Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

The Conundrum that is China

Economics / China Economy Apr 24, 2007 - 10:16 AM GMT

By: Paul_Petillo

Economics

There are currently two undeniable truths in this new global marketplace: The US will buy what it wants with borrowed money and the Chinese have so far enabled that buying spree by loaning us the cash.

China has become an economic enigma. Growth in the country is running over 11% and inflation, now at 3.3%, slightly over what China considers reasonable, is beginning to increase much to the dismay of the Communist government.


Concerns over what can be done have left many investors wondering what Chinese officials will do. Investors who believe that an economy needs to grow but disagree on how much growth this good worry that any shifts in Chinese economic policy will ripple around the world. Investors in China sent their exchange tumbling over 4% recently when the government targeted borrowing excesses.

Bad Posture

The United States left with fewer options as its own economic growth slows, has chosen our trade deficit with China as the line in the sand. With dissatisfaction expressed as strongly as they dare, the Department of Commerce decided that imported “coated free” paper was as good a place to begin a revised stance.

This paper product generates slightly more that $224 million in sales here in the US . Hoping that this would allow manufacturing in this country the opportunity to begin to chisel away at the $763.6 billion deficit, the DOC chose this industry suggesting that Chinese government subsidies allow exporters to sell the paper well below costs.

The DOC is focusing solely on unprinted materials and to put that item in better perspective, it makes up only 0.0002% of that total trade deficit.

The US has threatened to use countervailing duties. Described by the World Trade Organization as the result of an investigation that accuses a country of subsidizing an industry to keep competition at bay, this action creates several problems for China .

China would like to achieve a growth rate close to 8%. Yet government officials worry that the state of social stability hangs in the balance should growth slow significantly. The cascading effect of slow growth would increase the value of Yuan, which would increase the value of imported goods while making those cherished exports more competitively priced.

Yet by comparison, we seem equally as vulnerable. With our most willing lender using strongly worded rebuttals such as “deep regret”, the enthusiasm of U.S. Commerce Secretary Carlos Gutierrez over this US action should be somewhat tempered. It is widely predicted that the US will be dealing with a slowdown of its own over the next two years and in no position to cry foul.

Fair Trade

This week, the Canton Import and Export Fair opened in Canton . As businesses from around China gather to this yearly event to display their wares to foreign buyers, they seem little concerned about the trade stance the US is making.

Barriers to trade have been tumbling worldwide creating new markets for Chinese goods. Prosperity in developing countries and largely unrestricted trade policies across Europe (except when it comes to shoes) has given the attendees at the fair the ability to predict expanded growth in exports to continue.

While the US deficit has grown to record levels, exports to this country have fallen steadily from the 2000 high of 31%. Six years later, that number is now 22.7% as China expands its list of customers beyond the American consumer.

Perhaps a better representation of just how far apart these two nations are when it comes to exports lies in the output numbers. China exports 10% of its output to the US . We export 0.2% of our products to China .

The Orderly Fall of the Dollar

As hard as he has tried, Treasury Secretary Henry Paulson has failed at every attempt to get the Chinese to allow their currency to float. The importance of the Yuan, which has appreciated against the dollar a total of 7%, has had little impact in these trade issues. A strengthening Euro has made Chinese exports, which have become cheaper as that currency has risen, has given the Chinese a new and freer market.

Less than five years ago, the specter of a declining US economy would have given the Chinese a reason for caution. No more. The European economy seems to be adjusting to the US slowdown even as it contemplates another interest rate increase.

Inflation on a global scale may be inevitable. While Ben Bernanke, the Federal Reserve Chief has suggested that inflation will be fought with his favorite counterbalance, rate increases, it may now require an international effort. That will become an increasingly difficult sell to countries that have never experienced this type of prosperity.

The Hand the Feeds

The one fact remains, China loans us the capital we use to keep our economy humming. Harder language could jeopardize any future growth here at home while having little effect on our lender of choice.

China has been responsible for purchasing a third of the bonds issued by the government. There has been speculation that a sudden dissatisfaction with US trade policies could trigger a sell-off of the $990 billion in bonds currently held by the Chinese. While it is possible, it is also unlikely.

What is likely although may be just as problematic. Should the Chinese stop buying Treasury bonds, rates here in the US would increase dramatically which would have the cascading effect of slowing the economy and dampening the desire for Chinese imports. The US is betting against such risks.

Internally, China has attempted to slow its economy by restricting loans that are not government approved. A recent edict aimed at local government spending for building has emphasized a return to the austere suggesting any future projects be “stately, frugal, functional, and resource-efficient”.

Increases in the reserve limits that Chinese banks must have before lending will also slow growth. Allowing the Yuan to appreciate would have the net effect of slowing the growth rate of the Chinese economy. But the fix would only be temporary.

The US would do well to tread cautiously while heeding an old Chinese curse that suggests: “May you live in interesting times”.

By Paul Petillo
Managing Editor
http://bluecollardollar.com

Paul Petillo is the Managing Editor of the http://bluecollardollar.com and the author of several books on personal finance including "Building Wealth in a Paycheck-to-Paycheck World" (McGraw-Hill 2004) and "Investing for the Utterly Confused (McGraw-Hill 2007). He can be reached for comment via: editor@bluecollardollar.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules