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The Chinese Slowdown
The Smart Money Wants out of China
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  • Dhako

    This is a fiction of the FT, really. And they have no idea what China is planning to do this with this new overseas investment restrictions, as I have written for them against their ill-judge editorial pertaining to this same issue, and here it is.

    “……Once again, it seems as if FT have decided to give another go at scratching its perennial “Neo-liberalism” itch. And by that I mean, it’s an article of faith for the FT to see any sense of state-led national economy as the worst of all possible world. Even, if history can show how that such a nationally-directed economy has been a God’s send to the likes of China and its development. And that is so, if you contrast China, (at least since early 1980s) to the likes of the UK and US economies, which in turn cleaved very closely to the orthodoxies of certain Milton Friedman and the rest of the Neo-Liberalism. And now, of course, these two particular nations are now harvesting the socio-political outcome of those Neo-Liberal orthodoxies, in the form of Brexit and Trump’s presidency, while in turn China goes from strength to strength.

    So, in the ledger of history, or the greater scheme of things, I would rather trust the Chinese’s economical model (even with high-national debt, which is internal debt, in any case) than the one in which Anglo-Saxon have been selling themselves to ever since Reagan and Thatcher came to the scene in Washington and London, respectively.

    As for the outbound Chinese’s FDI, the thinking is largely to do with the political reality prevailing in the Western’s world, given the fact that the Chinese leadership can see the “protectionist wind” blowing the political corridors in the Western’s world. Hence it’s a way of lessening the political back-clash such a ostentatious investment from China is likely to prove in the short-term. Secondly, the Chinese state wants to lead the direction of those investment, since it has been notice that many of the FDIs from China in recent years seems to have taken the whiff of investment for investment sake, without anyone paying attention to the underlying strategical rationale of those investments.

    Hence, President Xi, seems to have came to conclusion that State council (i.e., the Cabinet) needs a clear indication of what is expected from Chinese FDIs, given the fact the current “vague exhortations” of Premier Li Keqiang (who is responsible for this issue) hasn’t been clear enough for the various layers of the Chinese state. Incidentally, this lack of vigor on the part of the sitting Premier Mr Li Keqiang and his cabinet is one of the reason (among many) he will not be returning for 5 more years in his post (i.e., 2017 – 2022) when the second term of President Xi starts next year (2017 – 2022), which means, he will probably retire from active politics, and he will probably concentrate to write his memoirs in the leisure of retirement.

    And, lastly, the reason this issue was also elevated is that China is gearing up for major national investment in the “One Belt and one Road”(OBOR) and various regional investment in Asia-Pacific through Asia’s Infrastructure Investment Bank (AIIB). Hence the state (i.e., the government) needs to firm up its “leading role” in Chinese’s overseas investment through FDIs. Subsequently, the national strategy is to focus – like a laser – the direction of the FDIs, which at the moment has the whole-mark of “haphazard approach”.

    And, in that sense, it’s not some sort of “financial retrenchment” on the part of China, But rather it’s a way for the nation to ensure these Chinese’s FDIs into overseas markets give the “maximum strategical buck” for every dollar it invest in any where in the world. And in that sense the “emerging strategy” that will govern the investments will mostly be less concentrated in the western world and far more directed towards the emerging world, or at any rate, the developing world.

    This is what is going on. Not your silly bogus argument about what, allegedly, China is trying to do, which is far from the truth. But then again ever since the Nikkei outfit took over the old venerated FT, it seems your coverage in many areas around the world, and China in particular seems to have taken turn for the worse sort. In particularly towards the direction in which any kind of yellow and hackish journalism could be so proud of it to be found there. Lets hope that this is a blip “setback” on the radar for you chaps. And therefore in no time you will return your old self…..”



  • JR

    Good old Dhako. copying and pasting himself. That is pretty funny.

    • f1b0nacc1

      Hey, cut him some slack….his last check might have bounced

      • ltlee1

        Trump’s check would certainly bounce. His success, after all, is built on the pain of his creditors. Trump had declared bankruptcy multiple times, all legally. The burning question is whether a great country like the US should or could declare bankruptcy.

        • f1b0nacc1

          Back to your cubicle, and get your yuan….

          • ltlee1

            It is well known that those who invested on Trump had lost big. Read the following if you have no knowledge of it:
            “During a decade when other casinos here thrived, Mr. Trump’s lagged, posting huge losses year after year. Stock and bondholders lost more than $1.5 billion.
            All the while, Mr. Trump received copious amounts for himself, with the help of a compliant board. In one instance, The Times found, Mr. Trump pulled more than $1 million from his failing public company, describing the transaction in securities filings in ways that may have been
            illegal, according to legal experts. ”

            Now would you kindly tell me where and how I can get my yuan?

    • ltlee1

      Funny? As a matter of fact, China and Chinese workers are doing well and it will get better. Don’t have to believe me but try the following article which summaried a newly published McKinsey report: “Productivity-led growth could add additional $5 trillion to Chinese GDP.”

      In contrast, Fortune 500 corporations had stashed $2.4 trillion in various offshore tax havens. Results: US workers suffer.

      • Curious Mayhem

        No, they’re not. Many Chinese workers in the cities are there illegally, without residential permits, and suffer from high levels of corruption, pollution, and inflation. They’re starting to return to the rural towns, actually. China’s workforce and population are starting to decline. The CCP is just desperate to keep the bubble going, to enrich the party elite and stem social unrest.

