Chinese premier Wen warns of `disaster’ in rapid appreciation of the Yuan

[GoFlyKiteNow]

Chinese premier Wen warns of `disaster’ in rapid appreciation of the Yuan
Bloomberg News
Thursday, October 07, 2010
----
Clearest indication as yet - China desperately needs export markets for survival, despite all the hype of it stimulating its internal economy with
its 'massive reserves' and huge market of 1.4 billion population etc
----

Chinese Premier Wen Jiabao said a rapid increase of the yuan would hobble China’s economy, dealing a fresh rebuke to U.S. and European calls for a higher exchange rate.

Wen said China will stick to its policy of gradually increasing the currency’s flexibility and faulted European leaders for teaming with the U.S. to pressure the Chinese government.

“If the yuan isn’t stable, it will bring disaster to China,” Wen told a business conference before a Europe- China summit in Brussels later today. “If we increase the yuan by 20 percent-40 percent as some people are calling for, many of our factories will shut down and society will be in turmoil. ”

Wen meets later today with European Union officials including European Commission President Jose Barroso, who told the conference that China needs an “orderly and broad-based appreciation” of the currency.

 

[silliporean]

If the Yuan spikes up to 40%. It will mean that all countries which is dependent on the Chinese factories for their production will see a sharp increase of their products.

The increased in production cost will see a sharp spike in consumer goods in their own country, wiping out their profits overnight if the dont hike prices and if they do hike consumers will have to bear the cost.

With a sharp spike in consumer products, consumers will spend even lesser than they already have in the diseased economy hence many of their retail business will also fold up.

US politicians always talk without responsibility and their actions without consequences to their personal selves - look at the wars and conflicts that they were in, especially the latest one.

My take is, China spikes the yuan, the world as well as China is screwed wholesale.

 

[longbow]

GFK - if you were to hit any country with a 40% appreciation or depreciation of their currency overnightm you will see adverse impact.

Of course I exclude countries with insignificant manufacturing base - resource exporter or agrarian based economy.

Fact remains that China is now Japan's largest export market. Even if you jack up Yuan by 40% they will still have to make much of the higher value added electronics in China. Not many countries now can make high quality items like iphone, ipod except for China.

China now cares less about cost competitiveness of Yuan which is why they even raised the min wages for workers. After all they have the supply chain and the market! However, they are sensitive to being told what to do with their currency.

Take a look at India China trade. India is a really cheap labor force since they have a much larger percentage of people living on less than $2 a day.

But India is running a trade deficit with China because it has weak mfg base (why? since its labor is so cheap?) and they are exporting resources - food, iron ore and importing value added. It has got to do with supply chain, good infrastructure, huge domestic market, mfg infrastructure etc etc etc.




18 Feb, 2010, 02.55AM IST, Amiti Sen,ET Bureau
Growing Trade Deficit: India keeping close watch on China, mulls steps
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Read more on »trade deficit|new delhi|india|china|anand sharmaNEW DELHI: The government is closely monitoring the Chinese response to its concerns over the widening trade gap, which is expected to cross $20 billion in the current financial year. If the northern neighbour fails to take adequate steps in the next few months to reduce the deficit and move towards a more balanced trade ties, India would take retaliatory measures, a senior government official said.

“Our embassy in Beijing is watching the developments in China and has been asked to give us regular reports,” he said, requesting anonymity. India had asked Chinese government last month to address its concerns. While the official refused to list the retaliatory steps the government might consider, analysts say various restrictions could be imposed on imports from China.

Last year, India’s exports to China stood at $ 11 billion while China’s exports to India was in excess of $27 billion. India had handed a demarche—a formal diplomatic representation of the official position, views, or wishes on a given subject from one government to another—to China during commerce minister Anand Sharma’s visit to that country last month.

The country has proposed a number of measures for increasing its exports to China such as the removal of tariff and non-tariff barriers restricting import of power plant equipment from India and removal of restrictions on imports of basmati rice, fruits and vegetables.

It also sought higher imports of IT/ITES services from India, landing rights for Indian TV channels in China, and import of more Indian films. Removal of procedural bottlenecks including time-consuming licensing procedures being faced by Indian drugs and pharmaceuticals is also high on India’s wishlist.

