Sunday, October 25, 2009

China Blue

Chinese always fearful to its neighboring counties. After all the Art of War written by Chinese scholar which familiar to modern time. Centuries China dominated some of their neighbors. So inevitably its influence all most every aspect of these countries; culture and political systems, etc… Today, the world watches the Chinese growth bit of fearful and bit of greediness. After all it is like an ugly wife you have to marry because of the hefty dowry and her formable family background. That is Ok you get the money she could get handsome husband, but the problems begins when the ugly-hefty -dowry wife become possessive and unseemly demand you -
like this kind of thing happens - and not let you keep beautiful mistress you are in doomed? How could you sleep that ugly face wife all your life! So you are stuck. As your folly starts, you become a fuel fended desired-not husband and hoping she releases you from her forsaken love. But as you see you she won’t let you go because you are very appealing attractive even if you are bit ailing but you have a huge potential so no sign of she let you go. Whether you like it or not you are stuck so you have to make peace with yourself. But don’t be afraid of her nasty overpowering presence in your mind, as there is always weakness, may be you are really evil genius you could make her a zombie remember that that is the another hope or make her own cage and her own undoing - the marrage made in a heaven!

Here is the wizs’ belly-punching suggestions are:

Krugman says in his NY Time article
Until around 2001, you could argue that it was: China’s overall trade position wasn’t too far out of balance. From then onward, however, the policy of keeping the yuan-dollar rate fixed came to look increasingly bizarre. First of all, the dollar slid in value, especially against the euro, so that by keeping the yuan/dollar rate fixed, Chinese officials were, in effect, devaluing their currency against everyone else’s. Meanwhile, productivity in China’s export industries soared; combined with the de facto devaluation, this made Chinese goods extremely cheap on world markets.

The result was a huge Chinese trade surplus. If supply and demand had been allowed to prevail, the value of China’s currency would have risen sharply. But Chinese authorities didn’t let it rise. They kept it down by selling vast quantities of the currency, acquiring in return an enormous hoard of foreign assets, mostly in dollars, currently worth about $2.1 trillion.
In fact, some countries, most notably Switzerland, have been trying to support their economies by selling their own currencies on the foreign exchange market. The United States, mainly for diplomatic reasons, can’t do this; but if the Chinese decide to do it on our behalf, we should send them a thank-you note.
Also his blog mentioned this problems

The Economist also says,
China, far more than an economically challenged America, is roiled by social tensions. Protests are on the rise, corruption is rampant, crime is surging. The leadership is fearful of its own citizens. Mr Obama is dealing with a China that is at risk of overestimating its strength relative to America’s. Its frailties—social, political and economic—could eventually imperil both its own stability and its dealings with the outside world.

the Rogoff Article (via Mankiw) says
Any real change in the near term must come from China, which increasingly has the most to lose from a dollar debacle. So far, China has looked to external markets so that exporters can achieve the economies of scale needed to improve quality and move up the value chain. But there is no reason in principle that Chinese planners cannot follow the same model in reorienting the economy to a more domestic-demand-led growth strategy.

Yes, China needs to strengthen its social safety net and to deepen domestic capital markets before consumption can take off. But, with consumption accounting for 35% of national income (compared to 70% in the US!), there is vast room to grow.

Chinese leaders clearly realize that their hoard of T-Bills is a problem. Otherwise, they would not be calling so publicly for the International Monetary Fund to advance an alternative to the dollar as a global currency.

They are right to worry. A dollar crisis is not around the corner, but it is certainly a huge risk over the next five to 10 years. China does not want to be left holding a $4 trillion bag when it happens. It is up to China to take the lead on the post-Pittsburgh agenda.