BRIs, not BRICs …
Presumably the BRIs (Brazil, Russia, India) sound like a French cheese, while the BRICs are pronounced like a construction material. No matter. The BRIs are increasingly giving China a run for its money when it comes to accumulating foreign assets.
That isn’t easy. I continue to think that China will need to add about $400b (gulp) to its foreign assets in 2007 to offset a $300b plus current account surplus (gulp) and ongoing FDI inflows. That works out to $30b plus a month. If China’s capital controls aren’t effective and hot money finds a way to profit from the RMB's expected rise, total foreign asset growth could be bigger.
But consider what happened in the first full week of February. India’s reserves increased by $5b. Russia’s by a bit less than $5b ($4.9b). Brazil’s reserves were up by $2b. The euro inched up v the dollar in the first week of February, but not by much. Most of the growth in the BRIs reserves was real, not the product of valuation changes. $12b a week implies something like $48b for the month. That is a China-like pace.
What about last week? Brazil’s reserves were up by almost $3b in the first four days of last week. We will have to wait til Carnival ends to find out how much more they added on Friday. (Update: Brazil's reserves reached $97.2b, an increase of around $3.35b) And we don’t have data on the others.
Right now, private investors the world round are quite keen to borrow yen to buy Indian rupee and Brazilian real. No wonder. Those countries have current account surpluses (Brazil) or smaller deficits (India) than the US and they offer higher interest rates as well. Get rid of the emerging economy stigma, and, well, they offer a more compelling source of yen returns than the US …
For that matter, even the Russia ruble may well offer better yen returns than the dollar. Goldman expects the ruble to continue to appreciate this year.
None of these countries needs the money, or at least, none of the BRIs needs as much money as the private markets want to supply. India runs a current acount deficit, but the others don't.
Bottom line: the private markets don’t want to finance a $900b US deficit at current US rates. Not when the BRIs offer a better return. But right now the private money flowing into the BRIs gets sent back by their respective central banks to the US and Europe. The BRIs, by paying more for money borrowed from abroad than they get on lending those funds to the US, effectively subsidize both speculators bringing money into their countries and the United States. To me, it is nuts.
But nuts or not, I have to give Dooley, Garber and Folkerts-Landau a lot of credit.
Back when they predicted that Latin America would join the emerging Asia in resisting the appreciation of their currencies against the dollar (financing the US in the process), I scoffed at the idea: Low saving Latin America would never become a big source of financing for the US. Last year, I — along with Vitoria Saddi — argued that relatively high Latin interest rates and the large resulting fiscal cost of sterilization likely would deter large scale Latin reserve growth.
It turns out we were wrong. Brazil and Argentina have joined Bretton Woods 2, just as Dooley, Garber and Folkerts-Landau predicted.
Let’s see how long Latin America is willing to finance the US. I cannot imagine that Brazil will be willing to add $10b a month to reserves forever. But that may reflect my own lack of imagination. I didn’t think China would be willing to add $20b or more a month to its reserves either.
One thing is clear: the willingness of the central banks of Brazil, Russia and India to turn private flows seeking yield in their markets into demand for US treasuries and agencies has become an increasingly important component of the global financial system.
From CBS marketwatch, China may opt for a faster than generally expected pre-emptive policy revaluation for several reasons.
http://www.marketwatch.com/news/story/whither-china-year-pig/story.aspx?guid=%7BF4DC43F9%2D4049%2D4138%2DA218%2DA4FB211E2BDD%7D&siteid=yhoo&dist=yhoo
” For one, Chinese companies have coped well with a nearly 6% yuan appreciation since July 2005 to date. Exports, 25% of which are destined for the US market, have been strong and increased 27.2% year on year in the last quarter of 2006.
A change of tone in the Ministry of Commerce towards revaluation, which has long fretted about how profits would suffer at domestic firms.
Arguments that China needed a fixed exchange rate to safeguard its financial system now also carry less weight. Privatization of its three largest state-owned banks has improved the sectors health giving these banks a combined market capitalization of $460 billion, or 15.1% of GDP.
The Peoples Bank of China is traditionally more supportive of a revaluation in order to tighten monetary policy and dampen the export boom, arguably those arguments look more persuasive than ever.
