resources for decades as this trend continues

- GLOBAL WATER SHORTAGES: We take clean, drinkable water for granted here is the United States. But for many countries, plentiful water is a luxury. China, Sudan, Iraq, Pakistan and Egypt all need to "manufacture" clean water. This opens up a huge market in emerging markets for global water companies...and investors.

So how can you ride along on this adventure and get the insight behind all of these trends? And what’s the twist behind it being free? Let me first introduce the man behind this story...

The Manufacturing Wage U.S. vs. China Gap is Shrinking

Is China slowing down?

AEI/ John H. Makin*

With problems in the manufacturing, housing, and export sectors in China, we will likely see slower gross domestic product growth for the world’s second largest economy in 2012. China’s leadership is changing for the first time in a decade, and its new leaders have suggested that significant shifts in economic and currency policy are unlikely to occur during the transition. However, should China’s leadership remain content with slower growth, the global economy will suffer. If China’s growth loses momentum in 2012 and is coupled with similar losses in the United States and Europe, the recovery disappointment could well exceed that which appeared in 2010 and 2011. Despite these challenges, China has a unique opportunity to demonstrate its maturity as a player in the global economy. Through stimulus measures to its own economy, China could push for a bigger global economic pie rather than increase its share of a shrinking pie and in the process influence global economic growth in 2012.

Key points in this Outlook:

• Slumping Chinese manufacturing, housing, and exports suggest slower GDP growth in 2012, and shifts in policy that would reverse this trend are unlikely to occur during China’s leadership transition.
• In the midst of European economic austerity and looming US tax hikes, China’s slowdown could not come at a worse time.
• By stimulating its economy, China could promote a worldwide economic recovery this year—but whether the country will contribute to global growth or act in self-interest via currency manipulation remains to be seen. 

China’s economy is slowing down, from a reported 9.2 percent annual rate of growth at the end of last year to approximately 7 percent during the first quarter of this year. Whether China’s growth will reaccelerate later this year depends on the global growth driving Chinese exports and on Chinese government policies—especially credit policies impacting China’s housing market and fiscal measures aimed at spending on infrastructure.

The tangible signs of slowing Chinese growth include a March drop in a manufacturing index that accurately tracks overall gross domestic product (GDP) growth. The March purchasing manager’s index (PMI) estimate from HSBC Holdings was reported at 48.3 in late March, a four-month low that is down substantially from last year’s level of 52. Interestingly, in contrast to the HSBC index, the official Chinese March PMI index (which was reported at the same time as HSBC’s) rose sharply to 53.1. Most analysts attributed the rise in the official index to seasonal factors that will subsequently be reversed. The fact that most Chinese stocks were down slightly after HSBC’s PMI index was announced suggests that the official PMI figure is not being taken at face value.

While manufacturing is slowing, China is also experiencing a housing slump. During February, housing prices in China declined in 45 of 70 cities surveyed by the National Bureau of Statistics, continuing a trend underway over the past six months. As its economy has slowed, China’s inflation rate has dropped to about 4 percent from last year’s peak of almost 8 percent. China’s slowing internal growth has been accompanied by a sharp drop in exports.

Perhaps not by coincidence, the steady (about 4 percent) trend appreciation of China’s renminbi (RMB) currency appears to have ended since the start of 2012. An end to RMB appreciation makes economic sense from China’s point of view, because less currency strength makes China’s exports less expensive in global markets where growth is slowing. Less currency appreciation also helps China avoid shrinking its share of the smaller global export market. Furthermore, the drop in China’s inflation rate has lessened the need to allow currency strength (lower prices of imported goods) to blunt inflation pressures.

A Change in Currency Policy?

There are also internal political reasons for China to lean toward a trendless currency during 2012. This fall, China’s leadership will change for the first time in a decade as President Hu Jintao and Premier Wen Jiabao hand over power to their successors. During such transitions, China’s ruling class prefers to avoid abrupt economic changes, especially those tied to currency policy with high external visibility. After the March National People’s Congress, Premier Wen declared that the “RMB exchange rate is probably close to an equilibrium level.”[1]

The premier’s atypically direct statement about the currency underscores the likelihood that the transitional period since 2005—during which the currency’s value has risen substantially—is over. Wen’s declaration that the RMB has reached an “equilibrium” level after substantial appreciation conveys that China’s new leaders may prefer to wait to address the issue of further exchange rate adjustment until after they assume power this November. Going forward, movements in the RMB may be both stronger and weaker, centering on a new equilibrium level.

