Chinese Economics Thread

horse

horse

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gadgetcool5 said:
You are forgetting one thing. It's generally not smart for firms to take currency risk. That is the equivalent of gambling.

The main reason why countries are forced to hold dollar reserves is to avoid a suddenly uncontrollable depreciation of the currency. During the 1990's Thailand had higher interest rates than the US, just like China today. As a result, companies borrowed in USD to finance domestic expansion. But when the Thai baht came under speculative attack, it suddenly sank, and Thailand did not have enough USD reserves to prevent it. As a result, all the Thai companies could not pay off their debt and went bankrupt.

Thus, if Chinese companies avoid dollar denominated debt (except those that can afford to gamble), then China does not need to hold as many reserves.

In general, the less entities hold dollar debt, the more we move away from a dollar basted international system.
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I hear what you are saying, but I still do not understand you.

1. A Chinese firm, they would normally get loans such as borrowing USD to open a factory somewhere.

Why would a Chinese factory buy US bonds? That kind of makes no sense. US Treasuries pay no interest. Any Chinese company with cash should be expanding their business inside China with more investment.

2. If all you want to say is that Chinese entities should avoid the US Dollar, well, that is all is required to be said. No need to say anything else or bring up the issue of debts.

Suppose that same Chinese company wants a loan, but decides to go to some investment banker and issue a bond for sale priced in RMB. China, like most countries, have bond markets (normally reserved for the 1% like the the members of the Trump conspiracy).
 
Gatekeeper

Gatekeeper

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horse said:
I do not understand your point of view, unless you're just talking about technical details of a word/instrument.

GM is Government Motors. They have a stock traded on an exchange, and we probably can go buy their bonds too, Government Motors bonds.

Both are assets. Same old story about stocks and bonds. You own them. If you own something, that is an asset.
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Yes you're correct. And as I said technically everthing your owned is an asset.

But your original statement said bonds are assets. I'm just saying bonds are usually classified as a debt instrument and not an asset as in shares. It's technical, but there is a difference.

I was just being pedantic, being the accountant in me. In reality it really make no difference to your statement.
 
localizer

localizer

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"Countries need to forge greater synergy in growing their trade in services, seek new ways and more areas of cooperation, and look for the widest possible converging interests in development so as to make the 'pie' bigger and bigger."
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Lol spoken like a true Free Market guy.

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T

Tam

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KenC said:
I think China should just let the RMB rise naturally.
I take it that putting a brake means buying the freely minted US$.
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If they are selling off over $200 billion worth of US Treasuries then they are letting the Yuan appreciate naturally with free market forces. Better for them to let it loose in a precise rationed manner than to keep the pressure bottling up.
 
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