Posts tagged ‘China’

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20/10/2013

China’s State Press Calls for ‘Building a de-Americanized World’ – Businessweek

“It is perhaps a good time for the befuddled world to start considering building a de-Americanized world.” As nations around the world fret over the U.S. budget impasse, that is the conclusion of a not-so-subtle commentary published by China’s official Xinhua News Agency on Oct. 14.

Key among its proposals: the creation of a new international reserve currency to replace the present reliance on U.S. dollars, a necessary step to prevent American bumbling from further afflicting the world, the commentary suggests.

“The cyclical stagnation in Washington for a viable bipartisan solution over a federal budget and an approval for raising the debt ceiling has again left many nations’ tremendous dollar assets in jeopardy and the international community highly agonized,” says Xinhua. “The world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites,” it adds.

It’s not a new refrain: Back in March 2009, China’s central bank governor, Zhou Xiaochuan, also called for the creation of a new reserve currency, albeit in less heated language. The world needs a new “super-sovereign reserve currency” to replace the current reliance on the dollar, Zhou wrote in a paper published on the People’s Bank of China’s website (Zhou still heads the bank). The goal, he wrote, is to “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.”

Toppling the dollar isn’t enough today, however: “Several cornerstones should be laid to underpin a de-Americanized world,” explains the Xinhua piece. Along with a greater role for developing-market economies in both the World Bank and International Monetary Fund, “the authority of the United Nations in handling global hot-spot issues has to be recognized. That means no one has the right to wage any form of military action against others without a UN mandate” (all quite reasonable propositions, it must be said).

“A self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies,” the commentary continues.

“Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place, according to which all nations, big or small, poor or rich, can have their key interests respected and protected on an equal footing.”

via China’s State Press Calls for ‘Building a de-Americanized World’ – Businessweek.

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20/10/2013

With Takedown in Nanjing, China Corruption Drive Shifts Gears – China Real Time Report – WSJ

The detention of Nanjing Mayor Ji Jianye earlier this week might seem like just the latest move in Chinese leader Xi Jinping’s drive clean up the Communist Party ranks by going after both “tigers” and “flies.”

In fact, the Nanjing case marks a departure from Beijing’s usual method of coping with corruption by Party members, in a number of important ways.

Typically, announcements of an investigation and confinement of a high-ranking cadre that appear in the state-controlled press are terse and uninformative. That’s how the Nanjing media covered the event (in Chinese).

But the official coverage out of Beijing went far further this time, noting Ji’s ties to a Suzhou construction company that worked on major infrastructure projects in Nanjing (in Chinese) and accusing him of taking at least 20 million yuan ($33 million) in bribes (in Chinese).

It’s rare for an official’s connections with local businessmen to be mentioned publicly so early in an investigation. By calling attention to that relationship, Party disciplinarians were out to demonstrate that Ji fit the profile of an imprudent and immoral cadre. But the Party media machine was also revved up quickly to prevent social media from getting its usual jump on the news, before Weibo users could start speculating about the reasons for Ji’s dismissal. Beijing is now especially attentive to making its case before others do it for them.

Also interesting is the nature of the coverage. Much of the mainland press has focused more on Ji’s governing style as his alleged malfeasance. Ji’s treatment of personal staff and subordinates in Nanjing is being portrayed as “very rude and disrespectful” (in Chinese). One widely-reprinted commentary refers to Ji as a “bulldozer” when it came to policy matters there (in Chinese).

Indeed, it was Ji’s obsession with remaking Nanjing through massive urban development — sports stadiums and a disruptive subway project for the upcoming Youth Olympics to be held in the city, for example — that seems to have truly infuriated his superiors in Beijing.

According to public reports, there were unnecessary demolitions of homes to clear land for new buildings and roads, forced relocations of residents, and “projects that from time to time stimulated public resentment.” On one occasion, the renovation of the city to Ji’s specifications – by removing swathes of beloved wutong trees — led to large-scale mass protest by residents.