China’s trade surplus jumped nearly 75 per cent to reach a record $177.5 billion last year. China now appears to have a structural current account surplus equal to 6-8% of GDP, and if capital spending were to suddenly slow, the current account surplus could rise to 10% of GDP.
Rampant money supply growth is being directly linked to the current gradualist approach of appreciation of the yuan, even by local economists. Yu Yongding, a former central bank advisor, warned in the past week that this risks encouraging more speculative money to enter the country.
‘With the guidance of market expectations, foreign capital will continue to flow in, creating asset bubbles and even possibly leading to a financial crisis in China,” Yu writes in the latest issue of the International Economic Review. “
To me, it is nuts.
It is to me as well, but I will give sovereigns the benefit of the doubt–until they all rush for the exit at the same time, that is.
Hey brad, back in the 20’s, how many countries were supporting the high valuation of the pound (i e adding to their gold and especially pound reserves in order to not reevaluate their currencies ?)
Well, I checked rapidly, not so many, the US were quite exceptional, Japan and Italy did not play the game, France, I don t know it also tried to reevalue its currency, so only the USA tried not to reevalue their currency.
DOes that mean that things will go worse than back then ?
for those who would like to read more on the comparison US now britain in the twenties read this
http://www.jstor.org/view/00307653/di015347/01p0197q/22?frame=noframe&userID=84cb2ccf@ulaval.ca/01cc99331300501b7b4f8&dpi=3&config=jstor
JF Wright - Oxford Economic Papers, 1981 - JSTOR
And please consider than in 1981 the US dollar was overvalued by US decision, whereas now it is overvalued by asian and other’s decision, just like may be the sterling was first overvalued by britains decision and then by US support.
Have you noticed that Asia has finally joined the western world in the latest era of irrational exhuberance on the stock market. Chinese markets used to stay low, not anymore.
You think it s because chinese export markets are about to get better ? You think it s because chinese firms profits are about to improve with the gradual reevaluation of the yuan ?
pre-emptive policy revaluation
preemptive ?
sorry about the link. May be there s some protection somewhere
http://www.jstor.org/view/00307653/di015347/01p0197q/0
I googled scholar : pound exchange rate twenties
the paper is from JF Wright
Great post. I knew all this (most of it anyway) about China, but I was unaware that the BRIs were gaining in terms of reserves. Wow!
http://www.chinalawblog.com
There are many great things about Brad’s blog, but perhaps one of the greatest is that you can tell he hasn’t applied for a lot of grants lately.
all eyez on the BoJ! /2pac in the sky
Brad–Now that the Bank of Japan has raised the overnight call rate by 0.25%, will the yen carry trade be unwound? Probably, not necessarily, at least in the short run. But given a strong recovery of the Japanese economy, and a corresponding increase in interest rates in coming months, eventually the yen carry trade wuld be unwound, first vis-a-vis the dollar assets and then vis-a-vis other assets, including those in emerging economies. It may take time, though.
Would you suggest that BRIs let the speculators determine their currency values and the fate of their manufacturers? Are their CBs really getting a bad deal (subsidy in your word) considering their higher domestic inflations — how are the investors so sure that they will get their money back in the future with real returns? Is capital control the only sane way in comparison?
this article shows well that
ruble will remplace the dollar as a key currency for energy market.
the dollar/oil arabic world is over
the ruble/gaz-oil will lead the new china/euro ballet
putin send a message by forcing the new game rules to nearest countries “remember how feed your economy before accepting more foreign influences”.
the US remains lonely with is good old OPEP friends
good bye US bonds, hello ruble bonds
sorry “who feeds” not how feed
good point on the spread between the borrowing cost and the return on T bonds but where do we find this cost in the capital account ?
and what about the case of Switzerland ?