        China’s growth numbers have been doctored for a long time. Its actual growth rate now is probably 2-3%, not 6-7%, to look at the export-import figures of the last few years. The last era of high growth was before 2013 and isn’t coming back.

        China’s export-driven bubble economy is the flip side of our import-manic bubble economy. It’s built on extreme leverage.

  • Jacksonian_Libertarian

    The best solution for America is to payoff all foreign held US Treasuries, about $6+ Trillion. This is how our trading partners manipulate their currencies against the Dollar and gain a price advantage for their exports. They Vacuum up the Dollars in their banking system and buy US Treasuries, thereby reducing the “Supply” of Dollars to their economy and consequently raising the value of the Dollar.
    America now has all these nations like China ($1.3 Trillion in US Treasuries) by the short and curlies, as what they’ve done over 40 years, can be reversed in an instant. And what are they going to say? We are “Paying them off”! Although it will be with “Significantly less valuable Dollars”. Muwahahaha!
    The effect of the reversal of 40 years worth on currency manipulation on American exports would be nothing short of Phenomenal! We are talking about the survivors of 40 years of American price disadvantage. The surviving export businesses in America, are all lean, mean, competing machines. Given $6+ Trillion burning a whole in foreigners pockets, American exporters would BOOM!
    America’s yearly trade deficit is well over 1% of GDP ~$180 Billion, so just eliminating that will add 1% to America’s growth rate. And I would expect a surplus of at least 1% of GDP within a year as exporters ramp up and grab world market share, and imports suffer from high prices.
    As a huge side benefit, the $6+ Trillion could be added to the $2+ Trillion already at the Fed from the “Quantitative Easing” which added $4.5 Trillion in reserves over a 5 year period. And used to create individual Social Security Accounts that are tradeable, the principle can never be touched, and are inheritable, of an average $30,000 for every naturally born citizen.

    • Jacksonian_Libertarian

      Oh, and by the way, the “Smart Money” has already left China. What we are seeing now is the “stupid desperate money” realizing that fact (as I have been saying for years). If China continues on it’s present course in the China Sea, it will suffer a strategic blockade of its ports. Which will cost it all its export markets which it will never regain, as nothing it makes can’t be made somewhere else (America) with much less risk of supply disruptions.

  • Curious Mayhem

    The root of this whole problem is what Jacksonian_Libertarian points to, the post-Bretton-Woods world of floating currencies tied to a fiat dollar as the world’s reserve currency. It didn’t start with Thatcher or Reagan; it started with Johnson and Nixon. The postwar capital controls regime run by the IMF broke down completely during the inflationary 1970s and was discredited. That was what led to financial liberalization, before Thatcher and Reagan appeared on the scene. At the time, the immediate consequence was high inflation. The only time that this system was working close to how it was supposed to was precisely in the early Thatcher and Reagan years, when interest rates were taken to high levels as money supply growth was slowed. Those high rates were supposed to be the next-best thing to returning to the gold standard.

    Once the era of high inflation and high interest rates ended, in the later Reagan years and ever after, something had to happen with all those excess dollars that we were emitting. Countries that wanted heavily export-driven growth just piled up dollars and bought US Treasuries and other dollar-denominated debt, assuming that all that debt was money-good. In financial terms, to the creditor, they’re assets. But to us, they’re liabilities. America’s 50-year debt-driven consumption spree, which started in 1965 and worsened dramatically in the late 1990s and 2000s, could only be paid for by willing foreigners practicing “vendor financing” by lending us the money to buy their exports.

    It comes to an end when it becomes clear that all of this debt cannot be repaid on its original terms.

    (BTW, there’s no inflation coming, not until some time in the 2020s, maybe. Demographics and globalization are strongly against it. This credit excess will end with default or restructuring, not inflationary wiping away of debt.)

    • Curious Mayhem

      Let me also point out something else very important to let sink in: The era of “globalization” that’s currently on the rocks is not a true, stable, international monetary order — not globalization in the sense of the classical gold standard before 1914. That would require a neutral, objectively defined standard of value that all countries agree to — like the gold standard, or bitcoin, or whatever.

      What we have instead is a confused, fatally flawed monetary system that limps on both legs and has crisis built into it by its nature. The US dollar is both our currency, and the world’s reserve currency. The Fed is both our central bank, and the world’s. There’s no automatic mechanism to correct imbalanced trade flows; they just keep piling up. The dollar does not have a stable value. When a country links to it, it usually does so when the dollar is strengthening, which in turn creates endless problems for the other country.

      Under a true international standard (like the gold standard), a country with a fixed currency value, open capital flows, and a developing trade deficit, would lose gold in its vaults. Interest rates would rise. The import boom would stop, and saving would rise. Exports would rise to correct the imports: trade balance restored. From the 1870s to 1914 (in the US — in the UK, 1840s-1914), it worked pretty well. It’s never worked properly since. The closest we got was the late 1940s-early 70s period, when Bretton Woods and capital controls held back “financialization” and “hot money” flows, while allowing steady, slow growth in internationally traded goods and services. That required an developed world elite with an unusual commonality of purpose and way of looking that world, and strong memories of how badly things went wrong in the 1920s, 30s and 40s.

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