CHINA: Stupid, Smart or Sly? (unemployed, statistics, regime, revolution)

[KevK]

China continues to sop up US Treasury notes like Bounty sops up a spill. They show up at every auction and buy everything they can. Essentially they finance our government, pay for our wars and other things.
The question is WHY? Surely they know that they are never going to get paid back for most of that money. The fact is that we are not going to pay them back and probably cannot pay them back.
Does that mean we will default? No! We will just use a bit of magic called "inflation" and when the notes come due, we might pay them 25 cents to each dollar they put into the bonds. So the way I see it, if they buy a note for $1 and it pays 2% interest, if inflation goes to 5% a year (and I expect it will be higher than that in a few years), they lose 3% for every year they hold the bond and some of them are 10 or 20 years I believe!
So if the Chinese know this, what do you think the end game is? What do they hope to get from all the spending?

[sponger42]

The PRC and the US are locked in a game of economic MAD at the moment. China needs to export goods to the US to keep it's massive population employed and it's wealth-obsessed people obsessed with wealth and not regime change. The second the factories are idled, the communist government will fall. It was only with a massive and reckless Hail-Mary-Pass military crackdown on protestors nationwide in 1989, followed by a headlong dive into the capitalist distraction that the government managed to keep power.

However, China is acting fast to increase domestic consumption as only a command economy can. They are electrifying massive swaths of the countryside and literally giving away millions of appliances to the rural population to jump-start domestic consumption and end their dependency on US imports.

China, however is somewhat rotten at the core. The communist system is massively corrupt and much of the new infrastructure is of extremely shoddy make (google "Apartment Building Falls Over In Shanghai" You'll get more than a handful of different stories!) so the Chinese are living on the knife's edge, despite holding the US treasury financially hostage.

The Chinese can't do anything--or allow anything to happen--to devalue the US dollar; they are too heavily invested in dollars. Yet they can't stop their rate of investment, either, for fear of revolution if the US import market collapses. Stimulating domestic consumption is their first step toward unlocking their destiny from ours, but it will take years to extricate themselves from the quandry they invested themselves into.

At the same time, the United States must tiptoe around China lest the PRC take the "nuclear option" and shut off the money pipeline.

However, the fundamental difference between the US and China is that the United States is a Representative Democracy Instead of a revolution where we execute our leaders and change our system of government, we simply vote the bums out of office, tighten our belts, and get on with picking up the pieces. The US's trump card in the economic standoff between USA and PRC is our flexible and by-for-and-of the people government which has stood through war and depression. The PRC's government is corrupt, hollow, and extremely disliked. In any economic conflict between the PRC and the USA--at present conditions--the US comes out the winner. But things may change...

[pommysmommy]

So the way I see it, if they buy a note for $1 and it pays 2% interest, if inflation goes to 5% a year (and I expect it will be higher than that in a few years), they lose 3% for every year they hold the bond and some of them are 10 or 20 years I believe!
So if the Chinese know this, what do you think the end game is? What do they hope to get from all the spending?

World domination?

[clue]

Originally Posted by sponger42

The PRC and the US are locked in a game of economic MAD at the moment. China needs to export goods to the US to keep it's massive population employed and it's wealth-obsessed people obsessed with wealth and not regime change. The second the factories are idled, the communist government will fall. It was only with a massive and reckless Hail-Mary-Pass military crackdown on protestors nationwide in 1989, followed by a headlong dive into the capitalist distraction that the government managed to keep power.

However, China is acting fast to increase domestic consumption as only a command economy can. They are electrifying massive swaths of the countryside and literally giving away millions of appliances to the rural population to jump-start domestic consumption and end their dependency on US imports.

China, however is somewhat rotten at the core. The communist system is massively corrupt and much of the new infrastructure is of extremely shoddy make (google "Apartment Building Falls Over In Shanghai" You'll get more than a handful of different stories!) so the Chinese are living on the knife's edge, despite holding the US treasury financially hostage.

The Chinese can't do anything--or allow anything to happen--to devalue the US dollar; they are too heavily invested in dollars. Yet they can't stop their rate of investment, either, for fear of revolution if the US import market collapses. Stimulating domestic consumption is their first step toward unlocking their destiny from ours, but it will take years to extricate themselves from the quandry they invested themselves into.

At the same time, the United States must tiptoe around China lest the PRC take the "nuclear option" and shut off the money pipeline.

