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Who Holds the Trump Cards in the China vs. US Poker Game?
In my last article,
I outlined the current financial/ economic relationship between China and the
US. In particular I focused on the manner in which China is diverting its money
and resources away from the US Dollar and US economy.
Indeed, in
my opinion, when push comes to shove it is China, NOT the US who holds the
trump cards on the major issues. Here is a list of the trump cards I perceive.
I’ve referenced this list previously in a report on the Fed’s Quantitative
Easing Program 2, but I believe it bears reiteration:
1) Rare
earths production (China controls 93% of global production).
2) US
Treasuries ownership (a decision by the #1 holder to dump would start a global
rush from the US Dollar)
3) Derivatives:
China could simply tell its banks and firms to renege on all derivatives deals,
not just the commodity ones (commodity derivatives only comprise 2% of global
derivatives, interest rate-based derivatives, in contrast, comprise 80% or so
of the $600 TRILLION derivative market.
4) Interest
rates hikes: a series of interest rate hikes could greatly damage the US via its
derivatives market (see #3 above) or the US Dollar, which currently pays next
to nothing.
In contrast,
the US’s primary strengths are its indebtedness (it could potentially renege on
its debts to China, though this would likely kick off a systemic implosion
too), its military (which is already stretched thin due to the wars in the
Middle East), and its reserve currency (which China is already moving to
confront).
In plain
terms, China has the upper hand here. So be prepared to see any of the above
cards played in the coming years depending on how things play out between the
two countries.
In closing,
I want to stress that none of my statements are meant to come across as
US-bashing nor do I think the US is somehow “finished” from an economic
standpoint. The history of this country has been one of continually
re-inventing itself via conflict and I fully believe that it will successfully
emerge from its current economic problems (though this process will take
years).
Moreover, I
do not wish to come across as a disciple of the “Chinese growth miracle”
doctrine, which has saturated the financial community. The Chinese economy
faces its own major issues particularly regarding inflation, over-capacity,
loose monetary policies and infrastructure needs beyond the coast cities.
Indeed, in
some regards it is clear China is currently in something of a bubble at least
from a real estate and financial speculation perspective. This bubble, when it
pops, will set the country’s growth prospects back dramatically. The Chinese economy will have its downs
as well as its ups just as the US did during its ascendancy to power in the 20th
century.
However, to
me it is clear that the overall big trends in this picture are that China is
taking aggressive steps to attain super-power status while the US is something
of an empire in decline. Thus, going forward the US will face greater and
greater challenges from China, which has proven to be more forward thinking in
terms of gaining economic clout in recent years. These challenges will likely
play out in terms of trade wars or even actual physical warfare, so be prepared
for shortages of goods, or potentially even violent conflict in the coming
years.
Best Regards,
Graham Summers
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1) Rare earths production (China controls 93% of global production).
Big deal. That's only because we've foolishly let them for cost reasons, not because "rare" earths are nowhere else to be found.
2) US Treasuries ownership (a decision by the #1 holder to dump would start a global rush from the US Dollar)
SELECTIVE nullification of debt. The Prez could eliminate any debt to China with the stroke of a pen.
You don't mention a huge card we hold: food. If things really get nasty with the Chinese, a US food export embargo could be implemented against them. Although straw man purchases from the US routed to them would be a loophole, those middle men would want a cut, raising the price from buying direct. With 40% of the average Chinese income spent on food, civil unrest due to large food price increases could be easy to trigger.
China can get food from Europe if the Europeans get rid of US domination.
Black Swans are attracted by large populations which must be fed....are the swans in flight or temporarily grounded???
A growing China doesn't have enough water to grow the food it needs to feed itself. Ditto for coal, oil, and numerous other resources. They have been acting rationally and taking measured steps to head off troubles down the road, and now we have reached the stage where these assertive measures by the PRC conflict with U.S. goals and spheres of influence.
