Comments on: Will Foreign Exchange Losses of China’s Central Bank Matter?

By: jojo

jojo — Sun, 03 Feb 2008 04:09:00 +0000

newsman,

Chinese leadership cares about public opinion. They are afraid of riots, rebellion, etc; the public in China doesn’t passively protest like in the US. So far, Chinese leadership has been more afraid of slowing GDP than inflation. However, now that the Chinese public is complaining about inflation, Chinese leadership is worried about that too. Public unrest over inflation will force Chinese leadership to revalue their currency. Forex losses are a sideshow; local inflation is the headliner.

By: Independent Accountant

Independent Accountant — Sun, 03 Feb 2008 00:49:00 +0000

I think Chinese public opinion is important. Today’s China is not that of the cultural revolution of the 1960s. Tens of millions complain about China’s poor infrastructure and ask why not spend China’s money improving its roads, waterways, etc.? There were 70,000 strikes in China in 2007. The people are revolting. Literally. They wave Mao Zedong’s “Little Red Book” at the leadership and ask, “where’s ours”? I see China floating the renmibi within three years. It will be easier to float the renmibi than suppress domestic dissent.

By: newsman

newsman — Sat, 02 Feb 2008 21:43:00 +0000

Eoghan–

I would second what you say. Just finished a biography of Mao–even in his day, there were factions with competing theories of how the economy should be conducted. According to what I’ve read, some factions today are promoting the idea that China should use its surplus to raise wages a bit, to produce more consumer goods for the Chinese, and/or to improve infrastructure in any number of ways. (If I were Chinese I might vote yes to all of the above…)

By: Eoghan

Eoghan — Sat, 02 Feb 2008 21:00:00 +0000

I am still skeptical as to how much public opinion matters in China, but events will prove this one out over time.
IMO there is no public opinion. What there is is factional opinion within the party expressed publicly. As an opinion is expressed more widely and vociferously it is evidence of a gain in support for that faction. Occasionally a faction will overplay its hand – Tianamen Square/Gang of Four/Cultural Revolution/pick your excision from history! That a faction is expressing disquiet at perceived losses on USD shows: residual distrust of the US, residual distrust of capitalism, and possibly residual distrust of money. How strong the faction is/becomes will depend on the societal fallout!

By: EEngineer

EEngineer — Sat, 02 Feb 2008 19:24:00 +0000

We think of money as the end all and be all of life. To them it’s a means to an end. Concentrated power. The whole point of accumulating it is so that you can spend it achieving a goal. These “losses” are small in comparison to the continued expansion of their FOREX reserves. It’s a small price to pay to while we swallow the debt hook ever deeper and they expand their industrialization.

By: newsman

newsman — Sat, 02 Feb 2008 18:23:00 +0000

China has very substantial ambitions and if they think continuance of their current policies are in their interest, a certain amount of pain is acceptable.

Yup. The scary part here is how high China's pain threshold is. Waaaay higher than ours.

A lot of smart people think there's no risk to us because of what they see as a "mutual assured destruction" quality to our economic relationship with China. If the Chinese cut us off, or even just tightened the collar a bit, they would be hurting or even devastating their own economy: exports and employment.

But what if they think that inflicting this pain on their own society would advance their long-term national agenda? Is there any reason to think Chinese leaders are obsessed with avoiding a recession, the way US leaders are?

By: jja

jja — Sat, 02 Feb 2008 11:28:00 +0000

America is China’ subprime.