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John Taylor On The Yuan Reval: "China Helps Itself, No One Else"
China Helps Itself, No One Else
By John Taylor, CIO F/X Concepts
When China announced that it would be changing the policy that effectively fixed the dollar rate in the 6.83 area since August 2008 and would allow the daily peg to move significantly as it had in the 37 months between July 2005 and August 2008, there was joy in the major political capitals. Western observers saw the Chinese move as a conciliatory gesture to the Eurozone, and especially to the US, that would ease global political stresses at the upcoming G-20 meetings. Although political tempers were cooled somewhat in Toronto, the Chinese move will have virtually no impact on the trade balance and employment picture in any of the developed countries and, as a result, will not lessen the political heat that the Western authorities are facing from their electorates. Within Europe, the powerful German export machine masks Chinese import penetration and mutes the public’s anger, as there are so many other economic issues agitating the voters, but in the US, the trade deficit with China stands clearly above any other global economic issue. Despite the hoopla around this move, it will have almost no impact on US imports of Chinese goods, or the US trade balance. Has this change done anything?
From the US point of view, the renminbi–dollar exchange rate sounds important, but it isn’t. Even if the renminbi were to double in value tomorrow, and the Chinese lost market share in a market, like televisions, the US would import many fewer from China, but would buy more from other countries like Malaysia or Thailand. In almost every case, the lowest cost producer would not be an American manufacturer but another foreign one. In fact, it is very likely that the Chinese would not be pushed aside by others even if its currency does strengthen dramatically. The Japanese example is instructive: there were 360 yen per dollar in 1972 and now almost 40 years later there are about 88, which is roughly a 4% compound rate of annual appreciation, but the Japanese maintained their dominant trade surplus with the US throughout the entire process. China’s surplus is higher than it was in 2005. In the 59 months since the renminbi began its climb from 8.255 RMB per dollar, it has appreciated at roughly the same annual rate as the yen, but the impact of this annual change is almost nil. On each individual item, like a pair of $10.00 jeans, an increase of 4% is only $0.40, an amount that can be covered by squeezing the margin either at the manufacturing end or at the wholesale/retail end. There is plenty of room to accommodate this increase; the customer sees nothing and he keeps on buying.
For the Chinese, restarting the creeping revaluation of the renminbi has many benefits. Near the top of the list is gently moving its manufacturing base toward higher value added items and shifting production from servicing exports to satisfying domestic demand. Way down the list is appeasing the international critics of Chinese policy. The promotion of the domestic market is already underway, but the pace will be glacial – at least from the point of view of bank traders and US politicians – taking at least a decade to have a major impact on the composition of the Chinese economy. And there is no guarantee that any shift is coming, as the Japanese economy remains basically unchanged despite the dramatic increase in the value of the yen. We can only hope that the authorities in Beijing have a more adaptive and global view than those in Tokyo have shown and will adjust their banking and financial support system to integrate the renminbi and the Chinese economy with that of the West. Although the renminbi could rise to the 4.00 area by the end of this decade, the impact of this move will be felt inside of China, not outside. Furthermore, we can be sure that the Chinese leadership will do its best to manage this process in a way that has the most positive feedback for the Chinese society. Although the stronger renminbi will be a boon for China’s neighbors in Asia, it offers no help to the US or Europe.
h/t Teddy KGB
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Long Yuan, Bitchez
Yeah unless they revalue it by a factor of 12x, it is not going to induce more American exports. We Americans are hopelessly overpriced and nobody can buy our shit.
has he stopped talking down the Euro then?
The Chinaman is pissing on the rug dude.
It may well help longs of Chinese stocks that trade in states.
and commodity currencies which i imagine will suck money from the long end of the curve, driving rates higher. the only way Bernanke can raise rates is when the market tells him he has to (i.e. plausible deniability).
It's nice to hear that sovereignty is embraced by someone ... I wish the US (Administration) was more interested in Americans than I M F'ing
So the PRC worried about their peoples first? Hum...
All Taylor is saying is Americans are fucked either way and I agree, its austerity time dude, welcome to ZH world if you haven't been long here!
Yes, austerity, bitches!
At least they stopped putting pee pee in our coke
The yuan traded at 1.5 to the U.S. dollar in 1980; the yuan trades around 6.8 to the U.S. dollar now. China's workers are demanding higher pay. The Chinese have the US over a barrel by owning so much of our debt, which could be unloaded detrimentally. However, we could impose a large tarriff on their goods which would hurt US consumer buying power, but would also hurt China's exports. Either way we're screwed
We are better off being "screwed" while employing Americans than being screwed kowtowing to the Chinese Fascists.
Oh yeah and China is NOT a currency manipulator. And Herr Hitler promises not to invade any more countries.
What a bunch of weak-kneed chicken shits run this country.
certainly worked for hawley and smoot.
China's currency manipulation merely mirrors our own.
And no, putting a tariff or taking whatever punitive measure against the Chinese you think is somehow going to bring back American jobs isn't going to work. All it will do is shift our trade imbalance with China over to some other nation or group of nations. WE are the ones who drove out our industries by a, taxing the shit out of small businesses and non-favored corporations, and b, regulating industries until they were no longer competitive. Drop those two things back to 1960's levels, and watch the industries come flooding back. Do it not, and you will get the same thing you would get by pointing a gun at the ground and commanding a factory to spring up. Nothing, or at best, a small pit.
I think it would help, but it would in no way solve the math problem we are up against. I know nobody likes to hear "this time it's different" but this time it really is. Think about this:
There are 2.4 Billion Chinese and Indians willing to work for $200/month compared to about 750 Million Americans and Europeans who demand about $3500/month. Add up all the workers and pay and then average them all out again and you get about $800/month. Pretty freakin awesome if you are Chinese or Indian, but what if you are European or American?