China controls both ends of the Panama Canal, and by extension the entire country. China essentially controls all west coast U.S. Ports. In Africa, they have used their cash to buy influence in several key countries and are locking up natural resources. Australia is China's coal mine. Visit Chile and you will find a large contingent of Chinese there, and no, they are not sightseeing.
The Great Game is underway, and we can either play or be played.
"China controls both ends of the Panama Canal, and by extension the entire country."
EASILY terminated by the US relationship with Panama and, if for any reason that didn't work, military dominance in our part of the hemisphere.
"China essentially controls all west coast U.S. Ports."
If it's on US soil, it's easily nationalized.
Both scenarios are ones that both countries would _seriously_ want to avoid because of the tit for tat the would come from such actions. Mutually Assured Destruction.
Oh, 'cos Vietnam was a success?..quite simply, the US cannot wage a Land War - it cannot HOLD enemy territory; it has arrows, it can strike from a distance, annhialte from above 40k feet, but as for it's swords, on the ground - complete waste of manpower. But anyway, that's my opinion. This current debate as to Sino-US hegemony, is it Political or Economic, does one follow the other. The US government is largely distrusted by citizenry, the government of China has not many but still quite similar concerns - again, mainly economic pressures. The question is what role would either play in an economic perspective of the future? -purely on in an economic framework, Nations are only a factor when it comes to Ag. Demand...and Demand follows the various Supply side constraints, interest on debt, money supply, commodity prices, wage inflation, energy costs, intellectual property. So that the point is, Political hegemony is dependanty on a whole series of Global Trade and Banking relationships. If you want to look at the current situation in terms of National strength, we have 'Foreign gunships' holding open the port for Chinese Opium/UST consumption: in the form of the JPM Silver position, Petrodillar recycling, QE(x) and the EFSF. ..were the Yuan to revalue higher, what would be the effect on industrial machinery sales in the rest-of-the-world and thereby Investment? the Chinese and European consumer are holding the global economic edifice up by a string. With the Muni-crisis coming over the US...BUT...even if the US consumer collapses, it is still the European and Chinese consumer whose health will be responsible for the recovery! Now the Chinese have good credit -the Europeans on the other hand, fuck only knows what their Barroso's crew are doing. Because at the heart of that conundrum are the Old European Banks facing massive a non-peforming asset crunch which has yet to be acknowledged. The only way that this unhealthy London-inspired hedge-fund banking travesty continues (and with whose money, because I'm fairly certain that this world wouldn't be big enough for the two of us) is if there's is a compleste destruction of anyone who actually has to 'work' to support themselves - so that in the very-immediate fuure there is strong and critical demand for a banking infrastructure - your M.A.D. scenario...so, we're going to see massive QE in Europe and then Hyperinflation - and China will be left standing.
Rare earths are not rare, they are dirty. China has some rare earth deposits which are uniquely not contaminated by radioactive isotopes, as these deposits are elsewhere in the world. This gives them a quality advantage. However, rare earth production is and will continue to be redeveloped outside of China.
Renegging on contracts would in essence be tearing up debt, which is deflationary, which leads to QE x, a weaker USD, less US imports, more competitive exports, more Chinese inflation and open revolt.
Higher interest rates might reward savers and the Chinese middle class but is the death knell for slim margins at exporters who already had slim margins and are facing inflationary input costs ... These slim margins are supported by artificially low cost of capital. Shift that to the Chinese saver and the cards are not a poker game but rather a house of ...
The more jobs we lose the less influence we have with China as demand for cheap junk falls. As soon as we use our usefullness they will dump our currency as their end goal is to become the #1 economic power.
The winner is the country with the most commodities. China understands this, Timmy and Ben - not so much.
'Both countries' debt-to-gdp ratios are ridiculous, nobody wins.'
Exactly. People seem to think the fall of the US is a certainty, that China will grow to the sky. China has major problems too, I don't view the Chinese government's control as being total, it is a fragile state like all others.
