The peg has worked out quite well for them over the last 10 years. They’ve built up a current account surplus never before seen in the history of world trade. They’ve co-opted entire industries from the US. They’re able to (and are) buying materials producers all over the world, to insure that they have inputs to their economy denominated in yuan, not dollars.
About the only area they’re lagging is in oil. And at the rate they’re making deals in South America, they clearly aim to plug that hole in their portfolio.
If they choose to, they can float their currency in advance of selling off their US debt holdings, and take the hit to their industry and use their huge surpluses to float their economy for a few years while they find markets other than the US. The size of their US dollar holdings gives them options that no other country in the world has right now. They could hedge some of their exposure, they could forward contract on oil to lock in current oil prices, etc. They have a wide variety of options available to them. They can’t protect their entire exposure due to the size of their account, but they can lessen the overall pain.
They only need to think of how to do this with the financial instruments extant, and because they’re communists, sometimes they’re a little bit slow in thinking creatively. But sooner or later, I expect that they’ll happen upon an idea, because the speed with which the Fed is destroying the dollar is making this their #1 issue very quickly. When the PRC wants out, they’ll get out, and it will be a one-way trip for the US.
And we’ll have the Free Trade Uber Alles twits to thank for it, the people who thought that “free trade” with communists was a suave economic theory.
“They’ve built up a current account surplus never before seen in the history of world trade.”
On the backs of their citizens. That’s the problem. Letting the currency float puts the money back into the hands of their citizens, not the state, and they would be even better off.
They have enough that they could have made their own middle class and have China transition successfully into the first world.
Now, their entire future depends on what they do with the currency surplus. By selling 2 trillion USD to buy commodities, they are selling low and buying high, which means that the US government gets about 2/3rd of what they lost in the currency surplus back with zero benefit to the Chinese people.
They also spike commodities prices for their own citizens. Not a good thing.
“They’ve co-opted entire industries from the US.”
They are getting their butts kicked by poorer nations like India, which has a future. China has now.
“They’re able to (and are) buying materials producers all over the world, to insure that they have inputs to their economy denominated in yuan, not dollars.”
Do they have enough to make up for a shortfall in Chinese labour force where it falls by half in 20 years?
“the people who thought that “free trade” with communists was a suave economic theory.”
So why aren’t we all working for the Chinese? Free trade is amazingly powerful. If the nation you are with wants to become the marketer rather then the market, then they receive much less benefit than from 2 way trade.
Dave, that’s how the picture looks to me as well. They have enormouus options with every nation clamoring to do business with them...it’s their smorgasboard to pick and choose as I see it. I’m not into understanding the details of trade and the laws governing but China is not stupid and playing their bets very well so far.
Furthermore their investment in resources throughout the globe isn’t exactly secret. They are actually buying land in Africa to grow food for their population as it prospers and the demand for more esculates in just food consumption.
A pleasure reading your post..thank you.
“And we’ll have the Free Trade Uber Alles twits to thank for it, the people who thought that “free trade” with communists was a suave economic theory.”
Wrong enemy. We can thank our UNIONS, LABOR LAWS, OSHA LAWS, and God knows what else.
We did it to ourselves and WE DESERVE IT.