"More exchange-rate flexibility can help China's economy, notwithstanding the conflicts about currency manipulation a weaker RMB may engender with Cina's trading partners, especially the United States."It is important to recognize that the possibility of two-way exchange rate flexibility also gives China’s ruling Politburo another lever with which to manage the nation’s economy. Should slower growth persist along with falling inflation, a weaker Chinese currency could help stabilize growth and inflation. As China’s economy matures, leaving behind its era of persistently high growth, its leaders are beginning to think of ways to manage the transition. More exchange-rate flexibility can help China’s economy, notwithstanding the conflicts about currency manipulation a weaker RMB may engender with China’s trading partners, especially the United States.

An International Role for the RMB?

China is sending additional currency policy signals consistent with the expectation of somewhat slower economic growth, coupled in turn with the further internationalization of its currency. Internationalization of the RMB would underscore China’s role as a maturing modern economy. China’s efforts to consolidate its newfound prominence include measures to shore up its financial sector to bring it into better alignment with the country’s status as the world’s
second largest producer of goods and services. So far in 2012, China Development Bank has offered a large increase in new RMB loans to Asian countries, to the emerging economies of Brazil, Russia, and India, and even to some indebted European countries. Extending RMB loans to more countries encourages the internationalization and growth of China’s still-nascent financial sector in a number of ways.

If, for example, an Italian, Russian, or Indian firm obtains RMB loans, then paying the interest on such loans (not to mention repaying them) is less risky if the borrower receives Chinese currency for the goods it sells globally. RMB borrowers outside China have an extra incentive to invoice their export customers in RMB; this helps them obtain the necessary currency to pay interest and amortization on their loans without incurring the risk of exchange rate changes that might increase the cost of such borrowing in their own currency.

Slower Chinese Growth Increases Global Risks

We can also look at the Chinese growth question in a broader context. The likelihood of a Chinese growth slowdown during 2012 presents, along with Europe’s austerity-induced recession, a headwind that may more than offset the global boost caused by the modest pickup in US economic growth. US growth accelerated to a 3 percent annual rate in the fourth quarter of 2011, up from a more tepid rate of 1.8 percent during the third quarter. Most estimates for US growth during the first half of 2012 are for a more modest 2 percent rate, with the still-tepid pace relying heavily on what may be temporary wealth gains tied to higher equity prices.

The modest rise in early 2012 US growth is also associated with the extra tax cuts passed by the US Congress late in 2011, amounting to about $160 billion. These tax cuts represented an extension and expansion of the extra tax cuts passed in late 2010. The US Federal Reserve has also attempted to keep interest rates very low with extra purchases of long-term treasuries and further promises of zero short-term interest rates until well into 2014.

As Europe’s economy has suffered from the fallout of the European debt crisis, the European Central Bank (ECB) has further expanded its easing since December with nearly ?1 trillion of additional three-year loans at guaranteed low interest rates to European banks. The ECB’s aggressive monetary ease under its new president, Mario Draghi, aims to help European banks repair their balance sheets in the face of uncertainty about the value of making substantial loans to shaky European governments. This step—along with the February and March “containment” of the acute Greek debt crisis—has helped calm financial markets during the first quarter of 2012.

"The likelihood of a Chinese growth slowdown during 2012 presents, along with Europe's austerity-induced recession, a headwind that may more than offset the global boost caused by the modest pickup in the US economic growth."Adding to the accommodations offered by central banks worldwide, the Bank of Japan chimed in on Valentine’s Day this year with more asset purchases equal to about 2 percent of GDP coupled with a pledge to end Japan’s persistent deflation by targeting 1 percent of actual inflation. The resulting effect has been modest so far with some increase in the stock market and some moderation of the yen’s appreciation.

