China Threat to US $ Plays into Hillary Clinton's Campaign

[melchia]

This seems a little too well timed for Hilary Clinton's presidential bid for the White House if you ask me. Even as the article notes, it certainly plays into her campaign...nevermind the fact that the Chinese connection exploded with the arrival of Bill Clinton's administration.

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Blog - Dollar to collapse?
Fistful of dollars - China's trade surplus reached $26.9bn in June


Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

link

opinions?

 

[aria]

Nothing serious. Just posturing.

If it came from the key leadership (e.g. Hu Jintao), then it might cause pause.

China's too busy trying to put the best face forward.

Today is 8/8/07, one year to the day before 08/08/08, where at 08:08(pm, I assume) the Beijing Olympics will begin (yes, its a luck thing)

China is going to be on its bestest behavior.

 

[ki_atsushi]

Chine relies on trade with the US too much to pull a stunt like that. We are keeping them afloat, so if we go-- we're taking them with us.

 

[Fighter123]

Chine relies on trade with the US too much to pull a stunt like that. We are keeping them afloat, so if we go-- we're taking them with us.

Wal-Mart.


Chine, lol.

 

[ki_atsushi]

Wal-Mart.


Chine, lol.

My misspelling was from typing too fast. All of your misspellings happen because you don't know how to spell. Shut the fuck up.

 

[Fighter123]

My misspelling was from typing too fast. All of your misspellings happen because you don't know how to spell. Shut the fuck up.

The more you say fuck, the more stupid you become.

 

[aria]

Taking it a step farther: China is undergoing some complicated internal --soulsearching might be too strong a word-- but "review". China has become very Westernized in many economic aspect, but it still held may in just as many others.

The question for the governing party (which is still, of course, the Communist party) is whether or not they've taken change too far: there are multitudes (because any significant percentage of people in China is a multitude) of people who are seriously left behind in the recent development. They are getting very upset. Many local politicians and party cadres are becoming heavily corrupted and causing even more hardship --all of this adds up to eroding party control.

The leaders in the PRC aren't insane dictators aiming to milk the country for all its worth --they seem to have some interests (either genuine or in the interest of maintaining power --I think a bit of both) in trying to keep the population happy.

In all of this, there have been a lot of public evidence that there remains division within the CCP as to how to move forward: whether to keep on the current clip of economic reform, whether to pull back a bit and take stock/fix things that have gotten a bit out of control, or to proceed forward (possibly slower) while trying to fix things. Even the most optimistic in the Chinese gov't seem to be quite aware that they can't maintain the incredible economic growth forever.

As a consequence of this internal party division, don't be surprised to hear all sorts of comments that range from a desire to work with the rest of the world to the classic: "China shall not be dictated to: we will do what we want." You only need to look back at relatively recent Chinese history to understand why that is such a fundamental part of the CCP psyche --indeed, I think it is the party's very raison d'être (at least initially).

 

[norton9478]

I say we pay the debt all back with cash....

Counterfeit cash....

 

[BoriquaSNK]

Uri...uri retard.

On topic, I think it could be a little more than posturing. China has been on the defensive for a few months with banned Chinese imports from the US and Europe due to, oh I don't know, poisons in our children's toy's and the food we eat.

And the Olympics could be run successfully on their own, remember that they have more than a billion people, a quarter of which are equivalent to the American middle class. That's 250 million people, almost 90% of our population in the states, that could feasibly pour money back into Chinese coffers at the games.

Finally, China has been buying bonds consistently since Deng Xiaoping began liberalizing the economy in the 80's, they could absolutely flatten our economy with little to no longterm harm to their own. China's current rate of growth is pushing 11%, which is simply too fast to sustain. The ideal growth rate is 3%, that of developed countries, which would allow them to allocate resources more deliberately instead of trying to keep various startups afloat when their investors bail after there stock doesn't grow exponentially. So basically, if they pulled this stunt, they'd be growing at a 3 or 4% rate instead of 10-12%...poor China.

China does all of its major foreign and economic policy announcements at the Academic and Think Tank level, this lets them gauge reaction while they keep everyone guessing.

This threat should be taken seriously.

