Chinese Economics Thread

[Tam]

https://twitter.com/i/web/status/1301600856819851265

PLEASE DO IT.

Lol the Indians are the only ones commenting.
View attachment 63120

Lol selling dollars will make Yuan weaker? Indian logic.

It will make the Yuan stronger, but risks making China exports more expensive.

Strong dollar has not been good for America over these years. It has vaporized the US manufacturing sector. A weakened dollar, or a US dollar that is no longer the world's currency, can lead to a renaissance in US manufacturing and return manufacturing jobs to the US.

 

[siegecrossbow]

It will make the Yuan stronger, but risks making China exports more expensive.

Strong dollar has not been good for America over these years. It has vaporized the US manufacturing sector. A weakened dollar, or a US dollar that is no longer the world's currency, can lead to a renaissance in US manufacturing and return manufacturing jobs to the US.

Only against the dollar though. Yuan has depreciated against other currencies, notably 6% against the Euro. I don't think China is intentionally propping up the Yuan. It's just that the Feds printed way way way too much money.

 

[Tam]

Only against the dollar though. Yuan has depreciated against other currencies, notably 6% against the Euro. I don't think China is intentionally propping up the Yuan. It's just that the Feds printed way way way too much money.

China does not prop up the Yuan, and interventions on the Yuan has been on the opposite direction --- keeping it down. Pegging your currency is done by two mechanisms. One is you proportionately print the same amount of your currency relatively, and other is to match your treasury rates. Its just that China can no longer afford to do both without significant capital flight and inflation on its own economy. The risk of a stronger Yuan would mean higher Chinese export prices that may affect Chinese jobs and manufacturing, but it can also mean rising prices around the world that can fuel inflation especially in the US.

Holding the Yuan artificially weak is like trying to keep King Kong from busting out of its cage. With the only still running economy in the world, along with the supplementary knowledge that China is holding vast undisclosed gold reserves --- China is the world's biggest gold producer and keeps most of it within --- it will attract foreign investors like a fly.

Another factor, and people don't talk about it much, something media needs to cover, is that Chinese Treasury Bonds have a relatively good yield, and with such yields, they are like islands in an ocean of low yield bonds. This brings in more foreign investors looking for financial safe havens.

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It is true that the Feds have been printing out too much dollars. Previously, inflation is controlled because the US dollars are exported outside of the US, removing it from the domestic system. In turn, US dollars are converted back into assets by foreigners who buy US companies, US real estate, US Treasury bonds and US stocks. Everyone of these areas are under heavy attack.

When you scrutinize foreign investment into the US, you don't invest in the US because these people are scared away, if they are not scared with the riots and the covid. When people cannot pay rent for their apartments, cannot pay mortgages, when stores cannot pay rent in the malls, US real estate goes down, making it a poor investment. Then you have low interest rates on US Treasuries. Umm. Then most of US stocks are down, except for the vastly overpriced S&P 5, aka FAANG. Umm. That does not attract the eye of foreign investors, who are not Robin Hood investors. So FDI to the US goes down, and this means foreign hold of US dollars will rise and less demand for US dollars.

 

[localizer]

China will continue to dominate exports as long as regulations are relaxed to reduce costs and allow Chinese ingenuity to shine.

As a whole Chinese citizens will be better off

 

[vincent]

It will make the Yuan stronger, but risks making China exports more expensive.

Only if People's Bank of China use the USD from the sale to buy RMB back. If the bank keep the USD in its vault or convert the USD to Euro and buy Euro bonds, or buy gold and other precious metals, there is no effect on RMB at all.

 

[Equation]

Only if People's Bank of China use the USD from the sale to buy RMB back. If the bank keep the USD in its vault or convert the USD to Euro and buy Euro bonds, or buy gold and other precious metals, there is no effect on RMB at all.

I believe that's what China is doing with its gold reserve. This article is back in 2017 I think, but explains a lot about China and their gold strategy.

This Is How China Moves the World to a Gold Standard
The comments above & below is an edited and abridged synopsis of an article by

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China has grown in strength economically, financially and militarily. It has been eating up global gold mine supply for about 10 years. It has 20,000 tons or more compared to the supposed 8,133 tons held by the US.

The announcement of yuan for oil, convertible into gold, is a game changer. China consumes more oil (in dollar terms) than all the gold produced in the world. At current pricing, China uses more oil than the entire world produces money.

Over the last few years, China has imported roughly 2,000 tons of gold annually. China and India are importing more than the 2,500 tons that are produced. It can only come from Western vaults. In order to pretend their financial systems and currencies are sound, the West (led by the US) has been selling their gold reserves.


If China imports oil and pays with yuan and offers their yuan convertible to gold, how many oil producers will take them up on the conversion? How long can China and India import more than the world produces? Where will demand be satisfied if oil producers’ newly acquired yuan are converted to gold? The answer is they cannot …at current prices.

China watched as the US was bled dry of gold leading up to 1971, and ever since. It understands the game. It is leading the world toward a gold standard by diverting what was previously oil for dollars into oil for gold.

By making yuan convertible into gold, China is creating a demand they know cannot be met by supply at current prices. Why?

—China is the largest gold owner on earth so it is marking the value of its treasury up by multiples. A higher gold price will make it difficult for other nations to accumulate gold. By freeing the gold price, China is assuring its place as a world financial leader.

—China will be devaluing the yuan versus gold, which will have many benefits.

—Moving the world to a gold standard means moving away from the dollar.

—This scheme avoids the Bretton Woods pitfall: Bleeding out treasury gold.

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[hullopilllw]

It will make the Yuan stronger, but risks making China exports more expensive.

Strong dollar has not been good for America over these years. It has vaporized the US manufacturing sector. A weakened dollar, or a US dollar that is no longer the world's currency, can lead to a renaissance in US manufacturing and return manufacturing jobs to the US.

More expensive relative to the period before the rise.

But note, no matter how much the rise is, the advantage Chinese manufactured products hold is not due to a favourable FX rate, but rather owed to the systematic comparative advantage in the highly robust industrial supply chain the Chinese has developed over the decades. And that is in turn back by decades of investment in infrastructure, logistics, power etc. And that means, there will be no player, not Vietnam, not Indonesia, and definitely not India, can ever hope to "replace" China as the manufacturing powerhouse, at least in the foreseeable 2 decades ahead.

 

[localizer]

China can safely appreciate to 6rmb/dollar like in 2013/2014 and still maintain exports.

Chinese nominal GDP will also gain 15% and with growth to like 17T.

 

[weig2000]

China can safely appreciate to 6rmb/dollar like in 2013/2014 and still maintain exports.

Chinese nominal GDP will also gain 15% and with growth to like 17T.

A gradual appreciation of Yuan over the next few years is better for China. It allows the exporters to adjust and transition, as China shifts into "dual circulations." It will also better position China for a decoupling from dollar should the US decide to leverage its dollar hegemony.

 

[localizer]

A gradual appreciation of Yuan over the next few years is better for China. It allows the exporters to adjust and transition, as China shifts into "dual circulations." It will also better position China for a decoupling from dollar should the US decide to leverage its dollar hegemony.

Remember how China adjusted to 30% tariffs perfectly fine?

The US needs those goods, so they will keep buying from China despite the increase in price.