China's Emergence As A Global Superpower

[Billy T]

Text in graph below restates the fact that the US's low interest rates are a "currency war" against other more responsible governments, especially those with higher growth rates like the BRICs, which are using various measure to control inflation, not promote it.

"... "We are seeing explosive demand for gold," Zhou Ming, deputy head of the Industrial and Commercial Bank of China Ltd. (ICBC) precious metals department told Reuters. "As Chinese get wealthy, they look to diversify their investments and gold stands out as a good hedge against inflation." The WGC report also said the surging investment demand in China is a reflection of the ongoing internationalization of the Chinese yuan. ..."
From: http://moneymorning.com/2011/02/22/...global-phenomenon-of-demand-for-yellow-metal/

China is actually encouraging its population to buy and hoard silver. See: http://www.sciforums.com/showpost.php?p=2643758&postcount=115 As many more Chinese can buy silver bars, this may be part of why the price of silver is climbing more rapidly than that of gold. Also China can supply much of the demand for gold from it own mines which lead the world in production of gold.

Billy T comment:
The IMF is discussing / planning to add the RMB to the mix of currencies that define the value of the SDR (Special Drawing Rights, each member of the IMF has and can borrow against, but is not much used.) SDRs have been suggested as an alternative to the dollar. I have suggested that when China is ready, it can back the RMB with gold to encourage central banks to hold Chinese RMB demoninated bonds. Just as they now hold dollar bonds and very little physical gold, which unlike the bonds pays no interest.

I.e. China would only back their bonds with gold for central banks, not individuals and not often need to deliver much gold / buy back their bonds with gold. China, as the world's largest producer of gold for last three years would have no problem in backing it bonds with gold for central banks. This would almost over night replace the dollar with RMB bonds as the international reserve currency, but as I have noted in many posts China is not yet ready to destroy the dollar. It needs to contiue the process of trading less with the US and EU first (trade more with other growing nations) and also to continue spending its dollars in reserves for real assets like oil, minerals, food stocks etc. China is switching to more of a domestic dominated GDP with more of its factories producing for that rapidly growing internal market. (All as Billy T predicted it would, years ago.)

When China is ready, it will tell the US and EU to:
GO TO HELL. WE DON'T NEED YOU TO BUY OUR FACTORY GOODS ANY MORE AND WILL NO LONGER FINANCE YOUR DEFICITS.
As that dollar collapse will send US & EU into deep, long-lasting depression effectively removing them as significant competing bidders for oil, minerals, wood, etc. that China needs to import. I.e. saving China EVERY YEAR import cost that more than compensate for the ONE TIME loss China takes on the dollars still in it reserves when it destroys the dollar. (Perhaps by dumping dollars still in its reserves or by backing the RMB with gold for central banks, or both.)

 

[Billy T]

Another* step towards making the RMB replace the dollar (see Billy T comments in prior post for two other ways, one in progress and one speculative.)

"...Bank of India has become the first Indian bank to offer trade settlement facility between the rupee and the Chinese RMB …The US dollars will no more be the intermediary currency as the BOI is offering direct settlement between the rupee and the Chinese money. Chinese exporters want their money in the local currency, which is regarded as more stable compared to the US dollar.

BoI is also awaiting permission from Chinese regulators to establish a branch in Beijing, where it has been running a representative office for the past four years. It has recently signed an MoU with the CBRC on converting the representative office into a branch. The bank has been running a branch in the boom city of Shenzhen for the past four years. The Shenzhen branch will also be involved in providing additional support for the trade settlement business. ..."

From: http://timesofindia.indiatimes.com/...in-yuan/articleshow/7565143.cms#ixzz1EvOafPXh

---------------
* "Another" as China already has currency swap agreements with 10 Asian nations and two in S. America. See:
http://www.sciforums.com/showpost.php?p=2552361&postcount=1008

 

[X-Man2]

Another* step towards making the RMB replace the dollar (see Billy T comments in prior post for two other ways, one in progress and one speculative.)

"...Bank of India has become the first Indian bank to offer trade settlement facility between the rupee and the Chinese RMB …The US dollars will no more be the intermediary currency as the BOI is offering direct settlement between the rupee and the Chinese money. Chinese exporters want their money in the local currency, which is regarded as more stable compared to the US dollar.