The U.S has control over the Western world (does the reaction to Assange and Wikileaks cause anyone to doubt this?), easier access to rare materials than China, and (yes this still counts), a military which is far superior to the Chinese army.
China hasn't even gained dominance over the U.S in it's backyard, Asia, and people think they rule the World! U.S carriers are docking in Vietnam, neighbouring states like the Philippines, Taiwan, India not mention Japan and South Korea still look at China with suspicion and view the U.S as allies and a balancing force.
You forgot about something important : the younger generations of educated Europeans don't see the country formely known as the Land of Liberty as an allie anymore. They are looking for partnerships with Asia and Russia and China and Russia know it.
What's so hard about this? The Chinese are winning and ultimately will win. The U.S. are at the maximum disadvantage with Barack Obama destroying the last vestiges of American infrastructure and integrity. It's over for the U.S. Get used to it.
Who's destroying the last vestiges of American infrastructure and integrity? It sure as hell ain't Obama. How do you come up with that biased view? You need to wake up and see who has and is running things & then you can come back and talk to us.
Barry is Rockefellers lapdog.
LOL!!
Politically, to solve growing delayed problems , if China moves to the left, the USA will move to the right, and if the USA will move to the right, China will move to the left.
That USA could move to the left and China to the right, seems impossible to me, given the effect of Chinas current "right" policies on inflation and most poor masses, the support base of the communist party. These two things are incompatible, the communist party staying at power, building its military muscle and erosion of support in >900 million poor people.
So China to the left, the USA to the right, both rather radically. Who first?
The double dip in the USA may come as early as Q1 2012. That would give ground for right to claim left and the Republican House has messed it up totally, so 2012 will be won by Tea party.
China, seeing double dip in the USA, will move to grab the opportunity and expand its power, which means consolidation of CCP power and militarization on the expense of current capitalist economic growth engine. So, in 2012 Party reshuffle nationalization and militarization plus reduction of income inequality will win, removing middle class from equation.
With China moving to the left and double dip Palin will grab the Presidents post and have Tea Party soon officially running the Congress and, may be, also Senate.
That will lead to further leftism in China on ideological basis, confirmed in spring 2013 National congress.
The basis for increasing confrontation with Chinese seeking to gain benefits on opportunities economically weak and politically divided ( the left will radicalize in the USA as a reaction to the Tea Party win), and America fighting back.
That all on the background of rising commodity prices in all paper currencies, including USD. So the volatile inflation component will become permanent,and , by usual logic, monetary easing must stop while the USA is in recession.
Does anyone see a simple solution of this equation?
One thing would be to make voting rights symmetrical in the USA and the west:
Those under 18 do not vote, nor do those over 62 ( av.life span -18). That sould solve SS problem.
I expected this article to unleash the usual usa chanting bravado.
Yes we've all heard the 'if you owe zillions your banker has the problem'
but the fact remains china continues to outperform the usa at every move and they play the long game - 20 to 30 years.
We are badly led and thats gonna get everyone in deep shit .
so before you start chanting usa like some chumps at a swim meet....
get a grip.
its time to arrest the decline and start paying close attention.
chinas exports to usa were 30% of its total a few years ago - now its 15%...
think they need you so much now?
BD6, you're right. The US is still only thinking short-term. The US dumped long-term planning a long time ago. China is looking long. They're not stupid, they're playing it smart. We should be doing the same but we aren't.
The US has been playing long term: they have embraced Smithian economics since their inception.
One tenet of Smithian economics is to move wealth to oneself from the exterior.
Most of US decisions (if not all) have been driven by this tenet: moving wealth to the US from the exterior.
This is what has shaped the landscape of the US and led to outsourcing. Yet US citizens, for some, have a strange reaction to this.
While they accepted to move to other states in the US to keep following the jobs, they failed to perform it when it came to follow the jobs when they moved out of the US.
Yet, believing that the phenomenum would be contained within the US borders was stupid.
Whoa there AA!