 

[melchia]

In all of this, there have been a lot of public evidence that there remains division within the CCP as to how to move forward: whether to keep on the current clip of economic reform, whether to pull back a bit and take stock/fix things that have gotten a bit out of control, or to proceed forward (possibly slower) while trying to fix things. Even the most optimistic in the Chinese gov't seem to be quite aware that they can't maintain the incredible economic growth forever.

As a consequence of this internal party division, don't be surprised to hear all sorts of comments that range from a desire to work with the rest of the world to the classic: "China shall not be dictated to: we will do what we want." You only need to look back at relatively recent Chinese history to understand why that is such a fundamental part of the CCP psyche --indeed, I think it is the party's very raison d'être (at least initially).

Maybe, but it seems just a little too coincidental for Hilary's bid, especially when taking into account all of the scandal surrounding the Clinton-Gore administration's connection to China (especially the very large campaign contributions made by China to Bill Clinton's presidential campaign).

 

[galfordo]

I say we pay the debt all back with cash....

Counterfeit cash....

Hahaha, honestly I don't think that would be completely unjustified.

Between the pirated intellectual property and the influx of counterfeit pharmaceuticals, it's not like they would have any moral ground to stand on.



But anyway, yeah they love to try and use their US debt as leverage, but China is still much less stable than the US overall. Their economy is growing fast, but mostly because it was so poor to begin with ... average per capita incomes of 1000$? There's really only one way to go from there. Not to mention the fact that their explosive growth is ravaging the environmental quality of their most populous cities - you wanna talk about a health care crisis in the making ...

As was mentioned previously, if they go after the US economy they'll be killing the goose that laid the golden eggs. And despite the media and all the political fear-mongering, we're still in a much better position to take the hit than they are.

 

[BoriquaSNK]

Maybe, but it seems just a little too coincidental for Hilary's bid, especially when taking into account all of the scandal surrounding the Clinton-Gore administration's connection to China (especially the very large campaign contributions made by China to Bill Clinton's presidential campaign).

Are you alluding to some kind of conspiracy to get Hilldog elected?

Frankly, at this point, any Democrat would be China's worst nightmare, a full 1/3rd of the party wants NAFTA and CAFTA gone, and badly. You think they'd really sit by and let President Hillary or Obama get cushy with Beijing?

I doubt it, but hey, you never know.

 

[Loopz]

Are you alluding to some kind of conspiracy to get Hilldog elected?

Frankly, at this point, any Democrat would be China's worst nightmare, a full 1/3rd of the party wants NAFTA and CAFTA gone, and badly. You think they'd really sit by and let President Hillary or Obama get cushy with Beijing?

I doubt it, but hey, you never know.

Hillary's far too close to corporate America to do a damn thing about NAFTA.
She was on the cover of Fortune magazine recently ("Business Loves Hillary!").
She used to be on the board of directors at Wal-Mart.
She isn't going to do shit to China, and they know that.

Obama's much more of a wild-card on this particular issue.

 

[RAINBOW PONY]

... average per capita incomes of 1000$?

Numbers like that are irrelevant if the surrounding costs for living as just as low in ratio.

Average earnings of a person in Hungary is $16,000. But now, renting an apartment in Budapest, in the heart of downtown, costs $200 a month.

 

[not sonic]

Hilldog!

 

[galfordo]

Numbers like that are irrelevant if the surrounding costs for living as just as low in ratio.

The "costs for living" vary, just like anywhere else. But on average, Chinese citizens live very modest lives compared with their U.S. counterparts, and their wages reflect this.

And why are you complaining about 200$/month rent? Using the figure you gave, that's well below 1/5 of a person's total earnings for housing, which is not bad at all.

 

[melchia]

Are you alluding to some kind of conspiracy to get Hilldog elected?

Frankly, at this point, any Democrat would be China's worst nightmare, a full 1/3rd of the party wants NAFTA and CAFTA gone, and badly. You think they'd really sit by and let President Hillary or Obama get cushy with Beijing?

I doubt it, but hey, you never know.

