Posted on 01/20/2008 6:19:21 PM PST by charles m
BEIJING (Reuters) - China's central bank on Sunday poured cold water on the idea that the country's economy can decouple from the United States.
China's exports will be badly hit if U.S. consumption weakens, Zhang Tao, deputy head of the international department of the People's Bank of China, told a financial forum.
Figures due this week are expected to show that China's gross domestic product grew more than 11 percent in the fourth quarter of 2007 from a year earlier, despite a deepening U.S. credit crunch.
But Zhang said he saw mounting risks to U.S. consumer demand. He noted that retail sales unexpectedly fell 0.4 percent in December, while property prices were falling and rising petrol prices were crimping disposable incomes.
"If U.S. consumption really comes down, that's bad news for us," Zhang said. "That will have a pretty severe impact on our exports."
Wang Jian, head of the China Society of Macroeconomics, agreed that China's growing trade with Europe was unlikely to insulate it from a drop in exports to the United States.
If U.S. demand weakened, Europe would export less to America and, in turn, would buy less from China, Wang said.
"Global demand is ultimately driven by the United States," he said.
More U.S. interest rate cuts or a further fall in the dollar in response to a weakening economy would have an impact on Chinese monetary policy, Zhang said without elaborating.
He said the subprime crisis would not divert China from the path of financial innovation.
"It will not change our general direction. However, it serves as a warning that we need to pay attention to risk controls and launch new businesses in a steady, orderly way," he said.
Dai Genyou, director of the central bank's credit bureau department, said higher Chinese interest rates would have little impact on the ability of companies to service their debts. Nor would they derail corporate investment plans, Dai said.
The Chinese officials seem to have more sense than some of the European economic commentators praying for the downfall of America.
chinas the fly in the ointment - they need to float their yuan - it is too cheap and it is the chinese that has the bubble to burst.
Decouple? Not yet.
There’s still a bit more know-how and design they can suck out of us.
The great American giveaway ain’t over till it’s over.
when a borrower owes a little....the bank owns the borrower
when a borrower owes billions....the borrower owns the bank...
china owns way too much of the USA to allow the economy to crash & burn!!!!
“Decouple? Not yet.”
More like not ever, at least not likely in our lifetimes. That “decoupling” has even made it into mainstream discussion about economic matters is indicative of the astonishing ignorance of many people on economic topics.
China really saying: “we are screwed if Americans stop this free trade stuff”
The Heartbreak of Remoras
If the yuan weren't pegged to the U.S. dollar, who in their right mind would ever accept the yuan as a medium of exchange in a financial transaction?
On the surface you seem right. So does Alberta’s Child in post #9. The way you are both wrong is forgetting China’s leaders will tank its own economy and starve millions of it’s own people to maintain power. They have before. The only reason we don’t have to fear them on US territory is our nuclear arsenal. They wouldn’t seek a nuclear war but Taiwan is theirs. So until they need a war or Taiwan gets crazy they have no interest in upsetting our economy. There will be enough new oil found to keep them happy but India will be a new story.
Currency value and exchange rates don’t necessarily have to correlate with economic foundations. One example is the Japanese yen, which is often used for the carry trade, even during periods of massive financial upheavals in the country. What you write is certainly a possibility, but it’s just as likely that the Chinese yuan will appreciate, and this appreciation will fuel further strength in the currency, as well as possibly getting China’s financial regulations up to standards. The point is, China’s internal financial infrastructure is also subject to change and adaptation to the new currency environment. It’s not a static equation as you present. One can further argue that the Chinese leadership is reasonably intelligent, and that it would do what it can do promote 10% growth, including reforms in private property laws and the regulation of financial institutions when it becomes necessary.
“No, that’s completely bull. China’s leaders today aren’t Mao.”
Tell that to the victims at Tiananmen Square. I do hope you are right and think the Chinese as a whole would make a great addition to the society of free people of earth but don’t see that iron grip letting go. With the low birth rate their economy will tank eventually any way free trade goes and what then? War or let them die.
If it does crash and burn China will nationalize all foreign companies.
“who in their right mind would ever accept the yuan as a medium of exchange in a financial transaction?
“
I dont understand your analysis - the yuan is too cheap and that is why we can not compete. We dont make anything anymore and who needs the dollar if there is nothing to buy except T-bills.
The yuan is nothing more than a medium of exchange that allows the U.S. to enjoy a high standard of living at the expense of Chinese slave labor. You could never get away with paying someone 50 cents an hour to work here in the U.S., but it's perfectly acceptable to pay that kind of rate in a foreign currency -- even though the currency is immediately going to be converted back to U.S. dollars and sent back to the U.S. in a different form.
“You could never get away with paying someone 50 cents an hour to work here in the U.S., “
that is my point - their yuan is too cheap and if it is priced upward, they would be getting $1.00 an hour and not .50 and that would hepl us tremendously as we are far more productive.
Translation: We're not de-pegging in your life time.
“China really saying: “we are screwed if Americans stop this free trade stuff”
LOL, you are saying America is actually practicing “free trade”? Then I guess China is already a democracy. America is screwing itself up with protectionsim now.
America? Protectionist? With you guys running the show? Prove it. Here's how the Heritage Foundation views the current overall picture:
A hundred years ago, tariffs raised most of the government's revenues. But after six decades of trade liberalization, the tariff system is now a small backwater in tax policy, and most U.S. tariffs are quite low. There are no tariffs on toys, furniture, semiconductor chips, personal computers, or telephones. Even tariffs on cars amount to only 2.5 percent.
You guys shriek when those who wish to enforce the rules of trade get even a whiff of being close to winning an election...but meanwhile China and the EU don't just TALK about potentially becoming protectionist they routinely impose massive barriers or subsidize themselves against the U.S. manufactures.
All without a peep from you.
There is a word for that kind of hypocrisy.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.