A striking conclusion about China’s economic growth outlook emerges from this brief overview of the global economy for 2012: it is not a good time for China’s growth to slow down. While US growth was stronger at the end of 2011, the rest of 2012 promises slower growth. The US outlook will become even more problematic at the end of 2012 when already-legislated tax increases and spending cuts take hold. These measures will subtract about four percentage points from early 2013 growth. The measures will need to be considered by a lame-duck Congress after the November 2012 presidential election if any changes are to be made.

Changes in fiscal policy such as not ending tax cuts and not reducing spending from levels specified under current law will add sharply to already large deficits. The American dilemma thus becomes the price of kick-the-can budget policies whereby deficit reduction is postponed and one-more-time tax cuts and spending programs are continued. The fiscal stimulus measures employed since 2009 are meant to provide a temporary boost to growth, yet they will be followed by a growth drag once they are removed. The longer such one-off measures are extended, the larger the fiscal drag will be once they are removed. Hence we will see a prospective large fiscal drag, which will emerge at the end of 2012 under current law when a broad range of tax cuts and some spending measures are removed all at once.

A Leadership Opportunity for China

The questionable outlook for US growth toward the end of 2012—coupled with Europe’s recession and weakness in emerging markets—makes the focus on China’s perspective growth rate over the coming year even more compelling, especially when it comes to determining whether 2012 will witness the same growth disappointments that arose in 2010 and 2011. The supportive policy response in developed markets—more monetary and fiscal stimulus in the United States both in 2010 and 2011 and more monetary stimulus in Europe in 2011—will likely not be repeated. If China’s growth loses momentum during 2012 alongside similar momentum losses in the US and Europe, the recovery disappointment in 2012 could well exceed that which occurred in 2010 and 2011.

What with inflation having dropped well below the 4 percent target set by China’s policymakers and the fiscal deficit having dropped below 2 percent of GDP, China could manage further stimulus. Policymakers should consider additional spending on transportation and rural infrastructure, especially in view of the weakening impact of China’s external sector growth, and tied to the weak growth outlook in the global economy. Whether the desire for no new policy initiatives during China’s current transition to new leadership will prevent new economic stimulus remains to be seen.

China’s new leaders could break with tradition and signal their new outlook on China’s role in the global economy by stepping in to boost growth at a time when the global economy needs help. This kind of initiative would represent an effective way to enhance China’s image as a leading mature economy. Better to push for a bigger global economic pie with extra stimulus than to push for a bigger share of a static or shrinking pie with more currency intervention to keep the RMB undervalued.  More >>

-----------------------------------------------------

*John H. Makin (jmakin@aei.org) is a resident scholar at AEI.

Is China slowing down?

Will China's Yuan Rival the Dollar?

The Wall Street Journal/ Eswar Prasad

The Chinese currency invariably provokes overwrought reactions. One view is that it will soon knock the dollar off its pedestal as the dominant global reserve currency. The other is that China is creating enormous risks by letting capital account liberalization get ahead of domestic reforms.

The reality is far more nuanced than much of the overblown rhetoric suggests. As with many other reforms, China is breaking the mold with a pragmatic, selective and controlled approach that I call capital account liberalization with Chinese characteristics.

Irrespective of government policies, China's capital account is becoming more open over time as rising trade and financial integration create more channels for getting around capital controls. Rather than resisting the inevitable, the government has embraced gradual change, relaxing but not eliminating controls on both inflows and outflows. The objective is full convertibility, unrestricted capital flows but with some "soft" administrative controls and regulatory oversight, rather than free convertibility with minimal restrictions.

The government is also positioning its currency for a broader role in global trade and finance. Hong Kong provides the ideal testing ground for putting the yuan in play through trade settlement transactions as well as yuan-denominated deposits and bonds. Some central banks have signed currency swaps with China's central bank and begun adding yuan to their foreign exchange reserve portfolios. Thus, given its sheer economic heft, China is successfully promoting the yuan's international use without fully opening up the capital account or allowing the currency to float.

An international currency does not guarantee reserve currency status, however. For that, an open capital account and a flexible exchange rate are essential. But even that is not sufficient.  More >>

Will China's Yuan Rival the Dollar?

Chinese GDP Slows for 3rd Straight Quarter

Chinese GDP Slows for 3rd Straight Quarter by NewsLook

Chinese GDP Slows for 3rd Straight Quarter

China’s hard-landing has already begun?