However, the fundamental difference between the US and China is that the United States is a Representative Democracy Instead of a revolution where we execute our leaders and change our system of government, we simply vote the bums out of office, tighten our belts, and get on with picking up the pieces. The US's trump card in the economic standoff between USA and PRC is our flexible and by-for-and-of the people government which has stood through war and depression. The PRC's government is corrupt, hollow, and extremely disliked. In any economic conflict between the PRC and the USA--at present conditions--the US comes out the winner. But things may change...

I love it when people pretend they know it all, please disregard the poster above.

[caution]

Originally Posted by KevK

What do they hope to get from all the spending?

The same reason you buy gas at gas stations but the gas companies never buy anything from you. By purchasing gas, you get fuel for a car from them, but you don't really expect them to buy something back directly from you.

Chinese investors know a good deal, and they're buying fuel for their economy.

[Randomstudent]

Money is not so much what the Chinese Government wants...the Chinese Government wants full employment, because when people are gainfully employed they tend not cause as much political trouble. As such, the Peoples Bank of China will soak up US T bonds as long as they can to keep as much of their population employed as possible

[Exrvi]

Originally Posted by clue

I love it when people pretend they know it all, please disregard the poster above.

Disregard? If so, you must have a better argument. What is it?

[clue]

Originally Posted by Exrvi

Disregard? If so, you must have a better argument. What is it?

Let's see.

Originally Posted by sponger42

The PRC and the US are locked in a game of economic MAD at the moment. China needs to export goods to the US to keep it's massive population employed and it's wealth-obsessed people obsessed with wealth and not regime change. The second the factories are idled, the communist government will fall. It was only with a massive and reckless Hail-Mary-Pass military crackdown on protestors nationwide in 1989, followed by a headlong dive into the capitalist distraction that the government managed to keep power.

China has 1.4 billion people with 50% savings rate, they can consume their own goods. Factories are already idled, the excess labor pool is diverted to building the largest infrastructure projects in the world.

Originally Posted by sponger42

However, China is acting fast to increase domestic consumption as only a command economy can. They are electrifying massive swaths of the countryside and literally giving away millions of appliances to the rural population to jump-start domestic consumption and end their dependency on US imports.

China, however is somewhat rotten at the core. The communist system is massively corrupt and much of the new infrastructure is of extremely shoddy make (google "Apartment Building Falls Over In Shanghai" You'll get more than a handful of different stories!) so the Chinese are living on the knife's edge, despite holding the US treasury financially hostage.

There's 7 billion people on the planet, they don't have to rely on US to export goods to.

Originally Posted by sponger42

The Chinese can't do anything--or allow anything to happen--to devalue the US dollar; they are too heavily invested in dollars. Yet they can't stop their rate of investment, either, for fear of revolution if the US import market collapses. Stimulating domestic consumption is their first step toward unlocking their destiny from ours, but it will take years to extricate themselves from the quandry they invested themselves into.

At the same time, the United States must tiptoe around China lest the PRC take the "nuclear option" and shut off the money pipeline.

CPC has been using their state-owned banks to devalue USD slowly over the last 4 years, by buying up resources around the world.

Originally Posted by sponger42

However, the fundamental difference between the US and China is that the United States is a Representative Democracy Instead of a revolution where we execute our leaders and change our system of government, we simply vote the bums out of office, tighten our belts, and get on with picking up the pieces. The US's trump card in the economic standoff between USA and PRC is our flexible and by-for-and-of the people government which has stood through war and depression. The PRC's government is corrupt, hollow, and extremely disliked. In any economic conflict between the PRC and the USA--at present conditions--the US comes out the winner. But things may change...

Several points incorrect here, US is a Constitutional Republic. PRC operates on an age-old concept called "guanxi", CPC is not hollow or extremely disliked. CPC is extremely popular and has very high approval rating from its own citizen, hence any non-Chinese such as myself criticizing CPC, the Chinese gets very defensive. Your last point is laughable, in any economic conflict between CPC and US right now, CPC can eat US for cake.

[sponger42]

Originally Posted by clue

China has 1.4 billion people with 50% savings rate, they can consume their own goods. Factories are already idled, the excess labor pool is diverted to building the largest infrastructure projects in the world.

You are incorrect, the factories are not idled, the government is diverting the small stockpiles created by the minor dip in US exports caused by the mild recession to their own people in a bid to stimulate domestic consumption. A rapid collapse in the value of the US dollar and therefore the export market will leave a significant portion of the population unemployed. One does not snap one's fingers and create a new Three Gorges Dam project, but that's how fast financial markets can destabilize.