"While they accepted to move to other states in the US to keep following the jobs, they failed to perform it when it came to follow the jobs when they moved out of the US."
The corporations moved everything OUT of the US & would not move the workers. It would've cost too much. Workers never got a say about their jobs. The corporations just shut the factories down & moved it all to the sweat shop countries. Workers never had a say about all that. What are you talking about?
Closing factories in a state and moving them to another state has been happening in the US.
Quite frequently and for similar causes as foreign outsourcing.
The cause behind outsourcing is no different when it happens between US states and the US and another country.
The fact is that the general environment in a state has grown too expensive to maintain certain activities and therefore the activity could no be maintained in the state. Taxes are a secondary factor here, one that has much more weight between US states than it has between the US and part of the rest of the world.
The main factor is the general environment. Taxes could be zero pc, the general environment would be still uneven, excluding de facto certain activities from being performed on location.
US workers had no issue with this scheme and willingfully followed the jobs where they were relocated elsewhere in the US.
It only happens that when the jobs are moved abroad, the US workers do not follow. They stay in the US.
Rare earths are not that rare. This china monopoly is temporary.
China wont dump treasuries en masse. They are trying to prove now that they dont act capriciously. It would likely kill their economy too just to dump them quickly.
Reneg on financial obligations? They could kiss goodby their desire to ever again engage in any financial transactions with any world institutions, dollar based or otherwise. Any possibility of.the yuan.becoming a reserve currency would end. No one.would ever trust a country that did that
Higher interest rates? If you mean the yuan that has been the whole goal of our diplomatic efforts to get them to raise intetest rates and allow the yuan to appreciate. A depreciation of the.dollar versus the yuan has no effect on dollar based derivatives structures ....perhaps you mean they will force higher dollar interest rates by selling off treasuries? Ben will buy them and put increased inflationary.pressure on the chinese long before it hurts us very much.
In summary we have.china by.the.short hairs. If they do.spend 40 percent of income on food they will notice inflation a lot faster than we do. Rice riots on china are closer than we think. I believe peter schiff has this one.right. china.is more overleveraged, its banks.are.in far worse shape and inflation was already heating.up before we put the qe2 squeeze on them. They are too.corrupt and.dont have the financial sophistication to manage a soft landing without loosening the peg. If they dont lift the peg their government will fall. No country where 40 percent of income.is spent.on food can tolerate 15 percent inflation for long. China.painted.themselves.in a corner and is much more fragile than most people might.think. squeeze them hard Ben!
"Rare earths are not that rare".........the supposed shortage due to China is already being addressed by a number of companies around the world....by showing themselves to be an unreliable supplier, China just permanently gave up a large portion of the world demand for R/E's.
Poorly researched and written BS article. Dead wrong on all points. China can't increase interst rates to checkmate US dollar. It will be sucidal to their eonomy. There are too many china suckers nowdays. Any growth without people (democarcy) will crash like pack of cards.
How do I junk the post itself and this author? What is this crap doing on a site like zerohedge?
Yeah. Usually Phoenix does better than this. This is just a scare piece and not well thought out. There are lots of things to be scared about but a totally rogue china that dumps all their treauries and reneges on all.of its derivative contracts is not one of them.
once again.. who loaned them the monies to go vertical in the first place?
duuuuuhhhhhhhh?
the same people who could not bring it back on shore?
thats it no more hints..
Both countries' debt-to-gdp ratios are ridiculous, nobody wins.
And physical conflict? You can't be serious...physical conflict really only happens when someone is very hungry and very disgruntled or when there is little perceived downside vs upside (see US vs Afghan/Iraq/Vietnam/Korea). Global prosperity is so high (at least in the countries that have enough guns to actually put up a fight) that it will never go back to levels so dramatic that war will be feasible, save for an ecological meltdown. Even if we can only buy one new television every ten years and need to turn the heat down to 17C in the winter...what the fuck nobody's gonna wanna kill anybody.