The spread should show up in the current account, not the capital account — foreigners get interest income on the BRL bonds and Brazil’s central bank gets interest income on its treasuries. In practice, the income balance for most countries seems to be a bit off, so it is hard to find.
however, the sterilization costs of the central bank (i.e. the central issues BRL sterilization bonds v its dollar assets) is usually relatively easy to find on the central bank’s balance sheet — though it should be an entry on income. but to get to that point, the negative spread on sterilization has to offset the positive spread on issuing cash (a non-interesting bearning central bank bill) v. interest paying assets (Treasuries) ..
central banks should generally be profitable. but if you have to sterilize too much and sterilization is costly, well, the profits first disappear and then the central bank goes into the red.
I checked this week with friends in Brasil on why Govt of Brasil is buying up dollar bonds as reserves, and how the private sector views things. Friends are exporters. They said that inertia in GoB is (in their somewhat uninformed opinion) a lingering fear of inflation which gives bias toward buying Dollar bonds, plus exporters pad the campaigns of most of the Congress, which has an approval rating in the single digits because of chaotic and corrupt politics. Even in the private sector, memories of hyperinflation still remain, even though current inflation has been in the 3% range for some years. I wouldn’t expect this fear to last, if ethanol and sugar farmers find European or Japanese mass markets in the coming decade. GDP growth is stuck around 2.5%-3.0% right now.
India and Russia seem completely different, with much higher inflation and much higher GDP growth.
“A sustained drop in crude-oil prices would take the shine off the ethanol market,” http://www.bloomberg.com/apps/news?pid=20601109&sid=aQZ5eJo0T7b4&refer=home
In March, Paulson representing the Wall Street-Treasury complex is travelling back to China demanding “an increased opening of China’s markets and financial services sector to foreign ownership”. In other words, Wall Street speculative hedge funds should be permitted to financially destabilize that nation and government. Paulson has also repeatedly said in recent weeks he believes the Japanese yen is not manipulated despite the low interest rate “yen carry trade” that benefits Wall Street hedge funds; whereas the Chinese yuan is manipulated simply because China’s capital account is regulated by the PBoC. In other words, Wall Street hedge funds cannot speculate against the Chinese yuan. Lots of luck Henry on convincing the Chinese to emulate the supposedly superior US Neo-liberal Crony Capitalism system. The Chinese have long memories of the Asian Economic Crisis in the 1990’s with Robert Rubin’s cronies raping billions of dollars from the Hedge Fund attacks that impoverished a hundred million Indonesian families and left thousands of ethnic Chinese dead from CIA sponsored paramilitary troops.
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070221:MTFH47225_2007-02-21_16-23-40_N21386721&type=comktNews&rpc=44
DC,
You do know that I could be considered one of Robert Rubin’s cronies?
“Robert Rubin’s cronies raping billions of dollars from the Hedge Fund attacks that impoverished a hundred million Indonesian families”
And I presume that you also know that the most famous hedge fund at the time (Soros) was short Thailand but long Indonesia? (Read Barry Eichengreen’s report)
Indonesia was a tragedy, but the biggest source of capital outflows — by nearly every account — came from Suharto’s cronies who, when the US insisted on reforms that undermined their privileged position, moved big sums out of the country. Corporates (owned by the indonesian elite) hedging their unhedged FX debt also played a big role. Obviously, the approach that was adopted didn’t work …. but the reasons for its failure are a tad more complicated than evil HFs and Rubin’s supposed machinations.
I was at the Treasury at the time. I think I have a pretty good grasp of what went on. Please read the section on Indonesia in setser/ roubini (Bailouts and Bailins). If you think it is off, let me know. But please don’t continue to assert something here (Rubin was in league with the hedge funds seeking to devastate East Asia) that I know not to be true.
Former CIA analyst and founder of the Japan Policy Research Institute, Professor Chalmers Johnson writes and I quote “Long Term Capital received a Federal Reserve organized bailout to cover currency exchange and derivative losses in the aftermath of the Asian Economic Crisis”. LTCM lost heavily when the Hong Kong Monetary authority moved to defend the Hong Kong dollar peg. According to Chalmers Johnson, the Asian Economic Crisis was organized by the Clinton Administration in an effort to defend US economic hegemony from the fast growth Asian economies. Several hedges funds that participated included LTCM, Tiger Fund, and the Quantum Fund. Former Treasury Reserve governor Mullins was a senior member of LTCM. The former President of Malaysia has stated that Wall Street Hedge Funds looted approximately $10 billion from the currency attacks that destroyed the Indonesian economy. Moreover, for the record, the Federal Reserve also forgave a $2 billion LTCM position in Gold. To date, Robert Rubin nor the Clinton Administration has ever apologized or paid a cent in restitution to the Indonesian people for what many Asians view as a crime against humanity.
there is some secret out there, something that all of these central bankers know, but are not telling. they blithely invest their excess dollars in america. “until they all rush for the exit at the same time” says emmanuel.
is the secret pact that they are agreed not to rush anywhere ? that the total meltdown of the global economy is actually slightly worse than taking a paper loss ? is some rule of mutually assured destruction in tacit operation ? better than going nuclear first is if no one goes nuclear at all ?
you think that in a crisis they will all rush the exits ? they don’t want to upset the applecart - whose applecart is it, anyway ? i think that in a crisis they will sit tight and politely request a continuation of dollar hegemony, with seats for them all - on the fed or whatever replaces it.
the only question will be - is the united states ready yet for democracy ?
There are plenty of real conspiracies out there, but Johnson is just another briny waterlogged coconut who washed up in Japan. Indonesia’s problems were Indonesian in the 1980’s, as they are today. I lived in Manila, a country at the time known for “Goons, Guns, and Gold” during it’s 1986 election cycle which ousted Ferdinand Marcos. My Filipino business friends refused to invest in Indonesia next door because they didn’t want to get cheated. Imagine the irony of that.
The real conspiracies, if you want to call them that, are groups of greedy warlords and powerbrokers who inhabit the emerging world’s capitals and skim from the public. Several of my favorite countries fall in that category. Constantly blaming US officials for disasters in the tropics is pure mis-direction. US officials aren’t that well organized, and since Dr. Setser left government, not that smart.
Bsetser -
Thank you for responding to one of the most ridiculous posts I’ve seen on this blog - and there are some pretty ridiculous ones going on over on NR side.
Chiang - In case you haven’t noticed, it is human nature to latch on to causality. Nobody, including the Malaysian leadership, cares to take responsibility for their own action or inaction. There is somewhat of an exception (you may find an exception to my exception, but generally it holds true) and that is at the heart of the markets where you find money managers. No market is completely free and no market is completely regulated (becuase of black markets), but wherever the money managers go (not necessarily “hedge funds”, but you can use that term if you like)they take responsibility for their actions. You didn’t hear Soros crying when some very large bets have NOT gone his way, have you? You haven’t heard the Amaranth crowd blame anyone but themselves when things diddn’t go their way, did you?
The fact is, things don’t go the right way for money managers all the time, and a wide VARIETY of people benefit from their mistakes. It is only when things go exceedingly well or exceedingly bad for the money manages, that the media begins to report “facts”. This too is part of the “media wars” that the world is subject to, and they wreak a great deal of havoc… in time, money and lives. Try not to believe all the hype and make sure to exercise common sense when filtering the garbage the media spews out. Please don’t repeat it here.
Reply to Gamma,
Certainly US-China relations are influenced by a wide array of issues from Taiwan to trade relations and human rights. However, it is an open secret that Washington views the economic rise of Asia and specifically China as a biggest strategic threat to US global hegemony. Why else would the topic of the Chinese economy reappear in a majority of Brad Setser’s Blog postings? If it were possible today economically or militarily, the Washington Consensus would move to contain the Chinese, but China is a considerably more powerful nation state than Iran or Iraq.
Regards,
China’s Dollars Versus America’s Guns
by Marshall Auerback
http://www.jpri.org/publications/workingpapers/wp111.html
” From Beijing’s perspective there is no doubt that China will need a great deal of energy in the years ahead, and that it will be competing with the United States for access to overseas supplies of oil and gas, especially in Africa, the Middle East, and Central Asia. Beijing has indicated a preference for competing with the US on something approaching equal economic footing, as one big consumer vs. another. This is not, however, a vision shared by America. How long, therefore, will it be before the Chinese government comes to the conclusion that its own dollar support strategy is actually helping the US to fund a defense strategy inimical to Beijing’s longer term interests? It should soon become increasingly clear that the historically symbiotic relationship which has hitherto characterized “Bretton Woods II”, risks running aground on the shoals of its own internal contradictions. “
re: “India and Russia seem [are] completely different”
from each other as are Brazil and China, so wondering how versions of corrections - or continued growth - property, commodities/oil, carry trades, ‘knowledge-based’ industries… might play out in each, assuming the impact would be quite different.