But if you insist this is incorrect, please offer your own explanation as to why the Chinese continue to invest in US treasuries.

There's 7 billion people on the planet, they don't have to rely on US to export goods to.

Eventually, yes, but presently, no. China's top export destination is the United States at 250 Billion dollars in 2008.
US-China Trade Statistics and China's World Trade Statistics
Followed by Japan and Hong Kong, who's combined imports from China barely exceed US totals. Not to mention that the HK and Japanese economies are also linked to the US. There may be 6+ billion people on the planet, but the top 10% consume 90% of all manufactured products and they are all linked to the world's largest consumer--us. Try again.

CPC has been using their state-owned banks to devalue USD slowly over the last 4 years, by buying up resources around the world.

China's primary interest is not in devaluing the US dollar, but they would certainly prefer a free-er hand. What is the point of this statement? Are you suggesting their primary goal is to devalue the US dollar and not to secure resource bases?

Several points incorrect here, US is a Constitutional Republic.

My mistake. Thanks for the correction. My point remains valid despite my incorrect terminology.

[quote] PRC operates on an age-old concept called "guanxi",

You are correct on the idea that communisim has fostered the worst aspects which can emerge from "guanxi:" the rampant spread of corruption, favoritism, and nepotism without regard for merits of an individual. Here's a useful condensation for those who are interested:

Literally translated, guanxi means connections. But it is much more than having the same old school tie.

In Europe or America who you know might help you get a job, or get your child into a decent school.

In China who you have guanxi with can mean the difference between freedom and jail, justice or discrimination, wealth or poverty...
...Every year tens of thousands of people get on trains and buses from all over China to make the long trek to Beijing.

They do not come to see Mao's mausoleum. They come to petition the government for justice.

All have terrible tales of woe. Some have had their land stolen for development, others have had their husbands or sons beaten senseless by the police.

All have tried and failed to get justice in their home towns and villages. Coming to Beijing is their last hope.

...Time and time again these innocents from China's countryside will tell you that if only the central government gets to hear about their case, justice will be done.

Sadly they are wrong.

These people have no guanxi.

They are just part of China's seething mass. Their cases will not get heard...

...As it prepared to mark its 56th birthday this week, China's rulers sent police out into the slums south of Beijing to round up thousands of these petitioners and ship them back to their far-away homes.

BBC NEWS | Programmes | From Our Own Correspondent | China's modern power house

CPC is not hollow or extremely disliked. CPC is extremely popular and has very high approval rating from its own citizen, hence any non-Chinese such as myself criticizing CPC, the Chinese gets very defensive.

Perhaps this is true amongst the Chinese with whom you--and most westerners--have mingled. In the echelons of the mid-upper class and the boardrooms of Shanghai, Beijing, Guangjou, or Kunming among many other cities and metropoles of China, no, Capitalism's unholy marriage to the absolutism of "Communism" is extremely popular. It allows the wealthy few to ride roughshod over the rights of the billion+ with no guanxi.

But try walking the streets of Urumuqi, talk with the families of the working girls in Xi'an, live for a while in the countryside outside of the nice-ed up areas of Jojuzaigo, Huangshan, or Dali. If you can find someone willing to talk to a westerner, or if you just keep your eyes open--but your mouth SHUT--you'll see the truth behind the cooked books and government-censored facade of China.

If you can't speak or read Chinese, just pick up an English-language version of Chinese newspapers and read between the lines.

The Chinese government teeters on the brink, just as all governments which represent their own interests before those of their people. I do not forecast the collapse of the PRC, but only point to it's fragility. Every step toward openness since 1989 has served to weaken the grasp of the party on the people. The power-holders in China, today, are absolutely reliant on a growing economy in order to remain in power.

They are taking steps to secure their precarious position, but don't fool yourself into thinking that China's government is robust, the economic numbers they report have any bearing on reality, or that another revolution cannot occur.

Your last point is laughable, in any economic conflict between CPC and US right now, CPC can eat US for cake.

So say the numbers, and so I used to think, before I lived there and had my eyes opened to the truth behind the Chinese myth.

Now, after all this nay-saying, my hope is that the Chinese government will avoid conflict with the US and become more representative of the will of the majority of its people, rich and poor, religious and secular, Han and Ughyr (and a hundred other cultural groups). This is the pathway to stability.

Some Chinese leaders dedicate their lives to this. Others dedicate themselves to increasing their own power, wealth, and tightening control over an increasingly educated and restive population. Only time will tell the final outcome.

[Peggy Anne]

The United $care$ of China.