Not unless there is a world-wide shortage in precious resources. In that case all bets are off.
Because when there is a PM shortage suddenly all productivity in agri and food production will cease? Hm. I don't see the correlation to be honest.
Besides, there will be no PM shortage.
Repudiate the debt and that causes a lot of problems for China that aren't reflected as badly in the US.
Oh really? How do you figure that? What do you think China will do in return? Do you think the Chinese are stupid? Did you read the whole article here?
Say we do that, repudiate the debt. What do you think China will do? They will dump our debt real quick, and then they will dump on the derivatives and other crap that our financial people dreamed up. What will happen then? Other countries holding the same toxic crap will do the same. Where does that leave us then? That will leave us in big doodoo. Our economy will collapse for sure. And yes, that in turn will hurt the rest of the world, and then the whole world will all go down like dominoes.
This is like a chess game. One must move carefully and contemplate the next move. We are all inter-connected so we must all be careful in our moves.
The question is, who is driving this game, China or the US. It is clearly the US multimationals that are providing the invesment and expertise that runs the Chinese export economy.
The reality is that the US is winning in real terms of trade. The US is getting stuff, and the China is getting paper (actually numbers on a spreadsheet). The US is importing deflation and exporting jobs, the Chinese are importing jobs and also importing inflation.
Who are the real winners? The US multinationals that are opening new markets abroad and securing a low wage, low benefit workforce in an unregulated environment favorable to business, as well as acquiring real assets in the form of investment in factories and other capital goods abroad, beyond the reach of the US tax man.
Who are the losers? Chinese and US workers, and the US middle class in general. Who are the winners? The captains of industry and finance. So what else is new?
"It is clearly the US multimationals that are providing the invesment and expertise that runs the Chinese export economy."
For now anyway, but that will change & soon. The Chinese are making quantum leaps in just about everything right now. The time will soon be here that they tell the US multinationals to go f*ck themselves.
I don't understand how you figure that the US is winning in real terms of trade. From where I sit we are losing, and big time. The US is in the decline right now, empires cannot exist forever. We've had a really good long run, but now we are lagging behind in almost every area and statistic.
We will have an era of decline & then after a while we will come back. But first we have to get our house back in order. If we don't, we'll be in decline for even longer. I don't think our citizens will set still for that for too long.
only loosers are the bottom 90% of the world. why do you think china is over there bailing out the european member states. they use the same ponzi scheme--- fractional reserve banking
I'm not entirely sure that they're fully out of reach of the tax man - the products generally do have to make it to shore.
That, and those multinationals are only as powerful as they are allowed to be.
LOL.
So many words in this article, and so little basic clue shown about how the world really works.
Firstly, chinese ownership of US Treasuries amounts to holding a water pistol to the US's head. All the cards are on the US side: the debt is denominated in dollars and the US very much desires a weaker dollar, to improve its ailing economy. (a weaker currency makes the US more competitive)
Secondly, in China they are still routinely executing high officials accused of treason and corruption. Guess what would happen to the Bank of China officials who came up with the "lets keep 1000 billion dollars in US Treasuries" idea, if those bonds were suddenly worth 10% or 20% less due to China playing 'hardball'? Guess what would happen to them if chinese unemployment increased and chinese production dropped because they weakened the dollar and made the US more competitive?
Guess why chinese officials were so scared about European periphery bonds dropping, and started backstopping Europe's debt last week? That should have given you guys a clue that your theory about chinese intentions is dead wrong ...
Thirdly, China making the dollar weaker, while maintaining the yuan's cap to the dollar would be a suicidal macro policy: it would push chinese inflation even higher. If they decoupled the yuan they'd not only face domestically and internationally, but they'd also reverse the direction of the outsourcing of about 3 million US jobs to China which happened in the past two decades.
So it aint gonna happen - and if it happens, it's good for the US and bad for China.
The "China can black-mail the US via its UST holdings" is one of those stupid right-wing zombie lies. It's not even remotely true.