As one assessment concluded, “Ji’s four years in power disemboweled Nanjing” (in Chinese).

via With Takedown in Nanjing, China Corruption Drive Shifts Gears – China Real Time Report – WSJ.

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20/10/2013

Osborne agrees to China investing in UK nuclear plants – BBC News

The Chancellor, George Osborne, has announced that the UK will allow Chinese companies to take a stake in British nuclear power plants.

The announcement also said that Chinese firms might eventually be allowed to take majority stakes in British nuclear plants.

Mr Osborne made the announcement on the last day of a trade visit to China.

The first China deal could be as early as next week, with the go ahead for a new £14bn plant at the Hinkley C site.

Also on Thursday, a report commissioned for the prime minister warned of a growing risk of power shortages over the next few years.

The Royal Academy of Engineering said the closure of older power plants and the slow progress in building news ones was likely to stretch the system “close to its limits”.

Supply is expected to come under strain in the winter of 2014-15.

Most existing coal-fired plants are expected to be closed in 2015 to meet European Union pollution directives, while many gas-fired power plants are not being used at the moment because gas is so expensive.

These would take time and money to bring back on stream.

via BBC News – Osborne agrees to China investing in UK nuclear plants.

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20/10/2013

Jaguar Land Rover to recruit 1,000 workers in China: report – NDTVProfit.com

Indian auto giant Tata Motors plans to recruit 1,000 workers in China for its 1-billion pound Jaguar Land Rover (JLR) joint venture in the country, which will include a new engine plant.

Jaguar Land Rover to recruit 1,000 workers in China: report

The West Midlands based carmaker has been training 50 of those workers at its Halewood plant in Merseyside, according to The Sunday Times.

The workers are due to return to China at the end of the month, where they will pass on their skills to others. JLR wants to cash in on the huge demand for its vehicles in China by launching its own giant manufacturing operation in Changshu near Shanghai.

Its best-selling Evoque \’Baby Range Rover\’ will be the first car to roll off the production line.

Sources told the newspaper that the factory, built under a joint venture with Chinese car manufacturer Chery, will produce up to 130,000 cars a year, rising to 200,000.

This would put it on a par with JLR\’s operations at Solihull, which builds Range Rover and Halewood.

via Jaguar Land Rover to recruit 1,000 workers in China: report – NDTVProfit.com.

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20/10/2013

India, China near pact aimed at keeping lid on border tension | Reuters

India and China are close to an agreement to stop tension on their contested border touching off confrontation while they try to figure out a way to break decades-old stalemate on overlapping claims to long stretches of the Himalayas.

Chinese Premier Li Keqiang (L) speaks with the media as India's Prime Minister Manmohan Singh looks on during the signing of agreements ceremony in New Delhi May 20, 2013. REUTERS/Adnan Abidi

The border defense cooperation pact that diplomats are racing to finalize ahead of Prime Minister Manmohan Singh‘s visit to China next week is a small step forward in a complicated relationship marked by booming economic ties but also growing distrust.

In May, the two armies ended a three-week standoff in the western Himalayas after Chinese troops set up a camp at least 10 km (6 miles) inside territory claimed by India, triggering a public outcry and calls that India should stand up to its powerful neighbor.

China denied that troops had crossed into Indian territory.

Under the new agreement, the two nuclear-armed sides will give notice of patrols along the ill-defined border. They will ensure that patrols do not “tail” each other to reduce the chance of confrontation.

The two armies, strung out along the 4,000-km (2,500-mile) border from the high altitude Ladakh plateau in the west to the jungles of Arunachal Pradesh in the east, have also agreed to set up a hotline between top ranking officers, in addition to existing brigade-level contacts.

“The key issue is maintaining peace and tranquility on the border,” said an Indian government official.

The border defense cooperation agreement is built on existing confidence-building measures and is designed to ensure that patrolling along the Line of Actual Control, as the unsettled border is called, does not escalate into an unintended skirmish, he said.

