I'm confused.Why is it included as total FDI when the money has yet to be committed and it's only an expression of interest. I could be interested in my neighbour's farm, but it doesn't mean I'm going to buy it or prove I have the money to carry out the purchase.
American Economics Thread
- Thread starter Bernard
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I'm confused.Why is it included as total FDI when the money has yet to be committed and it's only an expression of interest. I could be interested in my neighbour's farm, but it doesn't mean I'm going to buy it or prove I have the money to carry out the purchase.
Sorry my mistake mentioning the letters of interest. That was my wild guess of what's included or not in the Chinese MOC FDI data. Now that you have pointed it out, I checked the World Bank web site again. I think the World Bank data does not include letters of interest either.
Anyway, I was trying to explain that the I used the FDI data from MOC and it is somehow different than that from the World Bank. But unfortunately that explanation didn't work well.
The Bretton Woods agreement said that dollars, and GBP would be equivalent in the monetary reserves of countries ( after a few devaluations GBP lost that status ) thus enabling US to buy without real compensation. Instead it gave its "friends" Marshall aid. That aid was happily accepted by the rulers of Western European countries and so they became satellites and members of NATO. The French President De Gaulle found that demeaning and called it a US exorbitant advantage. He used the French dollar reserves to buy gold from Fort Knox. That made the system unstable especially because US was at that time fighting Vietnam and paying for the war by giving out dollars so in fact letting other countries pay. Nixon ended the sale of gold which formally ended the existence of most hard currency in the World: a hard currency is one consisting of gold or silver coins with the value of the metal or, already a considerable extension, backed by gold or silver.( Only the Maria Theresia thaler which was coined even in the 20th century by the London mint or later in Singapore remained as a major use especially in the Middle East ). Then came the 1973 war and oil crisis and US invented the petrodollar so that excess Middle Eastern income would be returned to US to create a new exorbitant advantage. Countries which wanted to be paid in other currencies were destroyed, Iraq, Libya, or threatened with destruction, Iran, until that became untenable. That is why a relatively poor country, Russia, buys gold to replace dollar reserves with metal. It buys some 200 tonnes per year. China also buys gold, probably much more but the amount is unknown.
BTW does anyone remember that episode in the mid '90's when US convinced its satellites that the role of gold had really ended and many sold gold? The Dutch central bank sold halve of its gold reserve at a price of about $450 per troy ounce after which the price went to about $2000. It is now about $1200.
About that time Ambrose Pritchard-Evans wrote an article in The Daily Telegraph about a piece of bullion found in Hong Kong with all the signs of having come from Fort Knox but consisting of Tungsten and gilding. The US gold reserve has never been independently verified.
I completely believe that China is trying to have as much trade surplus as possible. I don't know why that offends you, since most nations want to export rather than import.
you do realize america has Trump as the leader now, right? He doesn't really care about legal grounds.I know, China is not the only target in Trump's crosshairs.
What is "the current format" not working, WTO? I don't know of any bilateral FTA between China and the US. I have not heard that China rejects requests, from any country, for negotiating or renegotiating trade agreements. Chinese would be more than happy to start talking about FTA with Americans. But the political atomsphere in the US has made such hope slim and remote.
In the past decade or so, there have been multiple "Sino-US Economy Summits" (I believe that is the name) where top level officials from both government discuss economical topics. While the summits are not specifically for the trade imbalance issue, it is definitely covered.
There is also the WTO of which both countries are member. The WTO is meant to be a platform for members to resolve disputes. In fact, both Chinese and Americans are no stranger to the WTO's arbitrators.
Before all the communication channels are shut off, I don't know on what legal ground the US can take protectionist measures unilaterally.
I got a list of items from working and trying to access Chinese market, but it's frankly going to result in overly heated debate on this forum, because I will be seen as too negative on China. But if you would like to talk about that, (which based on the length of your reply, you do) you can email me or message me on this forum.
No offense taken. Just trying to state my disagreement. If you feel that I sound offended, perhaps it was due to my subpar English. Hope it didn't bother you.
Except when I occasionally end up buying imported goods, I have nothing to do with international trade in my life. All I know on the topic are based on the information I learned from public media in Chinese and English. The picture I see can certainly be incomplete or even distorted. Feel free to correct me.
Now on to the topic.
In the past, PRC had to maximize trade surplus because it was badly short at foreign exchanges. It was even a matter in national security. There were all kinds of incentives and policies encouraging exports and to reduce reliance on imports. So your belief isn't wrong from the historical point of view.
