China's strategy in Korean peninsula

Brumby

Major
My understanding of the Chinese economy is limited. However the notion of any significant economic adjustment to the Chinese economy will have a corresponding magnitude on other countries is not necessarily true. This is because every economy has a different profile in its economic trade structure and countries trade because of specialisation. As such any economic dislocation will have differing effects. I am producing below an article below which is self explanatory and provides the economic reasoning.
Please, Log in or Register to view URLs content!

On a superficial level, the belief that a slump in China will affect the rest of the world is understandable. In addition to its economic size and importance as a trading partner to every major economy, China is also the leading manufacturing country by volume. It is hard to believe that an economy that constitutes just less than half of all global growth can sink without creating tsunami-like impacts in every corner of the globe.

But such statistics can be misleading. The Chinese economy is not nearly so important as a driver of global growth.

Take fixed investment, which drives around half of all Chinese economic expansion. Of the up to $4.5 trillion worth of new fixed investment in 2014, less than 3% originated from outside China.

In addition to a still heavily regulated and largely closed capital account, almost every significant sector of the Chinese economy, with the exception of export manufacturing, is designed to privilege state-owned enterprises at the expense of foreign and private-domestic firms. Just as SOEs have been the primary beneficiaries of Beijing’s political economy, they will also be far more exposed to any great slowdown than will multinational firms.

One illustration of this on-the-ground reality: The U.S. firm General Electric, which has targeted Chinese sectors including health care, finance, aviation and energy, recently revealed that it still derives more revenue from a midsize market like Australia than it does from China, despite employing approximately 20,000 people in the latter country.

Then consider China’s often misunderstood role as a trading powerhouse. Export manufacturing is dominated by foreign-owned and foreign-invested firms, which makes China the world’s preferred subcontractor. Any slowdown, or even liquidity crisis, in the Chinese economy is unlikely to significantly effect export-manufacturing operations since the majority of these are financed by foreign capital and is where more than 80% of all foreign direct investment into China ends up.

Even China’s status as a great trading nation is often overplayed. More than two-thirds of China’s trade is in processing trade, with advanced-economy consumption markets in North America, the European Union and even Japan more important as sources of final net demand.

In addition to the restricted access to the Chinese consumer offered to outsiders, some estimate that around 75% of China’s domestic market is made up of nontradable goods. In other words, the net demand China offers the world is significantly less important than the raw size of its economy might suggest. Yet it is increases in final demand that ultimately drive trade, global manufacturing and global growth.

In the 10 years before the global financial crisis, trade between China and the Association of Southeast Asian Nations countries grew at high double-digit rates per year. But when the crisis hit, that trade immediately contracted 7.8%, while GDP growth rates throughout East Asia plummeted. This occurred despite China’s economy, the largest in Asia, growing at almost 9% during that period.

The story is the same when it comes to the excess savings needed by businesses to invest in regional opportunities. It’s true that China consumes too little and saves too much. But most of the country’s savings cannot exit the country. Consequently, Chinese FDI is still dwarfed by U.S., European, Japanese and even South Korean FDI in the region. Neither is China a major source of technology transfers into developing economies around the world. Instead, it absorbs far more foreign technology than it provides to the world.
 

SampanViking

The Capitalist
Staff member
Super Moderator
VIP Professional
Registered Member
To a degree you are right Brumby - Sanctions based trade disruption is not measured as a direct correlation in percentage terms, but neither is it measurable in fixed fiscal terms either. By this I mean that measures that reduce Chinese growth by the equivalent of a couple of hundred billion dollars, does not translate into a loss of corresponding amounts spread throughout the customer base.

When you cut complex trade links, you unravel global strands which are multi faceted throughout. It starts with resources and other raw materials and works through to distribution and ultimate retail at the far end. China as a producer market, still occupies a relatively small part of the pot with much higher losses being experienced on the customer side (where the higher margins are).

Not quite sure what the article was supposed to show. Irrespective of any particular year, global investment into China has been massive over the last three decades and these investments would be made vulnerable by any sanctions regime.

All these things together, means that for developed nations involved in tit for tat sanctions, the result would be largely aggregate across all. With many potential sanction levying countries currently enjoying low or otherwise stagnant growth, I think my general point still stands,
 

taxiya

Brigadier
Registered Member
I see an inclination of some member here, "I hate someone, so I am gonna suicidally destroy him.", that altitude is impossible to argue with.:rolleyes:
 

solarz

Brigadier
To understand the effect of country A putting sanctions on country B, we can just consider the effects of country B putting sanctions on country A.

So what happens when China sanctions country X?

No more cellphones.
No more computers.
More expensive clothes.
More expensive plastic ware.
More expensive furniture.
More expensive machines, engines, and pumps, which means even things made locally will get more expensive.

More expensive everything = inflation goes through the roof = people's savings wiped out overnight.

In other words... welcome to Russia!
 

B.I.B.

Captain
despite the fact this thread is going way off topic, I will add my ten cents worth.

My dad reckons family life in NZ was so much better back in the 50's to the mid 80's despite restrictive trade practices.Although our choices were restricted we did have access to all the things a modern society of the time took for granted.
Back then most families only had one income earner who worked 40hrs a week and maybe extra overtime up to 10hrs. With this, he could buy a home, have a holiday, buy a car and generally enjoy life.
Today with a more open trade policy,there has been an increasing need for families to have two income earners working longer hours to afford the same things and devote enough time to raising a family in a proper manner.

We could even save money with the banks paying interest that was in line with inflation.
 

taxiya

Brigadier
Registered Member
I see this thread is being derailed. The trigger of the "the world will rally around sanction China" was the proposition of "China intervenes a NK civil war". That proposition is more of a reflection of proposer's own way of thinking of what he or his government would do in a "possible" NK civil war. The proposer then projects that line of thinking on China which has always promoted "non-interference into other country's domestic matters". China not only promotes "non-interference" but has so far the best track record of holding up to it compared with other big powers.

This proposition of "China in NK civil war" should not have been picked up in the first place. The proposition is distracting and deceiving and derailing of the thread.

I suggest we leave this proposition and get back to the topic.
 

solarz

Brigadier
despite the fact this thread is going way off topic, I will add my ten cents worth.

My dad reckons family life in NZ was so much better back in the 50's to the mid 80's despite restrictive trade practices.Although our choices were restricted we did have access to all the things a modern society of the time took for granted.
Back then most families only had one income earner who worked 40hrs a week and maybe extra overtime up to 10hrs. With this, he could buy a home, have a holiday, buy a car and generally enjoy life.
Today with a more open trade policy,there has been an increasing need for families to have two income earners working longer hours to afford the same things and devote enough time to raising a family in a proper manner.

We could even save money with the banks paying interest that was in line with inflation.

Yeah, back then we had to trudge through snow barefooted just to go to school, and it was uphill both ways too. And we liked it just fine, dammit!
 

SampanViking

The Capitalist
Staff member
Super Moderator
VIP Professional
Registered Member
I agree with Taxiya that the thread has gone off topic. Given that it has not particularly gone anywhere by doing so, means we should all get back on topic without further delay.
 

delft

Brigadier
It was bound to go off topic.
Seriously what NK is doing was called deterrence when it was done by UK.
The solution to the Korean problem is, eventually, reunification. That will become possible after the US forces leave Korea. Already in the mid-90's South Korea was spending nearly two and a half times as much as NK was spending on their respective militaries according to the Arms Control and Disarmament Agency, a branch of State Department that was abolished by Bush2, so preventing that reunification is the main purpose of US military presence in South Korea.
 
Top