I'm not saying there is necessarily a conspiracy or that any of this is the doing of the Democratic party. However, I do think Hillary is an excellent politician, especially with regards to strategy planning. Is she incapable of some sort of a conspiracy with key Chinese investors? No, she's not incapable, especially given her husband's ties to the Chinese.

Honestly, the threat of Chinese bond investments being pulled is scary. If a politician were able to harness that fear and utilize it for campaign purposes, it could be quite valuable.

Now, would the Democratic party allow her to get 'cushy' with Beijing? I don't think that'd be relevant if there was a conspiracy. Let's say there is one (just for argument's sake): China threatens to cash in its US bond investments. Politician vying for office has been warning about this sort of thing since before threat was made and promises effective economic and foreign policies against this sort of thing. Once elected, politician visits China. China drops threats and agrees on some 'alternative'. Leaders smile for the cameras and all is good between the two within a couple of months.

 

[aria]

I think this is getting a little too complicated: there are much, much easier ways for a Presidential aspirant, especially with the boatload of connections Hillary has, to make incredible profits from potentially inappropriate relationships than going this rather destructive route.

 

[RAINBOW PONY]

The "costs for living" vary, just like anywhere else. But on average, Chinese citizens live very modest lives compared with their U.S. counterparts, and their wages reflect this.

And why are you complaining about 200$/month rent? Using the figure you gave, that's well below 1/5 of a person's total earnings for housing, which is not bad at all.

...

I was not complaining, quite the opposite. Living downtown in a beautiful city in Europe for that low cost is amazing. But people would scoff when they see the earnings at only $16,000, and say "whoa those guys are poor".

That's why I said, perhaps in China rent is ~$50 in ratio to their earnings.

 

[RAINBOW PONY]

And could someone explain to me how this China threat would work if they did it?

I don't understand economics like this.

They own a bunch of stuff in the USA, and they are threatening to sell them all? Why would that have a bad impact? It would just go to different owners then, the same as China?

Someone explain it, I don't get it.

 

[galfordo]

...

I was not complaining, quite the opposite. Living downtown in a beautiful city in Europe for that low cost is amazing. But people would scoff when they see the earnings at only $16,000, and say "whoa those guys are poor".

OK.

That's why I said, perhaps in China rent is ~$50 in ratio to their earnings.

Perhaps, but that doesn't really prove anything either. Their rent probably is low, but they're probably living in shitty housing, and without proper medical care.

 

[galfordo]

And could someone explain to me how this China threat would work if they did it?

I don't understand economics like this.

They own a bunch of stuff in the USA, and they are threatening to sell them all? Why would that have a bad impact? It would just go to different owners then, the same as China?

Someone explain it, I don't get it.

They could demand that the debt they hold be paid off in full. That's part of it at least. That would sting, but they'd also fuck themselves by forfeiting the money they would have made by interest accruing on the debt.

 

[RAINBOW PONY]

What debt is this?

They bought things paid in full, and then they went and leased it to US people who are paying monthly for it, with interest?

 

[galfordo]

What debt is this?

They bought things paid in full, and then they went and leased it to US people who are paying monthly for it, with interest?

Dude, the U.S. has a monthly trade deficit with China that is in the tens of billions. Also, banks and investors in China can buy debt. By buying or assuming a given amount of debt, they become the lender and stand to make money by collecting payments with interest.

 

[melchia]

I think this is getting a little too complicated: there are much, much easier ways for a Presidential aspirant, especially with the boatload of connections Hillary has, to make incredible profits from potentially inappropriate relationships than going this rather destructive route.

Complicated and destructive? Granted, but this sort of issue is also very far reaching, and fear is a pretty powerful motivator.

Conspiracy theories aside. Economies of all the various nations are heavily interdependent (as if you didn't already know this). Believe it or not, I favor this sort of interdependence because it promotes political and economic stability in the long term for all parties involved. Isolationist policy is a waste of time and would only serve to force our economy backward, to say nothing of technological advancement. The more isolated nations are, the more unstable things become politcally.

Interdependence is the reason I see this as a mixture of posturing and serious threat. I don't think China wants to pull its bonds, but they will if provoked (by way of heavily limiting China's ability to export to the US).