“Barring last minute problems, there should be an agreement. It’s a question of crossing the Ts and dotting the Is,” the officer said, speaking on condition of anonymity because of the sensitivity of the issue.

India and China fought a brief border war in 1962 and since then ties have been mired in distrust. China lays claims to more than 90,000 square km (35,000 sq miles) of land in the eastern sector. India disputes that and instead says China occupies 38,000 sq km (14,600 sq miles) of territory on the Aksai Chin plateau in the west.

A Chinese airline last week blocked two Indian archers from disputed Arunachal Pradesh from travelling to China, souring the mood in India just days before Singh travels to Beijing.

“The fundamental problem they are not tackling is defining the Line of Actual Control and then a settlement of the border,” said Srikanth Kondapalli, a China expert at New Delhi’s Jawaharlal Nehru University.

BEEFING UP DEFENCES

One reason tension has risen is that both countries are upgrading civil and military infrastructure on either side of the frontier.

China has vastly improved its roads and is building or extending airfields on its side of the border in Tibet. It has placed nuclear-capable intermediate missiles in the area and deployed about 300,000 troops across the Tibetan plateau, according to a 2010 Pentagon report.

India has also woken up and is in the midst of a 10-year plan to scale up its side of the border with a network of roads and airfields. In July, the cabinet cleared the raising of a new mountain corps comprising about 50,000 troops to be deployed on the Chinese border.

“China has developed the border infrastructure so intricately that its roads and tracks even in high mountainous regions look like fingers running down your spine,” said retired Lieutenant General Prakash Katoch who commanded the Indian army’s Special Forces wing.

Chinese nuclear and missile assistance to Pakistan as well as a widening trade deficit in China’s favor have added to Indian fear about encirclement. China, on the other hand, is concerned about Tibetan activists using India as a base to further their separatist aims.

“It strikes me that many of the usual grievances have grown in prominence over the past several months: Chinese incursions on the border, the issuance of irregular visas, continued Chinese support for Pakistan\’s nuclear program, and so on,” said Shashank Joshi, a fellow at the Royal United Services Institute in London.

“It also seems that India is eager to keep these grievances in check.”

via India, China near pact aimed at keeping lid on border tension | Reuters.

See also: https://chindia-alert.org/2013/10/20/six-wars-china-is-sure-to-fight-in-the-next-50-years-stratrisks/

Posted in China alert, Chindia Alert, Defence, Diplomacy, Economics, Foreign invasion, GeoPolitics, Good news, History, India alert, Military, Neighbour conflict, peace keeping, Politics, Territorial dispute | Leave a Comment »

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20/10/2013

Julie Bishop supports Japan on defence | The Australian

FOREIGN Minister Julie Bishop threw Australia’s support behind Japan’s attempts to shift its military to a more “normal” defence posture in a speech in Tokyo yesterday.

Australia\’s backing for Japan’s proposed move away from a purely defensive military runs the risk of sparking resentment in China, which retains deep suspicion of the hawkish Abe government’s motives for such changes.

Beijing has already complained about the US, Australia and Japan “ganging up” on it over territorial disputes and is likely to take a dim view of Tony Abbott nominating Japan as Australia’s “closest friend” in Asia.

Addressing the Japan National Press Club, Ms Bishop said Australia supported Japan being able to play a greater role in collective security missions with Australia or other allies.

“We look forward to Japan making a greater contribution to security in our region and beyond – including through our alliances with the United States,” she said. “We support Japan’s plan to work towards a more normal defence posture to help it play that greater role.”

Japan has a large and well-equipped military, with a powerful navy, but is heavily restricted in how it operates by the pacifist constitution drawn up with US input after the end of World War II.

Ms Bishop said she was aware of how closely regional powers were eyeing Japan\’s moves to change its defence posture, but said it needed greater flexibility to participate in joint operations.

“We work in partnership with Japan in many places around the world and it would be better for the region, Australia and the world for them to play a bigger role,\” told The Australian after the speech. “For example, Japan and Australia were working side by side in Afghanistan. If Australians were attacked, Japan would not have been able to support us, so that’s not normal.

