Chinese Yuan

nobody · Post by **nobody** » July 26, 2005, 3:47 pm

http://www.resourceinvestor.com/pebble.asp?relid=11632

i don't understand this stuff much but as i understand it china has kept their yuan locked against the dollar to attract more trade and business. the potential problem it seems is at anytime china could let it go, and with as strong an economy as they have, really have us by the balls in debt. if anyonw knows more about how this stuff works please enlighten me.

Voronwë · Post by **Voronwë** » July 26, 2005, 5:10 pm

their economy is not strong at all compared to ours.

they have only limited pockets of open markets, and they have a substantial number of state owned industries.

the yuan becoming unpegged HELPS the US. We've been pushing for it for sometime.

i'm no currency/trade guru though.

kyoukan · Post by **kyoukan** » July 26, 2005, 5:14 pm

yeah china's economy isn't great. most of the new jobs being created and wealth being generated is from US corporations sending them business due to their low wages and non existant labor laws. it's like having a third world sweatshop with a more stable government and modern equipment.

china's economy is improving though, and who's to say where they will be in 20-50 years? most money guys I've been listening to say that china keeps their yuan locked because if they did put it up against the US dollar it would go up in value and not look so lucrative to american corps that want to save money offshoring anymore. a strong local dollar will kill that pretty quickly.

nobody · Post by **nobody** » July 26, 2005, 5:14 pm

i'm curious to know HOW it would help us exactly. i thought the whole idea of them keeping it pegged was to our benefit b/c it made it cheaper to do business with them. like i said i'm ignorant of this type of stuff and am just curious.

Deward · Post by **Deward** » July 26, 2005, 5:46 pm

I could be wrong but China owns a lot of American debt. Releasing the Yuan would make that debt worth a lot less than what they paid for it.

Voronwë · Post by **Voronwë** » July 26, 2005, 5:52 pm

you are not wrong, they own a very large amount of US Debt, as do private interests in Japan.

Hoarmurath · Post by **Hoarmurath** » July 26, 2005, 5:59 pm

China owns more U.S. debt than any other single nation in the world. The Chinese government, as has already been mentioned, chooses to lock the value of their currency to the U.S. dollar. Doing so guarantees that services and goods that are cheaper from China now will remain cheaper as long as the currencies are tied together. If China were to allow its currency to float naturally, it would immediately weaken against the dollar (if it would actually strengthen the yuan, they wouldn't be quite so adamant about keeping the values tied together), meaning that goods and services from China would become more expensive almost overnight. This could make U.S. companies look a lot harder at other countries instead of China when choosing where to purchase goods and/or services. As stated previously, it also makes the U.S. debt that they own worth a lot less.

nobody wrote:it seems is at anytime china could let it go, and with as strong an economy as they have, really have us by the balls in debt.

Actually, the reverse is true at the moment, which is why China keeps the currencies locked. By "reverse" I mean only that allowing their currency to fluctuate naturally would cause it to weaken, not strengthen, relative to most other currencies in the world.

I just took an economics course last semester (I know this does not make me any kind of expert) and this is one of the subjects that the professor spent quite a bit of time on. The basic gist of the whole thing is that the longer China waits to do it, the worse of they will be when they finally "detach" their currency from the U.S. dollar.

I wish I knew of a websitre or something that could make it clearer, but I'm a lazy bum.

Chmee · Post by **Chmee** » July 26, 2005, 6:07 pm

This post on Daniel Drezner's Blog has a lot of links and references if you are looking for more information.

http://www.danieldrezner.com/archives/002192.html

nobody · Post by **nobody** » July 26, 2005, 6:16 pm

tons of help you guys

Voronwë · Post by **Voronwë** » July 26, 2005, 6:40 pm

chmee, you are the resident economist (or our closest approximation

). What are your thoughts?

thanks

Aabidano · Post by **Aabidano** » July 26, 2005, 7:54 pm

They're doing major infrastructure upgrades across the board all over the China. Much of it is in goods they have to buy from the G8 nations, primarily the US, Japan, France and Germany.

Wouldn't unpegging it make foreign goods cheaper for them in the short term?

kyoukan · Post by **kyoukan** » July 26, 2005, 8:03 pm

Aabidano wrote:They're doing major infrastructure upgrades across the board all over the China. Much of it is in goods they have to buy from the G8 nations, primarily the US, Japan, France and Germany.

Wouldn't unpegging it make foreign goods cheaper for them in the short term?

if they knew shit all about economics, they wouldn't be commies.