But, once again, for all the time we spend worrying about energy dominance and dependency and carry trades, I’d still like to see some attention paid to knowledge based industries. Again, interesting contrasts between China and India alone - one which does not seem to have made much progress on patent laws as contrasted perhaps with one that has? The following example is pharmaceutical, but hugely important sector which would presumably have a huge impact on the growth of knowledge based industries in any of these countries that get it right, and negative consequences for those that don’t, along with their resilience to other economic weaknesses.
“A court challenge to India’s patent laws by the pharmaceutical giant Novartis could cut the supply of affordable medicines to treat Aids and other epidemics in the developing world, aid agencies say…” http://news.bbc.co.uk/2/hi/south_asia/6358721.stm
“Estimates of the deaths caused by fakes run from tens of thousands a year to 200,000 or more… China is the source of most of the world’s fake drugs, experts say…” http://www.nytimes.com/2007/02/20/science/20coun.html
Education, communications infrastructure, freedom of speech that is necessary for an innovation and regulation probably another important factor.
Speaking of democracy, anyone heard more recent news about the fate of this journalist?
“Mr Ching (56) was born in China and had worked for the Straits Times since 1996. He quit as the Beijing bureau chief of Hong Kong’s Wen Wei Po newspaper in 1989 after the army crushed the student demonstrations in Tiananmen Square. Mr Ching was arrested in the southern province of Guangdong, where he was reportedly collecting unpublished interviews with the late Communist Party chief Zhao Ziyang, who was purged for opposing the massacre. He was charged with espionage last August and faces execution if convicted…” http://www.hkhkhk.com/engpro/messages/2142.html
Reply to Guest,
Thank you for your concern over the Chinese people. When tens of thousands of ethnic Indonesian-Chinese were slaughtered in a genocide by CIA trained paramilitary forces to eliminate Chinese influence in Southeast Asia, former Secretary of State Albright stated that it wasn’t a concern of the US government and refused to condemn the ethnic genocide. On a separate issue of millions of Iraqi children dying from Clinton Administration economic sanctions on medicine, Secretary of State Albright stated that “it was worth the price”. Under the Clinton-Rubin Administration, the lives of thousands of ethnic Chinese in Indonesia and millions of Iraqi children were considered worthless.
Regards,
DChiang -
Much like our friend Ryskamp, you posted a reply to me, but didn’t tackle any of the points put forth… you simply changed the focus somewhat. You started off blaming private money managers, and now you’re blaming the US. For sure, there are things done by our country that in hindsight are mistakes, and some things are done with “the ends justfies the means” mentality, but show me a government who doesn’t do these things. At least the ends of our government are more “noble” on a RELATIVE basis to many of the governments out there.
After all, why are you here???
I respect your Utopic ideals, but lets be pragmatic and agree that things will never be perfect (just ask Israel). As far as the chess game between the US and China, what do you expect of nations? Of course they compete, and like money managers, they’ll use whatever edge available to them, be it “guns or money”; preferably both
And… last I checked this blog was about currencies, not about conspiracy theories. Can we stay on subject here?
chiang– please can ur rightous indignation for whatever problem the US created, real or imagined, or hasnt solved and DO SOMETHING tangible besides complaining. Ur a broken record.
Reply to Gamma,
The solution to solving most of US foreign policy problems is simple, stop interfering in the internal affairs of other sovereign nations. As former President Thomas Jefferson stated, “the United States should trade with all nations of the world, but never become entangled in foreign alliances or the internal matters of other nations”. In a twist of irony, Thomas Jefferson’s statement would be lauded by the Chinese Foreign ministry. It is absolutely none of the US damn business to tell the rest of the world how to run their lives, manage their governments, or run their respective monetary policies. Notice that the Chinese don’t have to worry about the problem of airplanes flying into their skyscraper buildings. The Chinese nation state can also do without the self serving advice from Washington bureaucrats Henry Paulson or Robert Rubin.
