Comments on News N Economics: I have to side with China on this one

Hi rahuldeodhar, It will print as much dollars as...

2010-02-07T20:29:43.290-05:00

Hi rahuldeodhar,

It will print as much dollars as it can forcing China to buy them because China committed to the peg in the first place.

I never quite understand statements like that. The US can't force China to do anything. And right now, the “printed” money isn't really money at all – it's just base that's sitting in accounts at the Fed. Consumer spending remains historically low, and import growth – although positive – is coming off of such a low base. So until Europe and the US bounce back (not likely if you believe the IMF), China's will maintain their domestically-led growth strategy. My point is: China is doing okay on its own – eventually, it will lose the export growth model, and allow the yuan to fluctuate more freely. It has to in order to maintain its desired trajectory (do what Korea and Taiwan did last century).

I'm pretty sure that Chinese policy makers get the full extent of the game – nice choice of words because it does imply a certain strategy. Changes are already underway in China – patent applications are off the charts, domestic programs (like education and health) are improving markedly, and production is moving up the value-added chain. It's not going to happen tomorrow, but I suspect that China will continue to make the right economic decisions.

Hi Flow5

You are right – it is a mess. Sometimes I just wonder how they keep all of their ducks in a row. So many controls requires a lot of added resources just to maintain economic order. $2.4 trillion of reserves (plus who knows how much in the banking system) could really make a difference domestically.

But like I said to rahuldeodhar above, changes are already underway.

Rebecca

We are in a resource & economic war & Chin...

2010-02-07T18:35:41.433-05:00

We are in a resource & economic war & China cheats – thru Pegs, PBOC sterilization of RMB, subsidizing exports, capital controls, tax exemptions, tariffs, manufacturing inputs, patent infringements, WTO violations, slave labor, declining exchange dollar, etc. It's a mess.

RMB == Ruble! Everyone "forgets" that ...

2010-02-07T11:16:25.019-05:00

RMB == Ruble!

Everyone "forgets" that China is as much a command-economy as the USSR was and whatever figures are reported will have the values required by the central planning commitee.

Un-pegging the RMB would undermine central control by necessitating that RMB-denominated assets can be changed into other currencies and leave the country; i.e. the RMB would likely crash instantly.

It will be at a reasonable value when it is not pe...

2010-02-07T01:15:57.663-05:00

It will be at a reasonable value when it is not pegged.

The peg exists to keep it from a reasonable value.

If it were at a reasonable value now, they would let it float.

China's imports reflect its stimulus and surging capital expenditure.

RW, there are other possibilities as well: China ...

2010-02-06T22:19:33.423-05:00

RW, there are other possibilities as well:

China is converting a lot of its dollar holdings into assets, imports and the like. Therefore it needs to secure other under-valued currency assets before dollar loses its purchaisng power. So mining, raw material, food grains etc. should account for some higher imports.

A currency equation always has two sides. If one is fixed (RMB) then you can adjust the other (USD). The question is should you adjust using deflation or revaluation. China's peg is forcing a US deflation.

This does not mean US will be quiet. It will print as much dollars as it can forcing China to buy them because China committed to the peg in the first place.

China, in my view, does not get the full extent of this game. US can pull out of this as winner and under-dog both at the same time. China seems to be making itself into a villian without reason.

RD