Hoarmurath · Post by **Hoarmurath** » July 26, 2005, 11:14 pm

kyoukan wrote:if they knew shit all about economics, they wouldn't be commies.

This brings up another interesting point. So far, pretty much every country that has "globalized" by joining the free world market has done so after a style of government was in place to support it. (Usually some form of democracy.) China is the only country that I can think of that is doing it ass-backwards. They are trying to join the world economy and join in on "globalization" while still maintaining their communist form of government. I can't help but believe that economic changes and pressures in China will ultimately be the downfall of communism there. (As opposed to other communist countries, that typically began to get into globalization only *after* they moved away from communism.

Chmee · Post by **Chmee** » July 26, 2005, 11:47 pm

Voronwë wrote:chmee, you are the resident economist (or our closest approximation ). What are your thoughts?

thanks

Well, monetary exchange rates and their implications aren't something that I have particularly read a ton about. From what I have read so far about the yuan revaluation in particular it sounds like they aren't planning on making any large sudden changes so the impacts will probably be gradual. China (and other, primarily asian, economies) by undervaluing their currencies have been providing us with cheaper goods and more easily financed government debt. That changing can certainly have some negative impact to the U.S. However, long term I think it will probably be beneficial if the trade between the countries relies less on artificial incentives which is basically what the peg seems to be doing. The big question is how rough the transition will be.

There is also potentially some political upside to this, in that it might mute the drive towards protectionistic legislation in the U.S. at least to some degree.

Winnow · Post by **Winnow** » July 26, 2005, 11:56 pm

Hoarmurath wrote:I can't help but believe that economic changes and pressures in China will ultimately be the downfall of communism there. (As opposed to other communist countries, that typically began to get into globalization only *after* they moved away from communism.

Once your average Joe Ping and Joe Pong are able to afford an Xbox 360 or PS3, you'll see the rapid decline of communism in China. Cheap, high quality entertainment is the key to capitalism (lots of fat people) and democracy (doing as much or as little as you want to alter your standard of living).

Forthe · Post by **Forthe** » July 27, 2005, 1:20 am

Think you have your directions mixed Hoarmurath. The yuan was being kept artificially weak (1 dollar buys 8.3 yuan) thus making US imports\Chineese exports and labor cheap. Floating the currency will\has already strengthened it. The government has restricted how much the currency can increase to 2% (1 dollar will buy 8.11 yuan plus some 0.3% float against a mysterious multi-currency index). So you will see a very gradual strengthening of the yuan. It doesn't have much impact on the US in regards to the debt China holds but it will make chineese imports slightly more expensive.

Hoarmurath · Post by **Hoarmurath** » July 27, 2005, 9:44 am

Forthe wrote:Think you have your directions mixed Hoarmurath.

You are absolutely correct, where I was saying "weaker" I should have been saying "stronger", and vice versa.

Damnit, I'm always messing up some minor little detail!

Atokal · Post by **Atokal** » July 27, 2005, 12:17 pm

Forthe wrote:Think you have your directions mixed Hoarmurath. The yuan was being kept artificially weak (1 dollar buys 8.3 yuan) thus making US imports\Chineese exports and labor cheap. Floating the currency will\has already strengthened it. The government has restricted how much the currency can increase to 2% (1 dollar will buy 8.11 yuan plus some 0.3% float against a mysterious multi-currency index). So you will see a very gradual strengthening of the yuan. It doesn't have much impact on the US in regards to the debt China holds but it will make chineese imports slightly more expensive.

Heh was going to say this.

The estimates on how much the Yuan is devalued range from 15 - 40%.
The reason the Chinese made the decision to change the way their money is valued is in response to a move by two politicians in the US who are attempting to have extremely high tarifs applied to all imported goods from China.

To deflate this move the Chinese made a change in their policy which as mentioned above amounts to 2%. This could be viewed as reform by the Chinese when in fact it appears to be nothing more than smoke and mirrors.

Further Corporate USA is looking to the future of 1 billion consumers in the Chinese market once the country opens up more completely to trade. Having manufacturing facilities in China benefits the the USA (cheaper goods = more profit) but at the expense of caniblizing your own consumer base. (No manufacturing jobs = no consumers with money).

A very odd situation indeed.

Chmee · Post by **Chmee** » July 27, 2005, 4:25 pm

Atokal wrote:(No manufacturing jobs = no consumers with money).

I strongly disagree with this statement.

nobody · Post by **nobody** » July 27, 2005, 5:04 pm

no manufacturing jobs = inability to be independant in a crisis like WWII.
i don't think we're to the point of being vulerable that way but we're heading in that direction.