“It seems sensible to allow Japan to respond more appropriately and in a more normal way to collective defence measures.”

As the Abbott government strives to conclude free trade agreements with Japan, China and Korea within 12 months, defence scholar Hugh White warned in an opinion piece that China might retaliate by withdrawing from FTA negotiations if Australia continued to embrace Japan with such fervour.

Ms Bishop did not agree with Dr White\’s view and said Australia could juggle relations with North Asia’s two great powers – and our largest trading partners – with a “deft” political touch.

“We value our relationship with China, we want to more broadly and deeply engage with China so it is not just seen through the prism of a resources and trading relationship, and that message is warmly received in Beijing,” she said.

via Julie Bishop supports Japan on defence | The Australian.

Posted in China alert, GeoPolitics, Neighbour conflict, Politics, Territorial dispute | 1 Comment »

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20/10/2013

Coalition tense on foreign buy-ups | The Australian

COALITION tensions are growing, with the Nationals expected to insist on a lowering of foreign investment thresholds as Liberals push for them to be used as a bargaining chip with China.

The Nationals partyroom meeting next Thursday is expected to endorse the lowering of the threshold for purchases of farmland from $248 million to $15m, before a Foreign Investment Review Board investigation is triggered. They will also continue to maintain their opposition to the foreign acquisition of GrainCorp.

The Nationals are expected to insist that any FTA deals struck open up agricultural opportunities for Australian primary producers and that the government avoids “carve outs” of contentious issues just to get a deal.

However, sources have told The Weekend Australian the Liberals are ultimately inclined to be \”much more flexible\” on the FIRB threshold issue.

The differences set up a potential flashpoint between the Coalition partners asTony Abbott pursues his free trade ambitions.

At the East Asia summit in Brunei this week, the Prime Minister set a “working target” of 12 months to sign free trade agreements with Australia‘s three biggest export markets — China, Japan and South Korea.

Victorian Liberal MP Dan Tehan said yesterday the government should consider putting the thresholds on the table during free trade negotiations with the Chinese, who want the $1 billion foreign investment threshold that was given to the US in its FTA with Australia.

“If the Chinese want us to lift those thresholds, then absolutely that should be part of the negotiation,” Mr Tehan said.

Mr Tehan, a former senior adviser to Howard government trade minister Mark Vaile, said this might give Australia negotiating leverage as it thrashed out the trade deal.

NSW Nationals senator John Williams made it clear the party would insist on the threshold reductions when it met next week.

via Coalition tense on foreign buy-ups | The Australian.

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20/10/2013

As China Workers Earn More, American Companies Shed Their Optimism – Forbes

It’s not that American multinationals don’t love China.  They do. But for different reasons now.  They like the growing middle class. They like the data on luxury spending and on car loving Chinese. What they don’t like is rising wages.

What brought them to China in the first place, cheap and abundant labor, is no longer the case. And that has American businessmen souring somewhat on China, according to the U.S. China Business Council (USCBC), a Washington DC-based lobby firm for American multinationals.

“Tempered optimism sums up corporate America’s view of the China business environment for the second year in a row,” said John Frisbee, president of the USCBC. While most respondents to the U.S. China Business Council’s annual survey said China remains among their company’s top five priorities, fewer respondents this year ranked China as their number one priority.

“For the second consecutive year, respondents suggested that companies’ optimism about the prospects for the market in the next five years has moderated,” Frisbee said in a statement Thursday. Rising costs for labor, lax intellectual property rights enforcement, competition with Chinese companies, and challenges with the licensing and business approval process continue to rank as the top issues of concern to foreign companies doing business in China. But the number one issue was the fact that Chinese workers are earning more than ever.

One company in the survey, which was not named, said that, “Costs, particularly in major metropolitan areas, are moving to a point that China is no longer world-competitive.”

Despite higher labor costs, more than 90% of survey respondents report that their China operations are profitable, the highest percentage reported since USCBC began surveying its membership.

