+ re: us and china: conundrums galore--don't read!
US AND CHINA: Conundrums galore
G Stolwyk
CONUNDRUM 1-CURRENCY WARS My previous post 106347 dealt with the predicted events should China make a worthwhile revaluation: http://www.hotcopper.com.au/post_thread.asp?fid=2&tid=191651#106347
China has some Banks with a combined shortfall of some $US200 Bill, about the same sum as represented by their USA Bond investments.
Clearly, Governance is poor and there is bound to be some corruption. They say it will take time before they can fully trade in most currencies. Fortunately, foreign Banks can help them out.
There have been some hot exchanges between the USA and China about revaluation. The USA is now talking about the manipulation of the dollar by some countries.
CONUNDRUM 2-TRADE WARS Both the USA and Europe are complaining, however China keeps pointing out that world trading rules prevail.
From Roach: "China's exports as a percentage of GDP rose from 20% in 1999 to 35% in 2005. USA 's exports of goods are about 8% of GDP.
China's Household consumption fell to 42% in 2004 while that of the US rose to 71%.
USA's imports are 61% higher than exports. The US imports 40% from China".
My information is that 65% of that comes from US firms in China and this is increasing.
Regardless of any revaluation by China, both Europe and the USA can't compete. Trade protection will be a certainty and trading rules could be sorely tested.
The conundrum is how to reconcile any punitive US and European legislation with them having these companies in China churning out these goods.
China in turn could take some reprisals as well making life for the foreign factory owners more difficult or disposing of more US dollars- Both Japan and China have stopped buying more US Bonds at Auctions already.
US factory owners in China could make a lot of noise in the US Senate to support China's view.
Outsourcing can mean profits for some but it tends to destroy the industrial bases in Europe and the USA and creates social and economic havoc if carried on to the extreme. Import duties are unavoidable, I think.
CONUNDRUM 3: RESOURCE WARS Is out of the limelight at present.
SUMMARY: The Chinese leaders also have an important conundrum: How to keep on satisfying the population by improving living standards; if they can't, then unrest may break out. Hence, they are playing a dangerous convoluted chess game.
