if china floats the yuan

the one comment was about that there is no bond market in china. would that be a step on the way to floating currency?
btw how can china even keep a stright face when they say they are a communist country? more of a military dictatorship.sorry,off topic but i just find it funny.

also wouldnt the trade balance improve for the US thereby improving the USD$? everyone is concerned about the trade balance right now but will they care when it actually happens?:D
 
My opinion on this:

1. China will move slowly; they probably will eventually float for a variety of reasons but this will be done of years/decades, not days.

2. The effect of this float on the US, it may increase exporting related jobs, and decrease real estate related jobs, overall it will probably be a wash, as long as the move is gradual (otherwise it risks bursting the US debt + housing bubbles, not that this isn't a possibility regardless).

3. Even if China completes a transition to a freely floating currency, I expect only a modest effect on the US trade deficit. The reason is the trade deficit in the US is almost entirely due to an extreme difference in the savings rate between the US and the rest of the world (namely Asia). The US is saving 1% per year compared to 40% a year in China.

-Taric
 
Excellent Commentary

In this case..the key is productivity...

China has core advantages that the US is not able to match...

labor costs much cheaper
the population number is much greater...and getting richer
legal largesse costs are much smaller
productivity is rising
education levels are rising
the government is more tolerant of capitalism...
is gaining control of more and more natural resources worldwide

If the yuan is floated...this will only enhance inflation in the US..
And of course when the price of debt rises...more money moves toward debt...

The key here is that the US must be able to match China´s advantages....which it cannot do in any fast timeframe....

Babyboomers are an increasingly unlucky demographic...

US´s future moves toward that of an aged European country...
 
There are flaws in China to be sure. The largest flaw is the ratio of women to men. There is a HUGE number of men compared to women as a result of the one child policy. This will cause friction. In fact, this is the largest imbalance in known history (sorry I do not have the actual numbers handy). Of course Chinese boys prefer Chinese girls (everyone likes their own kind) and the women there will get anything they want.

We see this in other parts of Asia as well but not quite the ratio in China. Societies with such an imbalance tend to go to war historically. Who knows what will happen with this much of an extreme. To top it off if you are a Chinese parent or grandparent are you going to send your only son ---your legacy to war.....well that is another problem. Chinese one child policy may yet cause a revolution.

Another challenge is the new Chinese strategy of trying to guilt trip others when in disagreement. They learned this from the Political Class in the West. Western textbook are full of propaganda aimed at guilt tripping children into submission later on in life. I wont go into now. But I was raised around alot of far left ideas (way to left of most democrats---like marxist--ironic that trade futures for a living --eh!).

Anyway, China is now copying this strategy against Japan. Of course, it has yet to succeed. It is very flawed and will self destruct--because China cannot control Japans textbooks nor can they control the interpretation of Japanese history in Japan. This worked in the west simply because the political class hates the West ---and it was done "in house".

On the financial front, one must have a developed govt bond market to be a reserve status currency. China will develop this ----and it is currently in the process. This type of thing is not an overnight affair. They also need a debt futures market. To my knowledge, they know all this and are working on it. They think long term ---which is their strength.
 
Good points, all.

Some other pressing Chinese problems are their banking system which has structual issues and huge amounts of non-performing loans (marked on the books as profitable, of course), and the environment. One the first issue, at least the large savings rate gives a buffer to the painful restructuring process that can only be put off for so long. On the environment, for the first time ever, they have given their government more authority for regulation. It is weak but growing. That said, so many citizens are buying cars now that even if they reduce emissions per vehicle / person, if the vehicles and energy consumption continue to increase so quickly, you can actually have a worse environment even while increasing regulation (not to mention whether the government can even efficiently control it that well in the first place).

That said, I think China has a bright future. I think there is probably even a 1 in 3 chance that within 20-30 years, they will have a more free market government than the US/Europe/Japan. Should be interesting. In any case, it looks like at a minimum they are making great progress moving from Communism to more of a Mixed Market economy like Sweden's. It is more of a question of once they hit that level, will they keep on cutting government (in terms of % of GDP) or will they stabilize at that point? I don't know. In general, I think that China's ability to grow its wealth and productivity is good. It is great for the billion + citizens there.. so I am very happy in that sense, it is too bad the impoverished people in many African countries don't use China as a role model for economic development.

</ramble>

-Taric
 
Quote from TGM:

Societies with such an imbalance tend to go to war historically.
More...

Interesting idea in itself, do you have any link or source validating this approach? Intuitivelly, war are decided by leaders not people?

I would have thought that men will have to work harder to get social status in order to get a wife. This should lead to a very capitalist society where social status and money takes importance. Now there is no doubt that china is promoting the rise of nation awareness. For century, it was not the case and japan who took the nation idea from the west, saw clearly the advantage during the meije area.

We should be carefull with demography. In the heart of china people are very traditionnal (they would make 10 babies per couple without the law) and a partial lifting of the one child policy ratio if the first child is a girl could lead to a quick surge of millions of new girls ...
 
Quote from steeldust:

hi all. i was just thinking about if the chinese float the yuan,what would the effects be on the USD and US treasury markets? since china holds the massive USD reserves,would they start to unload them or keep them as a hedge. how about US bonds? would they sell them off also? or would they add to their reserves? any comments or story links would be appreciated. :D
More...

well just look at how european stock have been diverging from US stock over the last few months to see what is happening in the market!
 
Here are some statistics:

According to the U.S. government, 13.4% of all imported goods came from China in 2004. China only bought 4.2% of U.S. exports.

Rank Country Imports (Year-to-Date) Percent of Total
--- Total, All Countries 1,471.0 100.0%
--- Total, Top 15 Countries 1,125.1 76.5%
1 Canada 255.9 17.4%
2 China 196.7 13.4%
3 Mexico 155.8 10.6%
4 Japan 129.6 8.8%
5 Federal Republic of Germany 77.2 5.3%
6 United Kingdom 46.4 3.2%
7 South Korea 46.2 3.1%
8 Taiwan 34.6 2.4%
9 France 31.8 2.2%
10 Malaysia 28.2 1.9%
11 Italy 28.1 1.9%
12 Ireland 27.4 1.9%
13 Venezuela 25.0 1.7%
14 Brazil 21.2 1.4%
15 Saudi Arabia 20.9 1.4%

http://www.census.gov/foreign-trade/statistics/highlights/top/top0412.html


A freely traded Yuan would cause Chinese labor costs to SKYROCKET, IMO.
The U.S. would suffer inflation & rising interest rates, and China would suffer unemployment. The Chinese government is very cautious about this for good reason.
 
Quote from illiquid:

Why can't companies just purchase foward contracts on the yuan to hedge out the rising costs?
More...

There are none.

OK, I guess you meant that once the Yuan is floated, Yuan futures would exist, which is certainly true. However, they wouldn't trade anywhere near the current 1:1 ratio of the pegged Yuan.
 
You must log in or register to reply here.
Back
Top