By Sue Chang, MarketWatch

NEW YORK (MarketWatch) — China is heading into an economic storm, and the much-feared hard-landing of the world’s second-largest economy has already started, warned celebrated hedge-fund manager and China-bear Jim Chanos of Kynikos Associates on Monday.

“The numbers are falling faster than we thought,” said Chanos during an exclusive interview with MarketWatch on the sidelines of the 7th Annual New York Value Investing Congress.

History shows that periods of high returns in the market are followed by extended periods of lower returns, says Capital Guardian Wealth Management's Tony Montanari.

“Real estate sales in September and October, which are peak months, fell 40%-60% on-year,” he said.

Chanos also pointed out that Chinese financial and real-estate stocks are down 30% from their peak, while cement and steel prices are declining.

“People are buying into the idea of perpetual growth,” Chanos said. “But they have to ask, ‘Are you really growing?’”

Chanos stressed that investors should understand that there is no bailout without a cost.

“The only way the Chinese government can continue to bail out everyone is to print more money, which will lead to inflation. But people are depositing money [in banks] at below inflation,” the fund manager said.

Chanos had already suggested back in May that there were clear signs of excess supply in China’s commercial real-estate sector.

About 14% of office space in Beijing and 9% in Shanghai was vacant, according to data he cited at the time.

“Western investors must remember that Chinese consumers are not the next big hope,” he said.

1,000 times worse than Dubai

Chanos has consistently said China’s bust will be a thousand times worse than Dubai.

“It’s very hard to let air out of a property bubble without collateral damage,” he said.

Chanos also expressed concerns about the country’s banking sector.

The Chinese economy is adding $2 trillion of new debt every year, and half of that is problematic from day one, he said.

And since only 50% of the problematic debt is recoverable, about $500 billion, or 10% of gross domestic product, is bad debt, he said.

Last week, China’s sovereign-wealth fund bought about $31.5 million worth of stakes in the nation’s “Big Four” lenders — Agricultural Bank of China Ltd. HK:1288 -7.87%   CN:601288 +0.38% , Bank of China Ltd. HK:3988 -4.74% CN:601988 +0.33% BACHY -2.35%  , Industrial & Commercial Bank of China Ltd. HK:1398 -6.05%   CN:601398 +0.48% IDCBF -4.72%  , and China Construction Bank HK:939 -4.39%   CN:601939 +0.22% CICHF -1.52%  . See report on China’s purchase of banking shares.

The move is a likely indication of which banks the Chinese authorities are worried about, according to Chanos.

In his earlier presentation at Monday’s conference, he cautioned Western investors to remember that politics are a big part of business in China, and that in effect, banks are instruments of state policy.

He also reiterated the message that the house always wins when it comes to foreign investors and China. Remember how they treat Western investors, he said.

“History has not been on our side,” he said.

During the interview, he briefly revisited that particular theme. “Corruption is endemic there. Contracts are meaningless,” Chanos said.

Sue Chang is a MarketWatch reporter in San Francisco.

China’s hard-landing has already begun?

China Currency Legislation Is a Desperate Mistake

Posted by Daniel Ikenson

The good news for those craving harmony in Washington is that that mythical elixir called bipartisanship has been spotted in Congress. The bad news is that it is finding its expression in an outbreak of self-destructive China-bashing.
After 8 years of threatening punitive action to compel appreciation of the Chinese currency at a pace deemed acceptable by U.S. politicians (a period, by the way, in which the Yuan appreciated by 30% against the dollar in nominal terms—and by much more in real terms), lawmakers may just pull the trigger this time. If so, their action should be seen for what it is: a vote of no confidence in themselves as a body capable of producing solutions to the nation’s economic stagnation and monumental budget and debt woes.
China currency legislation is a diversion – a shell game. Despite the opinions of Harold Meyerson and Fred Bergsten, there simply isn’t any evidence that a stronger Yuan will produce a smaller bilateral trade deficit or that a smaller trade deficit will boost employment. Indeed, policymakers shouldn’t be targeting trade deficit reduction in the first place—let alone a bilateral trade deficit, which is meaningless in a world dominated by trade in intermediate goods.
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China Currency Legislation Is a Desperate Mistake