Regards,
“Mr. Ning said his client isn’t worried about Canadian authorities but about Chinese officials who he claims have been known to use whatever means necessary to repatriate people they want…” http://www.theglobeandmail.com/servlet/story/RTGAM.20070221.wbcfugitive21/BNStory/National/home
DC — one of the fundamental insights of Keynes that underlies the IMF (not your favorite institution, i know) is that an exchange rate is not the product of one countries policies, but of two (or more). The euro/ $ reflects US monetary and fiscal policies, European monetary and fiscal policies and, I suspect, the asset allocations of various big central banks.
When cHina sets the RMB/ $ exchange rate, it is also setting the dollar/ RMB. It is effectively setting the value of the dollar — another sovereign country — through its intervention (especially since others are reluctnat to appreciate v. the RMB). That is why I find arguments to the effect of “the RMB’s exchange rate is cHina’s own sovereign choice” unconvincing. China is the one intervening, to be sure — that is its own choice. but that choice has implicaitons for the composition of output in the US. It helps some and hurts others (I am one of those who has been helped, but i sympathize with those who have been hurt). China’s policy choices spill over beyond its borders.
So, of course, do those of the US. Its economic policies, to be sure. Its security policies even more so — that is another topic.
But the fact that policies in the US and china impact a lot of others are exactly why some forms of international financial and policy coordination is needed.
Hank P. making a nuisance of himself in Beijing. Maybe he hasn’t learned to grovel sufficiently, Chinese style. LOL.
http://news.yahoo.com/s/ap/20070221/ap_on_go_ca_st_pe/paulson_asia;_ylt=AqWIfs3iQedIv1jsz6l.Vz0Bxg8F
Hi Brad,
The old slogan “what’s good for General Motors is good for America” has been made inoperative by US engineered financial globalization. Beginning under the Clinton-Rubin Administration, the Wall Street-Treasury complex has promoted global labor arbitrage to improve corporate profitability with jobs increasingly shifted to low-wage locations overseas to reduce labor cost. Moreover, the official “strong dollar” policy mantra has been repeated by successive Treasury Secretaries since Robert Rubin. Instead of foreign governments, such as China’s, being wrongly accused of manipulating the exchange value of their currencies, US big business should be recognized as the real culprit that manipulates global labor markets to gain unfair advantage over labor, both foreign and domestic. With wage labor rate rising in China, US big business has threatened the Chinese by shifting production elsewhere to even lower cost locations in India and Vietnam. Furthermore, Paulson’s primary agenda for pressing the Chinese to further open their economy to Wall Street financial interests will have minimal impact on the US-China balance of trade. What’s good for Wall Street is good for Washington special interests.
Regards,
As the atmosphere is hot, let’s go with politics. Just an interview:
It all comes down to control
“Noam Chomsky is a noted linguist, author and foreign policy expert. On February 9, Michael Shank interviewed him on the latest developments in US policy toward Iran, Iraq, North Korea and Venezuela.
Michael Shank: With similar nuclear developments in North Korea and Iran, why has the United States pursued direct diplomacy with North Korea but refuses to do so with Iran?
Noam Chomsky: To say that the United States has pursued diplomacy with North Korea is a little bit misleading. It did under the [Bill] Clinton administration, though neither side completely lived up to their obligations. Clinton didn’t do what was promised, nor did North Korea, but they were making progress. So when [George W] Bush came into the presidency, North Korea had enough uranium or plutonium for maybe one or two bombs, but then very limited missile capacity. During the Bush years it’s exploded. The reason is, he immediately canceled the diplomacy and he’s pretty much blocked it ever since. ”
[Edited by Brad Setser. Please do not paste large blocks of text in the comments section. Links are acceptable]
DC -
Yes, yes… we’re always meddling, and while some certainly lose, let’s not act like nobody wins from the US “meddling” via it’s forgein policy. As I said before, we’re not perfect, but we’re better than the rest. And AGAIN… isn’t that why you’re here Chiang? If there was some place better to be, we would be there. Perhaps that time will come in our life time and we will all evacuate this place for a land of MORE promise, but until then I’m guessing you’ll keep you address the same.
