Quote of the Day:
We recognize that China has 2,300 operational combat aircraft, while our democratic partner Taiwan has only 490.
Rob Nabors - White House Director of Legislative Affairs
Macro Overview
Focus On China
- I’m going to Asia for about 2 and a half weeks so you’ll have to bear with me there may not be much commentary from me during this period. I’ll be sure to report back on my own layman’s view of the how I feel the economic sentiment is shifting there.
- In the mean time, let’s take a little look at China and, in particularAmerica’s relationship with the World’s largest contributor to economic growth.
- This week Stephen Roach, now of Yale University, once again wrote an article about America’s Renminbi Fixation. Again, Roachie highlights many points about America’s unhealthy political fixation with China’s currency “manipulation”, but I have written tons about this – click here, for example. Firstly, that Bernanke himself supports currency “manipulation” as a form of monetary management. Any person who thinks that our own Federal Reserve does not manipulate the value of the USD cannot deny that they manipulate the largest securities market in the World.
- But also about how utterly useless it would be in US job creation if China were indeed to de-peg the Renminbi. As Roachie says, the US has a multilateral trade imbalance, not a bilateral imbalance. Something tells me The West is not about to build an economy on the ability to manufacture sneakers to sell to Indonesians or back to the Chinese themselves or whoever, for that matter.
- Protectionism of all sorts is a blunt and dirty tool the effects can be resounding and persistent. If The Western political movement “succeeds” in crippling Chinese imports, we’ll soon the consequences, as Western business loses its fastest growing export market on Chinese protectionist retaliation… and to add insult to injury, the manufacturing that was in China will not come back to The West – it’ll simply accelerate the migration of assembly (that is already occurring) to Indonesia, Malaysia, Vietnam, Philippines etc…
- Here is an excerpt from Roachie’s article:
Finally, China has evolved from the world’s factory to its assembly line. Research shows that no more than 20 percent to 30 percent of Chinese exports to the US reflect value added inside China. Roughly 60 percent of Chinese exports represent shipments of “foreign invested enterprises” –- in effect, Chinese subsidiaries of global multinationals. Think Apple. Globalized production platforms distort bilateral trade data between the US and China, and have little to do with the exchange rate.
Rather than vilifying China as the principal economic threat toAmerica, the relationship should be recast as an opportunity. The largest component of US aggregate demand –- the consumer – is on ice. With households focused on repairing severely damaged balance sheets, inflation-adjusted private consumption has expanded at an anemic 0.5 percent average annual rate over the past four years. Consumer deleveraging is likely to persist for years to come, leaving the US increasingly desperate for new sources of growth.
Exports top the list of possibilities. China is now America’s third largest and most rapidly growing export market. There can be no mistaking its potential to fill some of the void left by US consumers.
Strategic Games: The Key To The Pacific May Lie In The Indian Ocean
- Just to add a little nugget I thought I’d send this article: China – USA: Struggle for Control of the Pacific. An interesting read.
- And also this one at Stratfor: The India-China Rivalry.
- What I find interesting is how both articles mention Myanmar’s strategic position; a country undergoing massive political reform, nestled snugly between China and India with a huge coastline perfect for shipping ports… both industrially strategic and militarily strategic. Just some food for thought, dear reader.
Market Overview
Markets Fighting The Two Usual Forces… Still
- I’m not going to comment much on the markets except to say: nothing has changed in 3 years. Massive injections of monetary easing have done little to stimulate jobs, yet it has succeeded largely in stimulating asset prices – particularly those of large multinational companies. That is those companies that will truly benefit from the lower borrowing costs, not those, smaller companies that actually hire people and move the domestic economy forward.
- So equities are caught between liquidity, great balance sheets, good earning and easy money on one hand… and a fundamentally sick domestic economy on the other. My money’s on the former winning the battle … … for a while.
- As we were on the subject in the Macro Section. My chart of the day is a 5 year chart of Chinese equities (Shanghai Composite).
Chart of the Day
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Tags: Asia, China, Economy, India, Macroeconomic News, Military, Myanmar, Politics, Protectionism, Renminbi, Stephen Roach, TIPSTER, US, Yuan
Michael Kudrna
