Article

2005-05-20 China-Japan-Koreas

Decades of unresolved debt pressures China's finances, yuan

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Posted by phil_b 2005-05-20 04:06|| || Front Page|| [1 views since 2007-05-07] Top

#1 If they float the yuan, they start a banking crisis. If they start a banking crisis, millions get put out of work. If millions are out of work, they're going to find someone else to lead the country other than the Communist Party.

Yuan revaluation ain't gonna happen, not anytime soon.

Posted by gromky 2005-05-20 04:56|| 2005-05-20 04:56|| Front Page Top

#2 China has massive foreign reserves -- 659 billion dollars at the end of March

The above tells you why China doesn't want to revalue the Yuan. If the Yuan goes up by 10%, China effectively loses $60 billion.

Posted by mhw 2005-05-20 09:04|| 2005-05-20 09:04|| Front Page Top

#3 China says the Yuan is fixed at X to the dollar, not using a floating market rate.

OK, what if we say "Nope. It's X/2 to the dollar." They can define their currency in terms of ours, but we can't do the reverse?

Posted by Jackal">Jackal 2005-05-20 09:31|| home.earthlink.net/~sleepyjackal/index.html]">[home.earthlink.net/~sleepyjackal/index.html] 2005-05-20 09:31|| Front Page Top

#4 Two differnet exchange rates do not work. Let's say:
China 10yuan/$1, USA 5yuan/$1.
Currency trader takes his $1 and buys 10yuan from China, then sells that for $2 to the US. Profit $1. Money for nothing, zero risk, and completely unsustainable.

Posted by ed 2005-05-20 09:38|| 2005-05-20 09:38|| Front Page Top

#5 Ed, thats not really the issue. The USA could bring down the yuan exchange rate at any time by offering to buy yuan at a higher rate than the fixed rate. There are two possible outcomes. One is currency drains out of China and they are forced to revalue and the USA makes an enormous profit ala George Soros, or China repudiates its currency and plunges into chaos. Its a high risk game to say the least.

Posted by phil_b 2005-05-20 10:13|| 2005-05-20 10:13|| Front Page Top

#6 mhw: The above tells you why China doesn't want to revalue the Yuan. If the Yuan goes up by 10%, China effectively loses $60 billion.

Actually, it's not that simple. These currency losses aren't really a concern - they're a cost of doing business. Just about every other exporting country in East Asia has taken similar losses over time. The reason they take them is because it's a cheap and efficient way of subsidizing in-country domestic and foreign investments.* Every exporter benefits from the subsidy of a cheap currency. Foreign exporters who build plants in China to take advantage of the cheap currency help to keep domestic exporters honest.

* The point of accumulating US dollars is to keep the yuan undervalued, and Chinese exports competitive. Think of the foreign exchange losses as a universal subsidy to every company that exports from China, domestic and foreign. It's much more efficient than sponsoring a particular industry, like Malaysia is doing with its national car project. Because foreigners can benefit from the exchange rate subsidy by building plants in China, inefficient Chinese producers are driven out. The benefit from this is that any plant that is built in China will be price-competitive on a global basis, and be able to export everywhere, meaning that they will generate jobs not just from domestic Chinese consumption, but from foreign consumption as well. This strategy isn't original to the Chinese. The Japanese pioneered it, and its use spread to the rest of East Asia, where it is still in use, before being adopted by China. The Chinese have proven to be quick studies.

Posted by Zhang Fei">Zhang Fei 2005-05-20 11:40|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2005-05-20 11:40|| Front Page Top

#7 Well, OK, then, how about this:

If China is buying up oodles of dollars to keep the ratio up, let's crank them out. We'd have to be sure not to cause massive domestic price increases, but we could trade a bunch of paper for shoes or whatever they're selling.

Or we could just wait until they attack Tawain and say "we're repudiating our debt to you."

Posted by Jackal">Jackal 2005-05-20 12:37|| home.earthlink.net/~sleepyjackal/index.html]">[home.earthlink.net/~sleepyjackal/index.html] 2005-05-20 12:37|| Front Page Top

#8 Didn't Tom Clancy write a book about all this a few years back? He also wrote about the Islamic terrorist before 911. Is he the power behind all this stuff?

Posted by Jack is Back!">Jack is Back! 2005-05-20 15:22|| 2005-05-20 15:22|| Front Page Top

#9 Imagine that: China's economic statistics aren't very transparent or accurate. What's mandarin for bubble?

Posted by thibaud (aka lex) 2005-05-20 16:01|| 2005-05-20 16:01|| Front Page Top

#10 lex: What's mandarin for bubble?

Shui pao.

Posted by Zhang Fei">Zhang Fei 2005-05-20 20:31|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2005-05-20 20:31|| Front Page Top

#11 If China is buying up oodles of dollars to keep the ratio up, let's crank them out. We'd have to be sure not to cause massive domestic price increases, but we could trade a bunch of paper for shoes or whatever they're selling.

Jackal, That's exactly what we've been doing. That's what those $659 Billion of foreign currency reserves are, lots of paper. And it is also just about the amount of bad loans in the Chinese banking system.

When this baby blows, let's hope we've got somebody as good as Greenspan running the Fed.

Posted by Mrs. Davis 2005-05-20 21:05|| 2005-05-20 21:05|| Front Page Top

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