“We have to see how many of these suggestions are accepted. The whole point is that the steps taken should bridge the trade deficit ,” said the official quoted earlier. During his meeting with commerce minister Anand Sharma last month, Chinese Premier had recognised India’s concerns and assured that both countries would work together to ensure a more balanced trade between the two countries.

 

[Ramseth]

If China spikes RMB by 40% up, perhaps correspondingly 40% of PRC workers in Singapore would return to China unless MAS also match the spike with SGD.

 

[GoFlyKiteNow]

GFK - if you were to hit any country with a 40% appreciation or depreciation of their currency overnightm you will see adverse impact.

Of course I exclude countries with insignificant manufacturing base - resource exporter or agrarian based economy.

Fact remains that China is now Japan's largest export market. Even if you jack up Yuan by 40% they will still have to make much of the higher value added electronics in China. Not many countries now can make high quality items like iphone, ipod except for China.

There is this public perception that sees economies are judged by
the price of visible products like cheap consumables and electronic
devices like fone accessories and what not.

But the real economic clout lies not there. But in high value items
in the oil industry, power generation equipments, high power
transmission units, scientific and analytical items, nuclear reactors
and its automation systems, process control systems, airliners,
aircraft engines etc.

These are the real big ticket items and only nations like USA, UK,
Germany, Japan have the capabilities to make them. They do not need
cheap competitive labor for this. In fact it is the exclusive area of these
nations.

Cheap electronic goods , textiles, plastic products, footwear, kid toys
are just that. Non critical and within the capabilities of many nations like Vietnam,
Indonesia, India, Mexico, Thailand and China. They are all high volume, low value,
high labor intensive, low tech products, to put it mildly.
And the world will not grind to a halt due to they being made in other
nations other than China. This is a cold fact.

China now cares less about cost competitiveness of Yuan which is why they even raised the min wages for workers. After all they have the supply chain and the market! However, they are sensitive to being told what to do with their currency.

But premier Wen has openly stated there will be disaster if the PRC
currency is re-valued. It shows they care a lot about outside global
export market for their goods.

Take a look at India China trade. India is a really cheap labor force since they have a much larger percentage of people living on less than $2 a day.

But India is running a trade deficit with China because it has weak mfg base (why? since its labor is so cheap?) and they are exporting resources - food, iron ore and importing value added. It has got to do with supply chain, good infrastructure, huge domestic market, mfg infrastructure etc etc etc.

India made a deliberate choice not to go in for such mass production
industries that rely on high volume low margin export strategy.
The price of environmental damage and pollution is horrendous and the clearest
example of that is in China. secondly India cannot drive out people
from villages and their homes like communist China to make way for
rapid industrial and commercial development at the behest of the
party bosses. The entire world is aware of the China's forced eviction
methods on its people. There are 10s of thousands of such cases
every year. Besides the workers - migrant workers mostly have no such
minimum wages as in the organized sector.

Al Jazeera news ran a story 4 days ago, where workers in a large
contract manufacturing company in China were getting 1 dollar a day for
12 hour / day work. The workers cannot even open their mouth to
demand more. They are branded as trouble makers and the police
take care of them ..besides for every single 'trouble maker' there are
100s waiting to take over their place.

But the world dont care as long as the people who get hit are in China and
the environment that is damaged is within China.

Now take the other Indian success story. Its economy is growing at 9.5 %,
its software industry is in the high end spectrum of services sector,
and produces export income with less than 10% of energy and material
consumption that China need to earn similar income from its
manufactured goods exports. with the added bonus of minimal
pollution.


.

I do not see how you can simply close your eyes to the massive
damage to the environment that China endures and just
go by the visible sights of shiny facades of buildings in shanghai,
the large number of automobiles etc as as a true indicator
of a nation's broad based growth and social political development.

GDP figures is not a true indicator and year to year economic data
is nothing worth talking about in a national perspective
of a country. It is good for accountant economists. Thats all.
Just a mere talking point.

