A January 2018 Bloomberg article suggests that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.
Chinese Economics Thread
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A January 2018 Bloomberg article suggests that Chinese officials may reduce their purchases of U.S. government bonds. It is very unlikely that China can do so in any meaningful way because doing so would almost certainly be costly for Beijing. And even if China took this step, it would have either no impact or a positive impact on the U.S. economy.
manqiangrexue
Brigadier
Lots of different opinions out there, eh?
China just reminded the United States that Beijing is its banker
- Bond markets took a hit following a report that China could trim its U.S. Treasury holdings
- China delivered a statement soothing those worries on Thursday
- China is the biggest holder of U.S. Treasurys
- The U.S. government uses Treasurys to help finance itself
China "will not just lay passive if the U.S. administration imposes tariffs," he said. "I think that's the position they want to be in, that they are a major player and not a small country on the receiving end of the U.S. big stick."
Beijing's indication that it's not "tied to U.S. bond-buying" indicates more "hardball' between the world's two biggest economies, said Vishnu Varathan, Mizuho Bank economist.
In a note Wednesday, brokerage firm Jefferies said that "If China stops buying Treasuries, the market could suffer."
Chinese whispers sink US bonds
11TH JANUARY 2018
The updated version of all this is that China could sell all its American debt. That’d send financial markets into a tailspin and expose the US’ fiscal mess. Interest rates would surge. They call it the nuclear option.
But it wouldn’t necessarily take selling debt to cause trouble. Given China soaks up a vast amount of US debt each year, just stopping its purchases could signal trouble for the US budget.
In fact, just the tentative suggestion that the Chinese definitely might have a firm possibility of maybe ending their purchases was enough to rile US Treasury markets yesterday:
Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. The news comes as global debt markets were already selling off amid signs that central banks are starting to step back after years of bond-buying stimulus. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.
The US dollar took a hit too. In fact, the S&P 500 stock index posted its first loss for the year. But not long after, the ten-year Treasuries recovered after a debt auction went off without a hitch. False alarm.
If the road cost more to inner mongolia than the housing in a city for all residents then why make road?
The SOEs exost because they have political connections, and can get cheap loans.
With cheap loan a monkey can run a business.
If you google "Chinese SOE loan profitability" there are many data about the topics.
But one number talk nice: the SOEs has two third of the non-financial loansin China, and they represent 115% of the GDP in loan to gdp ratio.
So if China not "buying" will have a positive impact on U.S., why does U.S. try to "sell" the bond to China in the first place? That is self-contradictory, isn't it?
And why would not lending out someone's own money hurting oneself? Especially when the borrower threatens not to pay the money back. Isn't that threat advocated by the same people?
Put it straight, the people behind this article is saying "give me your money, otherwise you will be hurt, and you may never see your money again". That is robbery, nothing else. That robbery did work when the robber had a freaking big gun pointing at the banker's head. But today, the banker has get a big gun of his own, things will change from now on. In the not so far future, with a freaking big gun in hand, the banker will demand or get his past money back, one way or another, in the form of cash, gold, oil or whatever. Treasury bonds are IOUs. IOU is not something one can easily get rid of by scrapping the contract or devalue the denomination currency. IOU is YOM (you owe me) on the banker's side, it is a belief in the mind of the banker that somebody owes the banker. One can say I don't owe you anything any more, but one has to convince the other, that won't be easy.
This is the point when an investment driven economy turn to consumption driven one.
Any company that has low profitability, and depends on low cost loans/workers will go to bankrupcy at that point.
So, you think that it won't ever happens?
The US don't want to sell it, it is an oportunity for China to buy it.
Example China doesn't give the oportunity to buy Chinese govemrent bonds to anyone. See?
And generally, what China can do with the US money and equivalents?
Ultimatedly, all that China can do is to buy american made stuff in the long term.
IF China doesn't want to buy american stuff ,then the value of its treasuries is quite low. Practically 0 : )
What you said is a general rule/principle that works everywhere. Stating that principle does not put China in any disadvantage position. All your argument is based on the presumption that US is the consumer to consume Chinese production (investment). That is a presumption without base.
Who is to say that Chinese people do not want expensive vacation, cars, phones, TVs, movies etc. just like Europeans and Americans? Chinese population can create bigger demand of consumption than all westerners combined. That is the drive.
The Chinese companies will adapt themselves accordingly. Sure, the one doesn't adapt will die, so will the one who adapts live. Either way, these are Chinese companies.
Nobody can say never ever for anything. So don't ask this question around, it is pointless.
I suggest to everyone to read the Pettis stuff .
carnegieendowment.org/chinafinancialmarkets?lang=en
IT is quite good, and gives a comprehensive analysis of the possible future paths of the chinese economy development.
The guy using simple ballance of payment methodology to analyse the situation, and describe basic scenarios for changes.
He has been doing it for ten years.
carnegieendowment.org/chinafinancialmarkets?lang=en
IT is quite good, and gives a comprehensive analysis of the possible future paths of the chinese economy development.
The guy using simple ballance of payment methodology to analyse the situation, and describe basic scenarios for changes.
He has been doing it for ten years.
I stopped reading right there.
Why does US not want to sell it if a positive impact on the U.S.
Opportunity for China? Seriously? Oh my Jesus Christ, my Buddha, my God and Allah.
Guaranteed interest return is an opportunity. And the U.S. treasure bonds WERE that.
Now? They are not because there is no interest return any more (after deducing the devaluation of dollar). And there comes the threat of not repaying at all.
Tell you what is the new opportunity for China as of today
- Mines in Asian, African, South American countries.
- Oil in ME, Africa and South America
- New factories in OBOR countries that will return profit.
- The raising demand of raising living standards in the OBOR countries.