Guys, you should really not accept the GOP talking points at face value - show some backbone and practice some critical thinking for heaven's sake ... that brain you got born with has a purpose! :-)
It cant be that way. For it to be, China must have been a driving force in the process. It was not.
The phenomenun of outsourcing was not driven by China but the result of internal pressures to the US. It means that with or without China, the jobs would have sought to flee from the US.
China is the country that has claimed the lion's share of the jobs expelled from the US. It damaged the US management of outsourcing (world tour of misery)
China is no longer a low cost country. That is what bothers the US citizens. The more the Chinese rise, the more strain they will be able to consume, the more strain they put on limited resources.
Limited resources that should, by US world order, be allocated primarly to support the US way of life.
"Limited resources that should, by US world order, be allocated primarly to support the US way of life."
OMG! Look, I know it's hard for some of you neanderthals to believe that the US just ain't it anymore. We are not really #1 anymore. Hello? WAKE UP!!!!
The numbers suggest the exact opposite story.
FYI, jobs did not need to 'flee' the US: compared to the likes of Germany, US corporate taxes are dirt-cheap (do not look at the official rates - but check the actual amount paid, tax loopholes included. You'll be surprised that US corporations pay less than 1% of taxes ...), enforcement of regulations is next to non-existent and even personal income tax is significantly below that of Europe's.
But China is still a lot cheaper, and all other things being equal the jobs go where it's the cheapest.
Rough estimations are that chinese capital controls and mercantilism have cost the US about 1.5 million jobs in the past decade. If the yuan had not been kept weak artificially by chinese communist party officials, those jobs would likely be in the US.
(Such numbers can be estimated from the US/China trade surplus.)
It's all too natural for the US to reply to such aggressive currency manipulation with: "ok, if you really insist then we can do the weak currency thing too and get back those jobs" - especially as the US was in a deflationary slump with high unemployment while China is prosperous and fighting growth-induced inflation ...
Why you think that the US 'deserves to be punished' is beyond me - it's an almost masochistic attitude. Unless you think that US workers are somehow fundamentally worse than chinese workers and deserve to be punished. (If that's the case then you are a member of a truly weird sect I have to say.)
On what ground? Making China the only vessel possible as the release outlet of the US internal pressure...
Of course, it is likely. Many things can be likely.
But what is extremely likely (and much, much more likely than jobs in the US) is that the jobs would have been everywhere but the US.
The US is last on the line to host the jobs the internal pressures has pushed outside of the US.
Taxes have nothing to do in the mix.
The general environment has all to do with it.
If it was a matter of taxes, the whole US landscape would have been different.
The general environment in the US is one of very high quality. This quality shows on the bills on any job.
That is mainly the cause behind job outsourcing.
Sweepers do not live on Park Avenue. They can work on Park Avenue but they can not live there. Their job output is not compatible with the general environment.
The US (and the West in general) has generated a demand for a non residental worker class. Outsourcing is the expression of that pressure.
"Rough estimations are that chinese capital controls and mercantilism have cost the US about 1.5 million jobs in the past decade."
I don't know where you get your info, but actually during the Bush years in office, the US lost somewhere in the area of 5.9 million jobs. I forget the actual number but it is close to 5.9. And the US is still losing jobs. American multi-nationals are shipping white collar jobs overseas now.
There is an IT company in my area that is laying off 200 IT pros & shipping the jobs to Chile. I recently read on Bloomberg.com that some of these American companies are going to ship accountant jobs overseas & laying off who knows how many accountants.
I think you and several other commenters here should wake up & really watch what is happening. If you don't you may be left behind.
+1. Agreed. Other commentators below have debunked the other points. Let me just add that the trump cards are trade and resources. China needs the US more than vice-versa for trade. We saw the failure of being the low cost production leader with Central America in the 90's. People are starting to look elsewhere than China for production now.