BoI is also awaiting permission from Chinese regulators to establish a branch in Beijing, where it has been running a representative office for the past four years. It has recently signed an MoU with the CBRC on converting the representative office into a branch. The bank has been running a branch in the boom city of Shenzhen for the past four years. The Shenzhen branch will also be involved in providing additional support for the trade settlement business. ..."

From: http://timesofindia.indiatimes.com/...in-yuan/articleshow/7565143.cms#ixzz1EvOafPXh

---------------
* "Another" as China already has currency swap agreements with 10 Asian nations and two in S. America. See:
http://www.sciforums.com/showpost.php?p=2552361&postcount=1008

I hate to think if the Dollar loses it's reserve currency status eventually like the Man from Stans Berry research says the US is DONE! Cosmic Traveler posted a link to the audio at below link should anyone want to hear it.It's very scary stuff.I'm going to remain an ostrich with it's head in the sand cause it's to much for me to imagine happening.



http://www.sciforums.com/showthread.php?t=106587

 

[Billy T]

Extension to post 1102 on Bank of India, BoI, dealing in RMB.

BoI is a few years behind HSBC, which has many branches in China and already has provided RMB to firms in 34 countries they can use to import goods from China, with no dollars used as intermediates. I.e. the importer of goods from China gives their local HSBC funds in their local currency and receives credit in RMB in China with which to pay the Chinese exporter. (Or conversely for the Chinese importer of foreign goods.)

See: http://www.sciforums.com/showpost.php?p=2656137&postcount=10

As far as trade is concerned the RMB is already an international currency. The big step, countries hold RMB bonds in the central bank reserves will come quickly if When China is ready to destroy the dollar. One way to destroy the dollar is to back these RMB bonds with gold - again see Billy T comments in post 1101.

 

[quadraphonics]

In a surprise Xmass move, China announced it is raising its benchmark lending rate by 25 basis points (0.25%) to 5.81%.
The central bank also increased deposit rates by 0.25% to 2.75%.The rate hike, which is the second of the year (and the second in just over two months), will take effect on Sunday.
{Billy T notes: This is slightly more than half the current inflation rate of 5.1%, so savers lose purchasing power. That encourages them to spend more, helping China to switch to a domestic market economy, but the habit of saving ~50% of discretionary income dies hard.}

No, raising the interest rates will cause consumers to spend less and save more. That they'll still be taking a beating by saving, due to inflation, is beside the point - they'll be taking less of a beating than they were, and so save more than they did before the rate hike. The goal is to dampen inflation and asset bubbles, exactly by causing Chinese citizens to spend less of their income. And to the extent that it works at that, the rate of inflation should reduce to become closer to the interest rates - again incentivizing increased savings.

So to the extent that such spending is required to shift to a consumption-led economy, this is a step backwards. But probably the effect on exchange rate will have more to do with that than trends in the internal savings rate - the higher interest rate will put upward pressure on the yuan and so decrease the competitiveness of Chinese exports. Unless they plan to eat through their reserves keeping the yuan low.

A few notes on China's high speed rail:

You neglected this one:

China Rail Chief’s Firing Hints at Trouble

"In his seven years as chief of the Chinese Railways Ministry, Liu Zhijun built a commercial and political colossus that spanned continents and elevated the lowly train to a national symbol of pride and technological prowess.

His abrupt sacking by the Communist Party is casting that empire in a decidedly different light, raising doubts not only about Mr. Liu’s stewardship and the corruption that dogs China’s vast public-works projects, but also, perhaps, the safety, financial soundness and long-term viability of a rail system that has captured the world’s attention.

Mr. Liu, 58, was fired Saturday and is being investigated by the party’s disciplinary committee for “severe violations of discipline,” a euphemism for corruption. His high government rank — minister-level officials are rarely fired under such a cloud — hints at far deeper dissatisfaction with one of China’s most publicized and sweeping domestic initiatives.

[...]