But looking into their crystal ball shows a future China that’s radically different from its past. This is no longer a Happy Meal toy economy, and corporate investors know it.

The vast majority of respondents have expressed concern about rising costs since the question was first asked in 2007.

Only in 2009 as the global recession was at its height and wage pressures eased did that number dip below 80%. Human resources costs have consistently been the specific cost of most concern, reaching 92% in this year’s survey.

Top Ten China Concerns

1. Cost Increases

2. Competition with Chinese Companies in China

3. Administrative Licensing

4. Human Resources: Talent Recruitment and Retention

5. Intellectual Property Rights Enforcement

6. Uneven Enforcement/Implementation of Chinese Laws

7. Nondiscrimination/National Treatment

8. Transparency

9. Standards and Comformity Assessment

10. Foreign Investment Restrictions

In 2007, 88% of respondents were worried about rising labor costs, dropping to 70% in 2009.

via As China Workers Earn More, American Companies Shed Their Optimism – Forbes.

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20/10/2013

Six Wars China Is Sure to Fight In the Next 50 Years – StratRisks

We can only hope that the article below is a worst-case scenario that will not actually happen.

From: http://stratrisks.com/geostrat/15914

On July 8, 2013, the pro-PRC Chinese-language newspaper, Wenweipo, published an article titled “中國未來50年裡必打的六場戰爭 (Six Wars China Is Sure to Fight In the Next 50 Years)”.

The anticipated six wars are all irredentist in purpose — the reclaiming of what Chinese believe to be national territories lost since Imperial China was defeated by the Brits in the Opium War of 1840-42. That defeat, in the view of Chinese nationalists, began China’s “Hundred Years of Humiliation.” (See Maria Hsia Chang,Return of the Dragon: China’s Wounded Nationalism. Westview, 2001.

Below is the English translation of the article, from a Hong Kong blog, Midnight Express 2046. (The year 2046 is an allusion to what this blog believes will be the last year of Beijing’s “One County, Two Systems” formula for ruling Hong Kong, and “the last year of brilliance of Hong Kong.”)

Midnight Express 2046 (ME2046) believes this article “is quite a good portrait of modern Chinese imperialism.” What ME2046 omits are:

  • the original Chinese-language article identifies the source of the article as 中新網 (ChinaNews.com).
  • The Chinese-language title of the article includes the word bi (必), which means “must” or “necessarily” or “surely.” That is why  the word “sure” in the English-language title of the article.

PLAN

THE SIX WARS [SURE] TO BE FOUGHT BY CHINA IN THE COMING 50 YEARS

China is not yet a unified great power. This is a humiliation to the Chinese people, a shame to the children of the Yellow Emperor. For the sake of national unification and dignity, China has to fight six wars in the coming fifty years. Some are regional wars; the others may be total wars. No matter what is the nature, each one of them is inevitable for Chinese unification.

THE 1ST WAR: UNIFICATION OF TAIWAN (YEAR 2020 TO 2025)

Though we are enjoying peace on the two sides of the Taiwan Strait, we should not daydream a resolution of peaceful unification from Taiwan administration (no matter it is Chinese Nationalist Party or Democratic Progressive Party). Peaceful unification does not fit their interests while running for elections. Their stance is therefore to keep to status quo (which is favourable to the both parties, each of them can get more bargaining chips) For Taiwan, “independence” is just a mouth talk than a formal declaration, while “unification” is just an issue for negotiation than for real action. The current situation of Taiwan is the source of anxiety to China, since everyone can take the chance to bargain more from China.

China must work out a strategy to unify Taiwan within the next ten years, that is, by 2020.

…

THE 2ND WAR: “RECONQUEST” OF SPRATLY ISLANDS (YEAR 2025 TO 2030)

After unification of Taiwan, China will take a rest for two years. During the period of recovery, China will send the ultimatum to countries surrounding the Islands with the deadline of 2028. The countries having disputes on the sovereignty of Islands can negotiate with China on preserving their shares of investments in these Islands by giving up their territorial claims. If not, once China declares war on them, their investments and economic benefits will be taken over by China.