This is why free trade will sting for the developed country. Free trade is the great equalizer. Sure in the long run the pie will get bigger, but never in history has there been such a fast shift from the developed world to the emerging one. The transfer is happening quicker than people can retool into other things.
The last time a shift anywhere close to this large happened was when the USA was cheap labor for Europe. That was way back when shipping things took months and was a huge cost. With modern technology, shifting production and shipping to Asia takes only weeks.
This is a property of free trade. Everyone knows it, but no one talks about it. I'm strongly libertarian myself, but not when it comes to free trade. The math doesn't work for me or my future kids. So I expect my government to protect me from a crappy financial future, just like it does against terrorists. It even seems to me the financial one should be more important, it will hit everyone in the USA. Not many are ready to live off $800/month.
Instead of severing relations with a communist dictatorship... what do we do ? We make it the manufacturing hub for this country and move all our manufacturing jobs there AND let them buy all our debt. Great minds at work in Washington D.C
Jonathan E.: I've been thinking, Ella. Thinking a lot... and watching. It's like people had a choice a long time ago between having all them nice things or freedom. Of course, they chose comfort.
Ella: But comfort is freedom. It always has been. The whole history of civilization is a struggle against poverty and need.
Jonathan E.: No! No... that's not it. That's never been it! Them privileges just buy us off.
muir: your avatar is at war with your comment.
good call
Jeff may be correct.
Sounds like they are doing a great job of moving the jobs from the communist dictatorship over to the capitalist society.
You see, we are capitalist in name only, the same way China is now communist in name only. You are about five times more likely to land in jail in this communist dictatorship than you are in China. Of course, you are four times more likely to be executed in China than the US, but then you are 300 times more likely to be executed in the Bahamas than the US, so looks can be deceiving here.
On zee way 2 one too one
http://finance.yahoo.com/q/bc?s=USDCNY=X&t=5y&l=on&z=m&q=l&c=
Mark Levin quotes ZH on his show. Minute 38 more or less.
http://rope.zmle.fimc.net/player/player.html?url=http%3A%2F%2Fpodloc%2Eandomedia%2Ecom%2FdloadTrack%2Emp3%3Fprm%3D2069xhttp%3A%2F%2Fpodfuse%2Ddl%2Eandomedia%2Ecom%2F800185%2Fpodfuse%2Dorigin%2Eandomedia%2Ecom%2Fcitadel%5Forigin%2Fpods%2Fmarklevin%2FLevin07072010%2Emp3
Love the truth, it sets all free... Relax you're throat or arse...Accountibility always comes home.
Did anybody expect anything else? Does America or Europe do it otherwise?
Own people first. Nationalisme baby!
BEIJING (AP) -- China's customs agency on Saturday said that exports were up 35 percent in June from a year ago, while imports rose almost 53 percent. The figures showed the largest monthly trade surplus so far this year, $20 million, despite the debt problems of China's largest trading partner, the European Union.
That should keep international pressure on China to further allow the value of its currency to rise, even after China last month relaxed the yuan's two-year peg to the U.S. dollar.
The report said exports rose 35.2 percent in June, higher than expected, while imports were up 52.7 percent. That's compared with the same period a year ago.
"Data for June shows China's trade account continuing to defy gravity, with exports strong despite mounting evidence of a faltering global recovery, and imports strong despite expectations of slowing domestic investment growth," said a research note from Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates.
Export growth slowed from its May level of 48.5 percent, while import growth speeded up from its May level of 48.3 percent. The figures were posted on the customs agency's website.
Beijing is closely following the debt problems of its largest trading partner, the 27-nation European Union. The debt problems are expected to hurt consumer spending and overall demand, and analysts continue to worry that Europe's debt crisis is likely to hurt the recovery in trade.
Demand for China's exports plunged after the global crisis hit in 2008, forcing thousands of factories that made shoes, toys and other low-cost goods to close and throwing millions of migrant laborers out of work.
Exports have rebounded at least temporarily to pre-crisis levels, hitting $137.3 billion in June, up from $117.3 billion in the same month two years ago.
"This is a symbol that China's foreign trade has returned to where it was before the financial crisis," Zheng Yuesheng, chief of statistics for the customs agency, told China Central Television. "China's foreign trade is still moving toward basically balanced development," he added.
Exports to Europe were up 36 percent in June from a year earlier while those to the United States rose 28.3 percent. China's politically sensitive trade surplus with the United States was $17.6 billion.
Exports to some developing markets rose much faster, reflecting the uneven recovery of global demand. Shipments of Chinese goods to Brazil jumped 103.7 percent and to Russia by 59.2 percent.
Import growth sped up despite government efforts to cool a boom in the real estate industry, which is one of China's top customers for steel, copper and other building materials.
"The quantity of iron ore and copper imported fell for a third month in a row, though the fall in the quantity of iron ore imports was disguised by an increase in prices," Orlik's note said, adding that it could indicate slowing demand in the near future.
China General Administration of Customs (in Chinese): http://www.customs.gov.cn
More rally next week ?
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
More shameless self promotion this weekend Grand?
Who cares about the market or rally for a week...the country is going down the tube....And I thought your name was "grand super cycle"...
China is possibly the biggest bubble ever created by the media, and no, they are not gonna rule the world. They will implode far sooner then folks think.
My bet is on Germany leading a bloc of nations to take over the reins if the US falters. China copies stuff (poorly I might add), Germany creates and invents.
I'll take 82 million Germans over 1.3 billion Chinese any day.
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