There are some clues in top officials’ public statements since the scandal broke. Speaking on Monday in Beijing, the official who is believed to be the country’s new railways chief, Sheng Guangzu, said the ministry would “place quality and safety at the center of construction projects.” For good measure, he added that safety was his highest priority.

The statement underscored concerns in some quarters that Mr. Liu cut corners in his all-out push to extend the rail system and to keep the project on schedule and within its budget. No accidents have been reported on the high-speed rail network, but reports suggest that construction quality may at times have been shoddy.

A person with ties to the ministry said that the concrete bases for the system’s tracks were so cheaply made, with inadequate use of chemical hardening agents, that trains would be unable to maintain their current speeds of about 217 miles per hour for more than a few years. In as little as five years, lower speeds, possibly below about 186 miles per hour, could be required as the rails become less straight, the expert said.

Strong concrete pillars require a large dose of high-quality fly ash, the byproduct of burning coal. But the speed of construction has far exceeded the available supply, according to a 2008 study by a Chinese railway design institute.

Such problems, the expert said, are caused by a combination of tight controls that have kept China’s costs far below Western levels and a strong aversion to buying higher-quality but more expensive equipment from foreign suppliers.

[...]

Japanese officials have already made an issue of the potential safety problems in the Chinese high-speed rail network. Yoshiyuki Kasai, the chairman of the Central Japan Railway Company, which runs Japan’s fastest bullet train, told The Financial Times last year that the Chinese were running trains based on Japan’s designs, but at speeds 25 percent faster.

“I don’t think they are paying the same attention to safety that we are,” he said. “Pushing it that close to the limit is something we would absolutely never do.” "

 

[Michael]

Oh, now you tell me - I've ridden on a Chinese bullet train! But it was the one in Shanghai from the airport, which I thought was built by Germans??? I have to say, it was fast, not too many people in the carriage though.

I've also ridden on Japanese bullet trains, many time. Nice, but they feel "old", well kept for sure, but you know they have that 80s feel to them.

 

[Billy T]

Oh, now you tell me - I've ridden on a Chinese bullet train! But it was the one in Shanghai from the airport, which I thought was built by Germans??? ...

As I understand it, yes German technology, but more importantly the world's only magnetically levitated train in regular commercial service (for at least a decade now). If that is true, then you should not have heard any "clicky-clacks" a the wheels needed for start and stop don't touch the track and the ride should have been very smooth, as if you were floating on air, which you were!

If these conditions were not what you experienced, then they must have "back converted" the train to conventional steel wheel on steel rail without much being said about that. If that is the case, it would be interesting to know why - magnetic levitation is too costly to maintain, etc.?

PS to quadraphonics: You are no doubt correct that FDI is not normally used to mean all Foreign funds Directly Invested in a country, but I was using it that way. It really seems impossible to separate it though, as you do. For example, suppose one fears that US's low interest rates will be ending and Brazil's will be rising (both very likely in late 2011 or 2012 at least) so he borrows in US and invest now in a Brazilian "application" (Sort of like a CD, but with no fixed term; however, Brazil's tax on gains structure tends to make all leave funds there for at least two years.) Clearly "carry trade" now. - I have almost 100,000R$ in one that was only 50,000R$ (the minimum entry for this attractive fund) about 6 years ago (Much more than doubled if now converted back into dollars). I don't take any funds out as the "Administration Fee" is only 0.05% / month, not the more typical 1.5%/month and the fund has been "closed" for four years - No one can put money in.

I have a friend who rents the small bar he lives from. He wants me to be his "silent partner." If after 7 or 8 year of my funds growing in a bank application, I decide to help him buy his own bar (We have looked at a few possibilities already.) does my 100,000R$ switch become properly defined FDI, or has it been FDI all along? BTW, he markets it as an "international bar" and when some one wants to practice his English, he calls me. If it is convenient (EG - I'm just typing for a sciforums post etc.) I go and drink free beer, his customer provides for an hour or so. (A good deal for all as private English lesson normally would cost more than a case of beer and I never drink more than two bottles.) - It is about a four minute walk, which I need to make more often anyway. I met some interesting people - once two prostitutes were buying me beer - they wanted to be better able to communicate with their English speaking "JOHNS" Prostitution is completely legal in Brazil, but "pimping" is not.