At this moment, the South East Asian countries are already shivering with Chinese military unification of Taiwan.

…

THE 3RD WAR: “RECONQUEST” OF SOUTHERN TIBET (YEAR 2035 TO 2040)

China and India share a long border, but the only sparking point of conflicts between the two countries is only the part of Southern Tibet. China has long been the imaginary enemy of India. The military objective of India is to surpass China. India aims to achieve this by self-development and importing advanced military technologies and weapons from the U.S, Russia and Europe, chasing closely to China in its economic and military development.

In India, the official and media attitude is more friendly towards the U.S, Russia and Europe, and is repellent or even hostile against China. This leads to unresolvable conflicts with China. On the other hand, India values itself highly with the aids from the U.S, Russia and Europe, thinking it can beat China in wars. This is also the reason of long lasting land disputes.

In my opinion, the best strategy for China is to incite the disintegration of India. By dividing into several countries, India will have no power to cope with China.

…

THE 4TH WAR: “RECONQUEST” OF DIAOYU ISLAND [SENKAKU] AND RYUKYU ISLANDS (YEAR 2040 TO 2045)

In the mid-21st century, China emerges as the real world power, accompanied with the decline of Japan and Russia, stagnant U.S. and India and the rise of Central Europe. That will be the best time for China to take back Diaoyu Island and Ryukyu Islands. The map below is the contrast between ancient and recent Diaoyu Island and Ryukyu Islands (map omitted).

From the historical records of Chinese, Ryukyu and other countries (including Japan), Ryukyu has long been the vassal states of China since ancient times, which means the islands are the lands of China.

…

THE 5TH WAR: UNIFICATION OF OUTER MONGOLIA (YEAR 2045 TO 2050)

Though there are advocates for reunification of Outer Mongolia at the moment, is this idea realistic? Those unrealistic guys in China are just fooling themselves and making a mistake in strategic thinking. This is just no good to the great work of unification of Outer Mongolia.

China should also pick the groups advocating the unification, aiding them to take over key posts in their government, and to proclaim Outer Mongolia as the core interests of China upon the settlement of Southern Tibet issue by 2040.

…

THE 6TH WAR: TAKING BACK OF LANDS LOST TO RUSSIA (YEAR 2055 TO 2060)

The current Sino-Russian relationship seems to be a good one, which is actually a result of no better choice facing the U.S. In reality, the two countries are meticulously monitoring the each other. Russia fears the rise of China threaten its power; while China never forgets the lands lost to Russia. When the chance comes, China will take back the lands lost.

When the Chinese army deprives the Russians’ ability to counter strike, they will come to realize that they can no longer match China in the battlefield.

…

Posted in China alert, Defence, Ethnic clash, Foreign invasion, GeoPolitics, History, Military, Neighbour conflict, PLA, Politics, Taiwan, Territorial dispute, war | 2 Comments »

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20/10/2013

China Got Into Bed With the U.S. Treasury and Can’t Get Out – Time

The good news is that the mutual economic interdependence between China and America means that any chance of real conflict in the foreseeable future is a remote possibility.

From: http://business.time.com/2013/10/15/china-got-into-bed-with-the-u-s-treasury-and-cant-get-out/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+time%2Fbusiness+%28TIME%3A+Top+Business+Stories%29%22

“The Chinese sure are doing a lot of worrying these days about the stalemate in Washington. Li Keqiang, China’s Premier, told U.S. Secretary of State John Kerry that he was watching the tussle over raising the government’s debt ceiling with “great attention” in a meeting last week. He has good reason to be concerned. With a stash of nearly $1.3 trillion in Treasury securities, China is the world’s largest foreign owner of U.S. government debt. If U.S. Congress fails to lift the ceiling to allow the government to borrow more by Thursday, Washington may not have enough money to pay its bills, potentially leading to a default. That could sink the value of Treasuries — wiping out a big chunk of Chinese wealth in the process.

