On the domestic sourcing, I can see why you say that the Chinese government could have asked them to sell their oil locally at a loss but didn’t. This is probably true enough and is genuinely laudible. It also makes sense in that it would allow the corporations to keep in business and operate without overt subsidies that may garner WTO attention. Regardless, the “buy Chinese” push they have going on probably has more of a real world effect (even on Sinopec) than a similar non-binding push by the U.S. Congress (and why to me it seems to be a dangerous move by China, even if they are only hinting that people should). Sinopec and others may have to sell their product into that market, but they will probably try to buy local if they can.

Economics is all about trust and faith.

There are are lots of structural factors. One is that US debts are denominated in dollars. The second structural factor is that its hard to have capital flight, if you don’t have anywhere to flee to. The third is that the US can tells the IMF what to do and not the other way around.

Kind of puts a potential twist on the Sudden Stop phenomenon. There no longer needs to be a mass dumping of USTs to create a funding crisis. CBs just need to stop buying, or in this case, elect to no roll over.

Of course, we already have a funding crisis and a funding shortfall. There is simply not enough capital in the world to buy our MBS and USTs, so the FED is monetizing both. Sure, it’s advertised as an interest-rate influencing operation, but it’s a monetization of the shortfall, of the deficit.

And to that extent, the US govt is already engaged in a form of debt repudiation as it willfully explodes the supply of UST, and monetizes the shortfall, knowing that this supply is now no longer backed fully by tax revenues or savings.

It’s only behaviorism and faith, not anything structural or mechanistic, that keeps the US currently away from an Argentinian outcome.

Finally, I fully expect that the UST market will be a vehicle for other CBs to employ new QE on their own. I suspect Japan is printing fresh JPY to (buy) monetize our UST supply, and one wonders that Switzerland is now engaged in the same action. Japan certainly isn’t buying UST with trade-flow created JPY, right? USD reserve building now is more likely to come from printing and converting. And frankly, why should the FED, which is already printing to buy USTs mind if the BOJ prints to buy USTs?

G

Obama is going out of his way not to criticize the Iranian political system, and I don’t think that anyone that matters really cares what the Chinese political system is like anymore.

You are fighting George W Bush. He is gone.

FollowTheMoney: Imagine the lifestyle in china/russia, I have not lived in either country but have heard stories.

You really need to do some traveling, since stories can be quite out of date and pretty unrepresentative.

FollowTheMoney: I don’t we realize how could we have it here in the United States to comparison of other regions. We should be grateful.

You really shouldn’t. If you keep thinking about how great you are, you end up regretting it.

Also who is this “we”? I keep on asking that question, since I’m not clear whether I’m part of that “we” or not.

This is total and utter garbage. China absolutely needs to change and keep changing its culture, its political system, and its economic system. If you stop changing, then you die.

Personally, I welcome ideas and suggestions on how to change and I think that harsh criticism on how Chinese people do things is a good idea. Foreigners can often come up with better ideas and criticism because they are looking at things from the outside.

If you go beyond criticism to *imposing* a new system, then you start having problems.

Personally, I think he is dangerously misinformed about how the system works. Fortunately, I don’t think too many people in China in any policy making role have similar opinions.

Indian Investor: Besides, having the US dollar as the primary reserve currency didn’t help Americans at all; it only helped owners of US banks, US oil companies and US weapons contractors.

You do realize that a lot of people work for US banks, US oil companies, and US weapons contractors.

If the situation is *really* mass versus elite, then you’ve won. That’s not the real situation in the United States, and enough “ordinary Americans” benefit from Chinese trade and US political and military dominance that you aren’t going to get anywhere trying to do a populist revolution.

The American public really does benefit from US global dominance, which is why I think it is stupid for Chinese to challenge that dominance.

Indian Investor: It’s hard to see why everybody needs to gang up on DJC and criticize him, especially when he’s mostly quoting other sources.

Well because I think he is wrong and dangerously wrong, and I think his economic and political ideas would destroy China. Fortunately, they aren’t that common among Chinese policy makers.

It’s actually not, and Sinopec is a good example of how economics trumped politics. Last year, price controls were causing huge oil shortages in China, while Sinopec and the other Chinese oil companies were happily selling their oil overseas and rather than selling their oil domestically and ending up with a loss.

Why didn’t the Chinese government just order Sinopec to sell oil domestically? First, it didn’t have the legal authority to do this. China has used the legal system to insulate SOE management from political considerations. Second, it’s not in the Chinese government’s interest to have Sinopec lose money. If the Chinese government forces Sinopec to sell oil at a loss, then local shareholders of Sinopec would start screaming as would the pension agencies and state owners of the SOE’s which would lose large amounts of money.

–Andrew: The level of government ownership and control is also causing many pause when these Chinese multinationals try to buy other corporations.

Invariably what happens is that you have a competing Western company that uses every trick in the book to make the Chinese multinational look bad. In situations were the Chinese multinational can made a deal with Western companies, no one cares.

–Andrew: China will soon be the number two world economy (with number one currently looking like it’s falling fast), it probably should get used to the naturally higher level of world scrutiny and criticism that comes with the title.

Maybe, but you can get rid of the scrutiny by paying off the right people. In every case that I’ve seen where there are a lot of people screaming against a China deal, there is someone behind it that stood to lose a lot of money if the deal had gone through.

You figure out what companies and interest groups can make trouble for you, and then you buy them out before they start screaming in front of the news. If CNOOC and found a way of partnering with Cheveron rather than competing with it over Unocal, you would not have seen people screaming as much, because Cheveron’s lobbyists and PR people would be going back and forth shouting about how good the deal is rather than trying to talking about how it is the end of the world.

It’s all business. Mergers and acquisitions are the law of the jungle, where you use every PR and lobbying tool that you can. But people in the field realize that “it’s just business.” CNOOC and Cheveron were signing some joint ventures at the same time they were trying to kill each other in the media.

This is massively incorrect in the case of Huawei. Huawei is not a state owned enterprise, and does not have access to the type of credit that SOE’s have. It has gotten one loan from a policy banks, but that loan is expected to be repaid, as the Chinese government is not in the business of funding unprofitable companies. Chinese companies are expected to make a profit, since the government needs profitable companies to fund its pension and social services costs.

This is why Huawei has been so successful. If the Huawei was getting subsidies from the government, there would be no particularly reason for it to make a profit.

As far as I know, he isn’t. He’s Malaysian Chinese, and a lot of the anti-Westernism (which I personally find ludicrous) that he espouses I’ve found is much more common among Malaysian Chinese than among Chinese from China. I think his views are very strongly influenced by Malaysian politics, whereas mine are very strongly influenced by American politics.

Then again the Chinese from China I know are people I’ve met in financial services and working for multinationals.

One reason I find it necessary to argue with him is that otherwise people tend to think that what he says or what I say are somehow representative of what Chinese people think, and if you find large numbers of Chinese, then you figure out that Chinese people disagree about things. The fact that I find his views ludicrous when they are not dangerous just emphasized that point.

Having said that, I do think that my largely pro-Western views are more common among policy makers in China than his anti-Western ones are, if for no other reason that policy makers in China are more likely to have spent large amounts of time in the United States and working for MNC’s than they are having spent large amounts of time in Malaysia and trying to overthrow hedge funds.