 

[Billy T]

BBC 10:42 GMT: A cruise ship chartered by China has docked in Malta carrying 2,216 Chinese nationals evacuated from Libya as well as dozens of other foreign citizens, Chinese state media say.

from ChinaDaily: 2,898 Chinese evacuees reach Greece A charted vessel carrying 2,898 Chinese nationals evacuated from violence-wracked Libya docked at the Heraklion port of Greek's southern Crete island on Saturday.

Also BT notes: few days ago 30 bus loads of Chinese got out, but I forget if that was to the East (as I think) or the West.

Money for charters seems to be "no problem."

 

[Billy T]

Like Saudi Arabia, China is trying to avoid social unrest by giving more to the people reducing the wealth gap and cracking down on corruption, (or at least top level is promising to do so):

“… Chinese PremierWen Jiabao pledged to punish abuse of power by officials and narrow the growing wealth gap … The root of corruption lies in a government that has too much unrestrained power, Wen said in a two-hour online interview with citizens yesterday. He promised to curtail food costs and tackle surging property prices. {bold added by Billy T} …

China’s leaders have emphasized the country’s economic successes in their response to demonstrations both in China and in the Middle East. While the country’s economy has expanded more than 90-fold in the past three decades, Wen said rising inequality is threatening social stability. …”

Quote from: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aKOb1ETOSB6g&pos=3

 

[Billy T]

Update to post 1108 (on China's leaving Lybia):

BBC 0:41 GMT on 28 Feb11: China editor Shirong Chen says China's air force has joined the rescue operation, sending four transport planes to Libya. The navy's frigate is meanwhile in the Mediterranean. So far China has evacuated about 29,000 nationals from Libya.

Here the ChinaDaily version (data up to yesterday Sunday 27th):
"...More than 20,000 Chinese nationals had been evacuated from unrest-wracked Libya as of Sunday, according to China's Foreign Ministry. ... Aircraft chartered by the Chinese government were scheduled to fly the evacuees back to China. Aviation authorities decided Saturday to dispatch 15 aircraft a day for the next two weeks to fly Chinese evacuees home. ..."

A 1 March 11 update by edit:
BBC 11:12 GMT: China has evacuated the "overwhelming majority" of its citizens from Libya, the foreign ministry has told reporters in Beijing. As of 0600 GMT on Tuesday, about 32,000 nationals had left Libya, the Xinhua news agency reported. Some 9,000 were now back in China, roughly 21,000 were in a third country, and the rest were on their way to a third country, it added.

 

[Billy T]

"... Pfizer is making plans to move its antibacterials research unit in Groton, Conn., to Shanghai, China. Some scientists involved in the research will remain in Groton for up to two years as the company builds the new Shanghai unit. Industry analysts said Pfizer's action would be the first wholesale move of a major U.S. pharmaceutical research unit to China. ...
"We are shifting the global footprint of our R&D network to more fully align with key hubs for science and technology, which has caused us to take a look at all areas of research," Pfizer said ..."
From: http://www.pharmalive.com/pl-index-...fm?articleID=768211&categoryid=9&newsletter=1

Billy T comment:

Too bad, that in Pfizer's opinion the US no longer qualifies for a R&D network to more fully align with key hubs for science and technology,

 

[quadraphonics]

Too bad, that in Pfizer's opinion the US no longer qualifies for a R&D network to more fully align with key hubs for science and technology,

That would be "Groton, Conn.," and not "the US." The Pfizer R&D center down the street from me doesn't seem to be going anywhere, nor the others that they have in NY, Missouri, CA and Massachussetts.

Apparently they're also closing their R&D center in the UK, though.

 

[Billy T]

That would be "Groton, Conn.," and not "the US." The Pfizer R&D center down the street from me doesn't seem to be going anywhere, nor the others that they have in NY, Missouri, CA and Massachussetts. Apparently they're also closing their R&D center in the UK, though.