China's dependance on foreign resources is a huge Achilles heal. From Africa to Canada, those routes all go through foreign navies. With these two weaknesses, and over a billion people to feed and control, this is not a position of strength.
Chinese communists does not see the economic growth translated to the wellbeing of richest and general population as the ultimate good.
Economic development of last 30 years is a temporary phenomena that can be reduced in order to pursue other more important ideological priorities- export of Chinese model and militarization. That may include such means as nationalization, including foreign owned companies, elimination of the wealthiest and middle class, confrontation over territories that possess resources Central Asia, Russian Far East) , technology (Taiwan, South Korea) , export of capital to buy economic influence ( in detriment to local needs of capital) .
Chinese are well known for their ability to give away food needed for their own population to pursue higher goals of their MODEL superiority, and expand worldwide influence. They are not done yet, they took a break for the last 30 years, which for them is a fleeting moment in their history, necessary revisionism to build up economic force to attack capitalism once again.
All their market institutions like central bank are still run by CCP and can be turned in planned economy with one decision of CCP Politbureau, consisting of 9 engineers who may think they are able to engineer economy without the invisible hand.
West just can not truly imagine what Chinese might do. Russians can, and Merkel ( since she grew up in GDR) can. Vietnamise can. Perhaps even South Koreans still can. Japanese-they know they are a target Nr.1. due to 1930ties war atrocities- they are in very vulnerable position and must be allowed (allow themselves) to militarize, although, with aging population, who is going to serve?
Alas, China can't give away their food if they've been blockaded. Considering that they need to import food, they'd be hard pressed to even feed their local population, much less anyone else.
The US, however, can well instigate insurrections in China's new colonies. As well as wars between neighbors.
China is very vulnerable on both points.
Absolutely. If the US were less independent on China than the reverse, the US would not invest and commit themselves to such strategies.
Maintaining the military and influence network necessary to perform such tricks only come from people who want to keep people captive because they are dependent on them.
No; it's not dependence on the local population at all. It's dependence upon the local resources. There's a big difference.
The name of the game for this Century is controlling the resources, in a resource constrained world. The local population is irrelevant as long as they don't get in the way of the resource extraction.
All you have to do is take a look at the IMF, the Big Oil companies and the Big Finance companies to see how that's accomplished. They have been extremely successful at minimizing dependence upon the local population, while maximizing the resource extraction.
So much so, that China is now starting to follow in their footsteps. And again, the key part is having control over the resources, and minimal dependence upon the local population.
You need to learn a bit more about the PRC. FYI, the chinese banking sector is very tightly controlled by the CPC and has been led with the 'invisible hand' of a few (communist) policy makers in the past two decades.
The fact that there were no bank panics and no bail-outs of chinese banks should tell you already that it's all tightly controlled. There's no full competition between banks there and a significant spread between credit and savings rates maintains a stable financial system. The yuan is not convertible and consumers are barred from purchasing foreign currencies on the free market (they must do it via the 'official' rates - regardless of market pressures) - this keeps foreign goods artificially expensive and keeps local goods artificially cheap.
It's basically "evil capital controls" permeating all levels of the economy, on an amazing order of magnitude. (all right-wing economists should cringe at this point - the chinese economic model is pretty much the anti-thesis of western economies.)
Whether it works without a bust remains to be seen (20 years isnt nearly long enough to see all the kinks of an economic model), and it might blow up in the future, but one thing you have to give to them: it's not an 'obvious failure' by any means, so far.
Btw., it's also visible where the tightly controlled cap of the yuan might unravel: not via dollars smuggled into China on speed boats, but via plain old-fashioned barter of goods. That will set the true price level of chinese goods and will inflate the official currency even more. It might be controlled via control of trade (import tariffs) - but that will hurt the bottom line too and is less defensible internationally and domestically. Smugglers will also be pretty hard to stop, with such a huge shore-line.
If the Fed eases some more it will rev up the finger-screw on chinese officials and they will have to be really creative to keep the yuan stable. The next two years will be interesting to watch.