 

[longbow]

It is all politics. The reason why we see this testy relationship is because, overnight the G8 nations now have an 800 lbs gorilla in the room. One that is fully plugged into the global economy.

When you hold close to 1 Trillion in US Treasuries, when you are the fastest growing market from Mercedes to Versace to French wine and Martell XO to Rolex and Patek Phillippe to Airbus jets you have huge sway.

So I am interested in how this plays out.

 

[Ash007]

The point about India is pretty interesting. I'm not sure if India still believes it can "by-pass" the manufacturing stage in its economy. There was a time when every IT firm in the west outsourced their stuff to India and created companies like Satyam, WiPro etc. India then, believed they could skip being a manufacturing power base and went into providing IT/banking services. This has the effects that only the educated, meaning the upper, middle, class could join in the economic growth of India. China, on the other hand, is worried that if everyone doesn't have a job, there would be chaos in the country. Hence, the approach of opening up as many factories as possible in the country.

India made a deliberate choice not to go in for such mass production
industries that rely on high volume low margin export strategy.
The price of environmental damage and pollution is horrendous and the clearest
example of that is in China. secondly India cannot drive out people
from villages and their homes like communist China to make way for
rapid industrial and commercial development at the behest of the
party bosses. The entire world is aware of the China's forced eviction
methods on its people. There are 10s of thousands of such cases
every year. Besides the workers - migrant workers mostly have no such
minimum wages as in the organized sector.

 

[Cestbon]

Ask China to sell all US reserved before jack up the RMB value. That will teach US a lesson.
If China jack up RMB value before selling US bond them they are in trouble.

 

[Pek Kim Lui]

Ask China to sell all US reserved before jack up the RMB value. That will teach US a lesson.
If China jack up RMB value before selling US bond them they are in trouble.

Actually that is basically it. The US is asking China to discount their debts.

 

[Cestbon]

Actually that is basically it. The US is asking China to discount their debts.

That China taxpayer sweat money. Loan $1k pay back $800 at 20% discount. No banker/Ah long will ever accept that offer unless bankrupt.

 

[silliporean]

The Chinks aint dumb this time round they will hold on to the Treasury Bonds tightly and make sure the sovereign Government makes good of their sovereign debt.

During the first 2 world wars, China have deposited trillions into US and other sovereign bonds and they simply used war as an excuse to right off most of it.

If China start dumping bonds, its Armageddon literally. it will render the entire monetary system useless....so the predictions of the end of the world that starts with the monetary system failure would seem to be closer than we thought it to be ha haahaa

 

[GoFlyKiteNow]

It is all politics. The reason why we see this testy relationship is because, overnight the G8 nations now have an 800 lbs gorilla in the room. One that is fully plugged into the global economy.

When you hold close to 1 Trillion in US Treasuries, when you are the fastest growing market from Mercedes to Versace to French wine and Martell XO to Rolex and Patek Phillippe to Airbus jets you have huge sway.

So I am interested in how this plays out.

The world has heard about this TRILLION DOLLAR reserves, hundreds of times, if not more. what does it all mean ?

Not much I guess. To give you an idea.... Take Blackstone, the hedge fund investment company in USA. It manages a portfolio of 2 Trillion dollars.

Or take Japan Post Bank.
It has over 3 Trillion dollars in deposits.

Just two examples to illustrate the point I am making.

 

[silverfox@]

1st disaster is US. They keep printing free money, bailing out companies, if US crumbles, see who is going to bail them out.

 

[GoFlyKiteNow]

The point about India is pretty interesting. I'm not sure if India still believes it can "by-pass" the manufacturing stage in its economy. There was a time when every IT firm in the west outsourced their stuff to India and created companies like Satyam, WiPro etc. India then, believed they could skip being a manufacturing power base and went into providing IT/banking services. This has the effects that only the educated, meaning the upper, middle, class could join in the economic growth of India. China, on the other hand, is worried that if everyone doesn't have a job, there would be chaos in the country. Hence, the approach of opening up as many factories as possible in the country.

Not that simple as you put it. The economic growth in India is
based on the concept of " all inclusive growth ".
It has to be. There is no other alternative.