But, in my opinion, it's no longer the case when the focus is on the current situation.
Ever since China became the world's No. 1 hoarder of foreign exchanges, the Chinese government has realized that unbalanced trades are not sustainable. Chinese certainly know not to kill the goose that lays golden eggs. I think most if not all local governments have been relieved the burden of making exports to earn foreign exchanges. The State Council has been trying to cut capacities in some sections. One goal of that effort is to stop manufacturers and exporters from dumping goods in the world markets.
Meanwhile, China's excessive foreign exchange reserves sitting in bank accounts have become financial liabilities to the nation, to a point, that some Chinese now see the depreciating foreign exchange reserves a threat to stability and security. That's quite a change in mindset when compared to what everyone was believing less than two decades ago. By the way, I don't think that China ever planned to have this much foreign exchanges. It all happened too fast and beyond everyone's wildest imagination. I felt that most Chinese themselves were in disbelief as the numbers jumping up year over year in news.
As the disposable income of average Chinese grows rapidly, the demand for foreign manchandise increases. The government knows that it can no longer deny the human right to better life. The doors have started opening wider for importing more goods and services, even including those were once considered "extravagant". For example, just recently duties on some luxury items were lowered.
Another example. Every year tens of millions of Chinese travel around the world. Not only these traverllers spend money in their destinations on things such as transportations, accommodations, admissions, they also bring back souvenirs. I don't have the number for how much the total travel spending was in 2016 but I wouldn't be surprised if it's in the high tens of billions USD. The latest data show that in the 7 days of this Chinese New Year, more than 6 millions Chinese took their vacations abroad and in total they spent over 100 billion CNY during their trips. In China's trade balance sheet, this must be a big import item for goods and services.
For China, the needs for trades are simply not the same. China now needs to import as much as it needs to export.
Of course, this doesn't mean that Chinese suddenly don't mind running deficit in trades. I am sure that the Chinese government is watching closely on the trade data.
I must also point out that while China does not have to maximize trade surplus now, there are still needs for reducing reliance on certain imports. They are mostly to avoid usually adverse or even discriminating trade terms when advanced and/or unique technologies involved. They are much less about to save foreign exchanges, even though sometimes the news still describe the sucess stories in how much the saving would be. And these "import substittution" effort will continue for long time until Chinese buyers are treated equal to everyone else.
But you're not Trump.
No matter who you are in real world, to have one more person even just willing to think about that it is now in the best interests of China to have balanced trades with all parnters is better than not.Out of pure curiosity, I am interested in knowing what items are on your list. You don't have to share if you don't feel appropriate. I am not in any grand endeavor for something. I just stumped across your post and thought you might be interested in hearing a different voice.
solarz
Brigadier
At first glance, China appears to be a far more unequal country than the U.S. Its hundreds of billionaires tower over the emerging middle class, while millions ofothers live on less than $1 a day.
But new data shows that inequality in the U.S. is actually worse than it is in China.
In a paper published by the National Bureau of Economic Research, economists Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman found that inequality in both the U.S. and China has grown rapidly over the past few decades.
In China, the top 1 percent earned 13 percent of personal income in 2015 — double their share in the 1980s. In the U.S., the top 1 percent earned 20 percent of income. That's also roughly double the level from the 1980s.
Of course, measuring the incomes of the wealthy Chinese is an especially difficult task, since so much of their money is hidden. As the paper notes, "our estimates should likely be viewed as lower bounds, due to tax evasion and other limitations of tax data and national accounts in China."
Chobani CEO: Closing the gap on income inequality Wednesday, 18 Jan 2017 | 8:23 AM ET | 02:31
But the paper points out that there has also been a big difference in the fortunes of those at the bottom in both countries — a difference that makes the income gap far worse in the U.S.
According to the research, the incomes of the bottom 50 percent in China (those earning less than $9,280, using purchasing power parity-adjusted exchange rates) fell from 27 percent in 1978 to 15 percent.
In the U.S., the bottom 50 percent (those with annual incomes below $36,000) have seen a "complete collapse" in their share of national income. Between 1978 and 2015, their share of income went from 20 percent to 12 percent — 3 points lower than China's.
"Policy discussions about rising global inequality should focus on how to equalize the distribution of primary assets," the researchers concluded. That includes better education, access to skills and minimum wage reform.
Trump is a symptom. The cause is the collapse of the income of the bottom 50%. That's a lot of angry people.
I will just comment on the foreign reserve part. Last year, there was a period that China burned up half trillion USD reserve in just 6 month trying to defend the value of RMB. There is a real reason to that if you look at the USD/CNY exchange rate on CFFET vs USD/CNH exchange rate at that time. That's what all the currency manipulator people don't seem to understand. It's done to maintain exchange rate stability. Anyway, here is link to chart of china's foreign exchange reserve.
Once people decide to pull money out at the same time inside China, the foreign exchange reserve will dwindle faster than most people realize. The capital controls in place can only do so much and Chinese central bank knows that. I will just leave it here and you can figure out the implications on economy and trade surplus and such.
I'm not in control, Trump is.But you're not Trump.
A lot of them are quite obvious. The ones you hear about in the media, even a little peon like myself have to deal with. My email should be pretty easy to figure out based on my nickname here if you have more questions.
AssassinsMace
Lieutenant General
There's a theme when reporting on China's economy and it always revolves around how China is spiraling out of control of itself. It cannot mange itself hence continuing the idea that following the Western way of doing things is what's best. Is it true that China is propping up the Yuan by burning through FX reserves? Maybe, but then they also said many times before China was trying to keep the Yuan down. That's what Trump believes. This is a new one that China is propping the Yuan up. The same contradictions with growth rates. I just read an article yesterday that it isn't just China that's selling off their FX reserves. One can say the world has no confidence in the US hence the Fed says they see raising interests rates ahead as reported separately today. Signs of dire things to come but they're not going to report it that way.
The reason for the capital outflows in China and elsewhere in the EM is the idea that the US is going to tighten monetary policies. And the expectation is that the monetary policy in the US is going to "normalize" ie go back to where it was before 2008. That at the moment is obviously not happening. The FED has been talking about this since the summer of 2014. But has since only raised interest rate twice to 0,5% - 0,75%. And has done nothing to build down their balance sheet of 4,5 trillion dollars. All the hot money that flew out of the US during the easing period is now flowing back in again. This has caused inflation to rise but wages in the US remains stagnant. So in other words it is causing stagflation in the US. When the FED says that they are not monetizing the debt they are lying. They say they will allow bonds they hold from the QE programs to mature and that is how they will build down their holdings. But what is happening now is they are recycling the maturing assets in to new purchasing programs. And not just the principles but also the interest as well. In a sense the QE program never ended its just being put on a much lower pitch. Meanwhile in the real world you have massive social upheavel in the US in the form of the largest street demonstrations since the 1960's. You have political upheavel too in the form of Donald Trump an complete political novist running the country lurching from one crisis to another just in his first few weeks. And the economy despite 8 years of on average a trillion dollars a year deficits, trillions of dollars of QE and near 0 interest rate is growing less than 2%. And both productivity and production in the US has been falling for more than a year. Despite all of that the dollar and the Dow Jones are breaking records.
Its all a giant speculative bubble in the US. And it won't end well and will make the 2008 crisis look like a picknick.
China has been less than exemplary too. Instead of capital controls they should have tighten monetary policies. Instead of letting the markets determine the Yuans rate they are aiming for a political rate that helped to burn down their FX reserves.
Its all a giant speculative bubble in the US. And it won't end well and will make the 2008 crisis look like a picknick.
China has been less than exemplary too. Instead of capital controls they should have tighten monetary policies. Instead of letting the markets determine the Yuans rate they are aiming for a political rate that helped to burn down their FX reserves.
solarz
Brigadier
No, China did not "burn up" half a trillion USD reserve just to defend the value of RMB. What you are doing is essentially having a pre-conceived notion, and cherry picking evidence that supports your preconception.
First of all, how do you "burn up" a USD reserve? You sell them. Presumably, you get value from selling them. Since the USD to RMB exchange rate was favorable at the time, China obviously got a pretty good deal from selling its USD reserve.
Second, what do you think China did with the money from selling their foreign reserves? Building infrastructure and making investments. China has multiple large projects going on, from the AIIB to the New Silk Road, all of which require a lot of cash.
You are focusing on the USD/RMB exchange rate because it directly affects the trade imbalance between US and China. While there's nothing wrong in that, it would be a mistake to think that the Chinese are focused on the same thing that you are. While exchange rate stability is certainly nice to have, I would argue the Chinese are far more focused on their Big Projects.
In fact, ask yourself this question: why did China build up such a large reserve in the first place?