Yes, but the Missouri unit is also being reduced. If you read the more detailed link, it seems they are starting a major reorganization - Selling up to 40% of their current revenue sources and going to do more R&D (this from memory). Drug R&D requires very smart people and then large clinical tests, which are no doubt cheaper in China, or India or Russia etc. Thus many drug companies are leaving the US if that is their main activity. They will continue their already started R&D in the US but not start new project here. The Groton R&D center is the first to move, but it will need at least two years more before closing.

From the link:
"It's an acknowledgment of labor cost and high intellect in China," added Larry Rothman, a respected industry blogger."
And
"Other changes in Pfizer's R&D operations includes a downsizing of the Indications Discovery Unit in St. Louis, which attempts to find new uses for older drugs."

 

[quadraphonics]

Yes, but the Missouri unit is also being reduced.

Again, that Missouri isn't an attractive global R&D hub says very little about the position of the US overall - if anything, it's surprising that there was R&D located there in the first place.

The "R&D hub" in the US has long been Silicon Valley. And that's still a place that people leave Shanghai in order to work in.

 

[Billy T]

... The "R&D hub" in the US has long been Silicon Valley. And that's still a place that people leave Shanghai in order to work in.

... that may well be true, but I have also read that many in IT and soft ware development are also leaving the US for Asia - Even whole divisions of corporations as well as individuals. Which way is the net "brain drain" NOW? - don't give old data. I know it once favored the USA.

Anyway were were discussing Pfizer specifically and tangentially the drug developers not all R&D activity.

 

[Me-Ki-Gal]

Will it supersede US one day?

I have heard it said in 10 years China could over take us as the economic power of the world if things continue as they are now . As far as a super power I thought they were already considered a super power?

 

[quadraphonics]

... that may well be true, but I have also read that many in IT and soft ware development are also leaving the US for Asia - Even whole divisions of corporations as well as individuals. Which way is the net "brain drain" NOW? - don't give old data. I know it once favored the USA.

It's still a massive brain drain from everywhere else to the USA. There are almost no Americans going to engineering grad school in China or India. There are tens of thousands of Chinese and Indians going to graduate school in the USA. Most stay to work here, at least for a while. And this has actually increased in recent years, after taking a hit with new visa restrictions after 9/11.

If you don't believe me, you can just go ahead and do your own homework on the subject. It is a point that you decided to bring up, so the burden's on you to get the data if you want to have such a discussion. I'm content with my knowledge, and confident that any homework you might do will agree with me.

Anyway were were discussing Pfizer specifically and tangentially the drug developers not all R&D activity.

And I note that you were, from the beginning of said discussion of Pfizer, not content to limit your observations or characterizations in any such way. So don't complain when I respond accordingly.

 

[Billy T]

It's still a massive brain drain from everywhere else to the USA. There are almost no Americans going to engineering grad school in China or India. There are tens of thousands of Chinese and Indians going to graduate school in the USA. ...

From what I have read that is because there are so many more Chinese, at least, (don't know about Indians) trying to go to graduate science schools for every opening. I.e. almost ALL who end up in a US graduate school tried and failed to get in to one or more in China.

The US has sort of the same problem for American wanting to go to medical school. Many qualified applicants for each opening, so many end up in a foreign school.

Try to find some real numbers for 2008 or later relating to US/Chinese technical migration. I have read that many US grad in sciences can't get any job that uses their training so are going to Asia (or even Brazil) where there is a shortage of people with advanced technical degrees. I know there have been articles in my local paper that the economic troubles in the US have reversed the Brain Drain with Brazil. In fact many Brazilian who went to the USA five or so years ago are now are returning to Brazil to find work - and not just the technically advanced ones.

Are you sure you re not just citing pre-crisis / pre2008 data?

 

[Saint]

China's economic data was always tempered, the made it look better than reality,

 

[Billy T]

China's economic data was always tempered, the made it look better than reality,

Almost all governments do that, perhaps China more than most. I think the US is the only government that excludes food and fuel form what it claims is the consumer price index. I am 99+% sure both are included by China. When this is taken into consideration both countries have about the same inflations rates.

China does not use GAAP book keeping.Many of the SOEs would be bankrupt, never were profitable by western standards, but served greater goals in China. etc. Thus it is very hard to make comparisons of Chinese data with Western standards.