And AGAIN, let me point out that before you started talking politics with me, we were “debating” how evil hedge funds are raping and pillaging the earth. Just remember that perception is not reality - and that is how the collapse of the pound went from being called Black Wednesday to White Wednesday. Ten years after the fact, many Brits recognized that they should erect a statue of the Quantum Crowd to thank them for ending the wasteful spending of their tax dollars used in defending a ridiculous policy. Their recession would have endured forever under that policy, but instead they took the pain and moved on to much better times.
And AGAIN, in regards to the situation with China… let’s not act like the Chinese government and people are benefiting somewhat from the relationship with the US. I know it’s far from perfect, but China has profited handsomely from it’s best customer. Maybe not everyone there, but then without the business over the last 15 years, who knows where they’d be.
Or how quickly they could loose it over the next 15.
“Up to 50% of the drugs sold in Asia and Africa are fakes, in a trade estimated by the US Food and Drug Administration to be worth between $35bn and $44bn (£18.5bn-£23.1bn) annually… Experts maintain that the trade is based in China, a focus for all manner of counterfeiting…” http://www.guardian.co.uk/international/story/0,,2018238,00.html
“Beyond the benefits of language and democracy, Indian companies are undeniably helped by the fact that a lot of international investors would rather put their money in the hands of Indian entrepreneurs than Chinese ones… “India is light years ahead when you talk to managements,” he says. “You can go into an Indian company and… hear about return on equity, return on invested capital, [profit] margins. You go into a Chinese company, you never have the faintest idea what you’re going to get.” (Nor will you know if you can trust the numbers. On one trip to mainland China, Mr. Rooney sat down with someone from a large international accounting firm and asked how Chinese bookkeeping practices differed from those in the developed world. In two ways, replied the accountant: “Accuracy and reliability.”)…” http://www.globeinvestor.com/servlet/story/RTGAM.20070217.wrcover17/GIStory/
The trouble with Dave Chiang’s unfocussed, second-hand criticisms of US foreign policy is that they fail to expose the weakness of the Americans’ economic case. The reason why China is so often the subject of these blogs is surely that, as a source of momentous change, it is interesting.
Brad:
You attach too much importance to exchange rates - sometimes it is better to set aside macroeconomic building blocks and return to first principles. Think of an exchange rate as being a common factor in the price of all goods, services and investments available from a currency area, and think of countries as traders which buy and sell all of these things. China’s exchange rate peg (assume that this is to the US dollar only) simply represents a commitment to buy (or, in theory sell) enough to fix the RMB/US$ common factor. It is easy to appreciate how such a self-imposed constraint can be costly for China, but harder to see how it damages the US. Having made their commitment, what the Chinese buy then depends on US prices, which are set multilaterally in a competitive process. If the US does not like what China buys - ie bonds instead of manufactures - then it can change its prices. There is no need for international coordination.
The problem with conspiracy theorists is that they look at the wrong conspiracy.
Wall Street and the Treasury Department have been some of the strongest supporters of China in the United States, and until the Iraq debacle, Treasury and Wall Street were critical in keeping the dragon slayers. With the dragon slayers and blue team in total retreat over the Iraq debacle, what results is an American government that is more pro-China than any government since Nixon took his trip in 1972.
Also, I do not understand why you argue that one of the sins of Wall Street is to encourage global labor arbitrage when China has been one of the huge beneficiaries of that arbitrage.
For its part the Chinese government agrees with the “Treasury-Wall Street” complex on most economic issues. The differences are rather minor. The question are being argued is *how* Beijing intends to do currency revaluation not whether to do it.
The questions are *how much* foreign banks are allowed to own Chinese banks rather than whether to allow this.
Wall Street, multinational corporations, and the Treasury Department are all China’s friends and allies out of greed and self-interest. They business of Wall Street is to make money, and a rich and powerful China is making and will continue to make a lot of people filthy rich.
China for its part is setting up its domestic and foreign policy so that lots of people get filthy rich from its rise, so that there isn’t a politically significant group opposed to it.