‘Honestly, Chinese investment in euros looks like a sure bet to lose but well, mebbe they have sharper minds; well they are paying them lots more, so their minds should be sharper!’

Reasons China might buy euros, besides the interest rate differential or (I hope) misguided fears that the U.S. will eventually renege on its debts:

The U.S. economy is turning down. Its workers might start to resent being put out of jobs by subsidized imports if things get too bad. So, even though yuan spent on euros won’t buy as much as yuan spent on dollars, China may be looking for other currencies to buy to keep up its exports. The yen is quite cheap now. One wonders why China wouldn’t buy more of them, despite the current low interest rate. My suspicion? They know they would face some sharp objections from Japan.

"I think the vast majority of Chinese don’t know or care about the nominal loss of the reserve in exchange rate (unless it is sensationalized as an one-sided loss). Unlike oil from OPEC, labor can not be stored."

Volcker (Via DC):

"Financial crises do not happen in a vacuum and the current U.S. banking debacle is linked to imbalances in an economy that favored spending at the expense of saving … You can’t go on forever spending more than you’re producing. You have to rely on unorthodox finance to sustain it."

These are cogent observations.

Chinese government officials and most Chinese are quite happy to listen to advice in the form of constructive criticism. It’s when the tone turns into "you idiots, we know how to run your country better than you do, and we’ll force you to do the right thing for your own good" that you get a bad reaction.

I suspect that "these guys" in China don’t much care what you think about their internal arrangements. China resents, although it is not strident about it, "advice" re its internal affairs from the West that used to interfere mightily in its internal affairs. Tired of imperialism, China is not about to listen to your complaints. So you can keep on talking to yourself if you want. Go ahead, but don’t expect the Chinese to listen or care.

There certainly are well-known lobbies, but it is very misleading and dangerous to group those lobbies together. At the highest levels, you can broadly classify people based on whether they have an "interior" outlook or a "coastal" outlook, and there is an effort to balance the two broad groupings.

Personally, I think it would be a disaster if you had one faction "win" since having two broad tendencies within the Communist Party creates something more or less akin to an internal multi-party system.

Yuk: My purpose is most of all to underline the existence of a strong conservative line at the highest level, which impact all decision taking process, be it political or economic.

And my point is that I think that thinking in terms of a conservative/reform dichotomy is highly misleading. In particular, there is the assumption that "reformers" are less nationalistic and less committed to the continuation of one-party rule than "conservatives" and that’s just not the case.

Someone from the PBC is much more likely to think that China should control inflation via interest rates than someone from the NDRC. But that tells you nothing about their views on foreign policy, and also, maybe the PBC is wrong, and NDRC is right.

Have to admit, haven’t read the rest of the responses, so apologies in advance if this is a repeated question. The willingness to allow debtors to pay in the creditors’ home currency might not well be in the control of the creditor for at least 2 reasons; the creditors might not, at the origin of that debt, been nable to enforce repayment conditions or to establish them in the first place, more importantly, debt covenants can only exist if the debt is official, China’s lending/funding of the USA is hardly in the form of an official, traditional debt. Curiously enough, the USA has become the greatest debtor in more ways than one; it is one debtor that dictates to its creditors(the rest of the world) and reserves all rights to modify all conditions of repayment and its creditors are clamouring to lend it money ; can you hones6tly blame the banks for their "infallibility belief"?

Honestly, Chinese investment in euros looks like a sure bet to lose but well, mebbe they have sharper minds; well they are paying them lots more, so their minds should be sharper!

I’d say you’re probably not a NDRC guy and I’d say if you’re a member of the CCP Standing Committee, bad news: your promotion has been postponed!

More seriously, I definitely know there is no clear cut between "reformists" and "conservatives". I certainly do not want to slip into such manicheism. Nonetheless, there are well-known lobbies which can be boradly attached to one or the other. My purpose is most of all to underline the existence of a strong conservative line at the highest level, which impact all decision taking process, be it political or economic.

By private criticism, I mean when a government official sits down with you and asks you what you really think.

Yuk: OECD, IMF, World Bank are actually being reformed and these reforms are clearly inteded to enhance Emerging countries’s participation, in particular China’s. Even before that, EM like China held a sufficient power to at least influence the debate.

So of what use to China would be more say in OECD, IMF or the World Bank? As discussion forums, think tanks and academic exchanges work better. China has enough economic ability to prevent the World Bank and IMF from taking policies against the Chinese national interest. As far as aid to emerging nations, China has the money to do things bilaterally.

I really don’t see the point of increased Chinese participation in IMF or the World Bank. There does need to be a discussion of the international banking system, but that should probably take place through the Basel II framework and the BIS which China is a member of.

Yuk: This being said, the conservative component remains very strong indeed and is well represented at the highest level of the State and of the CCP. These guys are the ones which keep a hard stance in Foreign Affairs as well as on issues like FX regime - no macroeconomic principle behind that, only political, to PBoC’s utter despair.

That analysis is dangerously wrong. Viewing Chinese politics as "evil conservatives" versus "good reformers" is just not the way Chinese politics. The fact that someone is in favor or against a floating currency tells you ***absolutely nothing*** about their views on Taiwan, privatization of industries, liberal democracy, or their views toward Mao Zedong. Assuming that people in China fall into two groups.

Someone can think that China should be very confrontational with the US about Tibet, somewhat non-confrontational about Taiwan, hate Mao, like Marx to some degree, oppose industrial privatization, be in favor of currency liberalization, be moderately against a maxi-revaluation. Like me for example. Am I a conservative or a reformer?

And you can find someone else, ask them the same sets of questions, and find that people just don’t cluster in two groups.

Except under a regime of censorship. What you call private criticm in China is only criticm that was let through by censors.

Twofish: "WTO, UN peacemakers in Lebanon, cooperation over North Korea says that you are wrong".

Iran, Darfur, Burma, Zimbabwe says that I am right. As regards WTO, we have obviously not the same reading of the ongoing debates and the role China plays…

Twofish: "The problem is that China is simply not willing to be part of a multilateral process if multilateral means that the West tells China what to do, and I don’t see anything wrong with that, and China really doesn’t have that much interest in telling the West what to do."

This idea is totally wrong and feeds the misunderstanding between Emerging and Industrialzed countries. OECD, IMF, World Bank are actually being reformed and these reforms are clearly inteded to enhance Emerging countries’s participation, in particular China’s. Even before that, EM like China held a sufficient power to at least influence the debate.

I am not saying that factors of modernization and moderation are not existing in China. Reformist are cleraly a major component of the Chinese Communist Party, which is far from being the monolithic body it seems. This being said, the conservative component remains very strong indeed and is well represented at the highest level of the State and of the CCP. These guys are the ones which keep a hard stance in Foreign Affairs as well as on issues like FX regime - no macroeconomic principle behind that, only political, to PBoC’s utter despair. These guys are the ones who really do disservice to China’s international image by sticking to Maoist rethoric despite the tremendous changes their country has been going through. Plenty of examples these days. Keep in mind that these Conservatives are still in, and powerful, and that they are engaged in a struggle against the Reformists, within the CCP.