Why ?. It is an established democracy and the compelling issue of the
votes at the elections will force all governments to adopt the All inclusive growth or be thrown out by the people.

The job situation in India is quite dynamic with jobs easy to come by.
The wages have risen by over 100 % in 5 years. Economic opportunities
are not at all restricted to the well educated or well placed.
It is broad based.

Even MNCs are big employers. Just Cisco and IBM, between
them, they have a workforce of over 250,000 staff. Not all
of these are in high echelon job segments.

But all these econ data are not what matters really.

The intangibles , the maturity of pluralistic political systems,
the various institutions that regulate and instill order
via check and balances that have over the years set the
established traditions of acceptance and compliance from
the people, are all inter players that invariably set the economic
tone and agenda to be enduring and steady.

These intangibles taking firm root over time,,that's what matters.

 

[Cestbon]

The world has heard about this TRILLION DOLLAR reserves, hundreds of times, if not more. what does it all mean ?

Not much I guess. To give you an idea.... Take Blackstone, the hedge fund investment company in USA. It manages a portfolio of 2 Trillion dollars.

Or take Japan Post Bank.
It has over 3 Trillion dollars in deposits.

Just two examples to illustrate the point I am making.

If take US$1 trillion out of US in few month time. US economy will collapse.
US just playing time and blame others for under value currency. If US think their US$ is overvalue compare to China RMB. US can play the same game by under value their currency. Why they don't do it?
Is not the currency problem. Just that on average US worker work less than 40hr/week and salary 10 times higher than China.
In China on average worker clock 60hr/week. at the cheaper salary. In long term that will make huge different.
Even RMB up value by 20% the problem will still remain the same.
The US and EU just need to work harder/longer at the lower salary. But they reluctant.
Now China industry have making big improvement on quality. In technology such as train are faster and cheaper than Japan. In 10 year the quality maybe par but the price are half. All is price if willing to pay the China higher manufacturing cost they can produce higher quality. So many high quality product also come from China eg. Iphone selling like hot cake, train even US also consider buy from them compare o Japan/EU.
US and EU are in the road of no where. Only Germany can survive because their product are the 1st class quality pay for the quality.

 

[Zombie]

The world has heard about this TRILLION DOLLAR reserves, hundreds of times, if not more. what does it all mean ?

Not much I guess. To give you an idea.... Take Blackstone, the hedge fund investment company in USA. It manages a portfolio of 2 Trillion dollars.

Or take Japan Post Bank.
It has over 3 Trillion dollars in deposits.

Just two examples to illustrate the point I am making.

Owning a debt and managing a debt/deposit, are two different things.

 

[theDoors]

Chinese premier Wen warns of `disaster’ in rapid appreciation of the Yuan
Bloomberg News
Thursday, October 07, 2010
----
Clearest indication as yet - China desperately needs export markets for survival, despite all the hype of it stimulating its internal economy with
its 'massive reserves' and huge market of 1.4 billion population etc
----

Chinese Premier Wen Jiabao said a rapid increase of the yuan would hobble China’s economy, dealing a fresh rebuke to U.S. and European calls for a higher exchange rate.

Wen said China will stick to its policy of gradually increasing the currency’s flexibility and faulted European leaders for teaming with the U.S. to pressure the Chinese government.

“If the yuan isn’t stable, it will bring disaster to China,” Wen told a business conference before a Europe- China summit in Brussels later today. “If we increase the yuan by 20 percent-40 percent as some people are calling for, many of our factories will shut down and society will be in turmoil. ”

Wen meets later today with European Union officials including European Commission President Jose Barroso, who told the conference that China needs an “orderly and broad-based appreciation” of the currency.

US wants Chinese to appreciate the RMB to kill the economy, so as to caused mass unemployment, creating the conditions for social uprising.

 

[theDoors]

Actually the Chinese has sufficient critical mass to create a self contained market to consume their own produce. If the wages of the Chinese is raised substantially, they would have enough buying power to consume the Chinese manufactured goods.

The thing is, the CCP doesn't want to raise the standard of living of the general Chinese peasant/worker.