Chinese President Xi Jinping looks up as he and U.S. President Barack Obama speak to reporters in California

That possibility has caused much consternation in China. In a blistering (and highly hypocritical) editorial, state news agency Xinhua blasted what it sees as Washington’s irresponsibility in handling global affairs and called for greater say for developing nations in international institutions like the IMF and a new reserve currency to replace the dollar.

“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” the commentary recommended. “Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated, and a new world order should be put in place.”

…

Among the Chinese public, the stalemate in Washington has caused confusion and ire. Why, some Chinese are asking, have our leaders invested so much of the country’s money in a government that seems so dysfunctional? “Bought so much [American debt], now you are under the control of others,” went one typical comment posted on microblogging site Sina Weibo. “We should find out who made this decision and let him take the responsibility.”

The Chinese can blame themselves. Since the earliest days of Chinese economic reform, policies that the government has employed to create growth and exports have also made it dependent on debt issued by the U.S. Treasury. Those policies have generated huge current-account surpluses and gargantuan reserves of foreign currency that have left Beijing no other option but to invest in the U.S.

Chinese policy has generally pushed exports while discouraging imports. By controlling the value of its currency, the renminbi (RMB), to promote exports, China hasn’t allowed its exchange rate to adjust to shifts in trade in a way that would bring balance. Economist Huang Yiping once proffered that policies that reduce prices of land, energy and other costs of production also subsidize exports, and thus contribute to surpluses. Meanwhile, the government’s regulation of interest rates has favored investment and punished savers, suppressing domestic consumption.

The current-account surpluses China has notched over the years have resulted in a vault full of foreign-currency reserves — a staggering $3.66 trillion at last count. Though China’s surpluses have been declining (relative to GDP), the country is still adding to this mountain of foreign currency. In the third quarter, China’s foreign-exchange reserves jumped by the largest amount in more than two years.

…

To many, this ocean of foreign currency shows China’s economic strength, but at the same time, it is also a financial burden. Chinese policymakers simply don’t have many options when managing these giant reserves, and that has forced them to gorge on Treasuries. The U.S.-government-bond market is deep, liquid and reliable — the perfect (and, arguably, only) place to park all those greenbacks. Sure, the Chinese can switch some of their dollars into other currencies, but there is a limit to that strategy. Dumping the dollar would depress its value, eroding China’s own holdings. The only way for China to wean itself off its Treasury habit is to change its entire economic system.

That, though, is happening slowly. One strategy China is pursuing to lessen its dollar dependence is by promoting its own currency as an alternative to the greenback in global trade and finance. The government has had some success. The European Central Bank and China’s central bank recently agreed to a large swap of their currencies. And according to a recent survey from the Bank for International Settlements, the RMB entered the list of top 10 most traded currencies for the first time. Yet in order for the RMB to become a true rival to the dollar, China has to undertake far more reform.

The RMB isn’t fully convertible, nor does it trade freely around the world like the dollar, euro or yen. China is taking stabs at the sort of financial liberalization that would give the RMB an international boost — experimenting with freer capital flows in a new zone in Shanghai, for instance — but those steps are tentative at best. The Chinese government is still reluctant to throw open its financial sector and loosen capital flows and currency trading in a way that would turn the RMB into a solid reserve currency like the dollar.

“China’s policymakers remain deeply uncomfortable with allowing market forces a say in determining the exchange rate at times of uncertainty,” research firm Capital Economics said in a report on Monday. “Policymakers still see opening of capital controls as an important goal. But their actions underline that it remains a long way off.”

What this all means is that China and the U.S. Treasury remain locked in an embrace from which it is very hard for Beijing to escape. What it will take is extensive reform to China’s own economy that so far Beijing has been reluctant to undertake. So Beijing can call for a “de-Americanized world” all it wants. China is not ready to take America’s place.”

Posted in China alert, debt, deficit, economic inter-dependence, Economics, Reserve currency | Leave a Comment »

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