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China Sees Largest Capital Outflow In Three Years Amid Currency Conundrum
In light of the most recent GDP data out of China which showed the economy growing at the slowest pace in six years, we thought it time to revisit what we recently called “the flowchart for what is in store for the world for the next 12-24 months.” As we noted in early March, China faces a decelerating economy and a currency conundrum, the combination of which may eventually leave the PBoC with little choice but to first cut rates to zero then engage in outright QE.
In short, China needs to devalue in order to counter weakening economic growth and slumping exports. Maintaining the dollar peg at a time when the dollar is surging has led to double-digit REER appreciation for the yuan, a decisively undesirable outcome for the country’s export-driven economy in the face of still sluggish global demand. Additionally, this is all serving to hamper the PBoC’s existing liquidity easing efforts. Here’s Barclays summing up:
CNY overvaluation is getting more extreme, with USDCNY remaining relatively stable while trade partner currencies fall sharply versus the USD. Our BEER model estimates that the CNY is around 20% overvalued, making it one of the most expensive currency globally.
FX intervention to limit CNY weakness (ie, selling USD) is having the effect of tightening domestic CNY liquidity. The PBoC does have room to cut the reserve requirement ratio (RRR) rate to offset the liquidity impact of FX intervention, as the current RRR level of 19.5% is high by historical standards – the ratio was as low as 6% in 2002. However, a further drain of liquidity may not be appropriate if a step-up in monetary easing is needed to counter a sharper growth slowdown and to bring down elevated funding costs.
The global recovery remains uneven and desynchronized, with the US being the sole engine of growth. While China’s exports are so far performing better than other EM Asian economies’, the recent sharp CNY REER appreciation might have a dampening effect on Chinese exports to countries apart from the US.
Long story short: preventing CNY depreciation is becoming very, very costly in a world characterized by a strengthening USD and still raging currency wars across DM central banks. This has fueled speculation that China, no longer able to take the economic pain, will eventually give in, and that expectation has in turn fueled capital outflows. Of course capital outflows may make it more difficult to devalue (you don’t want to throw fuel on the fire), which means that in the end, China is stuck with few options and as JPM outlines, Q1 marked the fourth consecutive quarter of capital outflows bringing the total to $300 billion over the period. Here’s more:
Chinese FX reserves were depleted for a second straight quarter, by $70bn cumulatively during Q4 2014 and Q1 2015 as China supported its currency. At the same time a current account surplus in Q1 combined with a drawdown in reserves suggests that capital outflows from China continued for the fourth straight quarter…
This brings the cumulative capital outflow over the past four quarters to $300bn. Again, we deduct capital inflow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate. The last time China suffered such pace of capital outflows was during 2012 when $165bn of capital left during the last three quarters of that year. And before then it was during the Lehman crisis when China suffered capital outflows, but much smaller in size (around $60bn of capital left China during the second half of 2008). So the 2012 capital outflow episode is more comparable in size to the current one…
The capital outflow appears to be driven by the more volatile “Other Investment” item in balance of payments. And within this item there are three components that saw the most significant swing during China’s most recent capital outflow episodes, i.e. the last three quarters of 2012 and the past four quarters (from Q2 2014 to Q1 2015): “short term trade credits” within foreign assets, “currency and deposits” within foreign assets and “short term loans” within foreign liabilities. The first component averaged -$10.5bn per quarter outside the above two episodes and -$26.0bn per quarter during the two episodes. A negative sign means that Chinese companies extended short term trade credit to foreign companies, which is equivalent to Chinese companies lending to foreign entities. In other words during the past two capital outflow episodes Chinese companies or the subsidiaries of foreign companies in China appear to have used trade credits to increase their long dollar exposure or to reduce their long renminbi exposure..
The second component, “currency and deposits” in foreign assets, averaged - $15.3bn per quarter outside the two episodes and -$28.0bn per quarter during the two episodes. A negative sign implies a capital outflow ? i.e. it means that during the past two capital outflow episodes Chinese companies or the subsidiaries of foreign companies in China held on to their foreign currency and boosted their dollar or foreign currency deposits…
The third component, “short term loans” in foreign liabilities, averaged $18.7bn per quarter outside the above two episodes and -$23.4bn during the two episodes; i.e. it experienced an even bigger swing that the first two components. A positive sign implies borrowing of Chinese residents from abroad (a capital inflow) while a negative sign implies repayment of foreign loans by Chinese residents (a capital outflow). The deterioration of this item is thus likely caused by 1) foreign residents reducing their renminbi deposits or previously extended short term loans to Chinese entities or 2) Chinese companies unwinding previous short dollar exposure by repaying foreign currency loans to foreign banks, e.g. Hong Kong banks.
And while JPM believes the above does not “suggest that a new trend of broad-based capital outflows is emerging in China” but rather reflects “opportunistic currency and interest expectations,” it most certainly underscores the precariousness of the situation if you’re Beijing, or, as we have put it on a number of occasions: “devalue too much, and the capital outflows will accelerate, not devalue enough, and the mercantilist economy gets it.” Whether this rather untenable situation ultimately deadends in Chinese QE remains to be seen but given the economic situation, China may have no choice but to devalue especially once the country's margin-driven equity bubble distraction comes to an unceremonious end.
Some Saturday morning headlines to ponder as you consider all of the above:
- CHINA HAS EASING ROOM, WON'T NECESSARILY USE IT: PBOC'S ZHOU
- CHINA HAS MORE ROOM FOR EASING THAN OTHER NATIONS: PBOC'S ZHOU
- CHINA HAS EASING ROOM IN RESERVE RATIO, INTEREST RATES: ZHOU
- CHINA NEEDS TO ADJUST MONETARY POLICY CAREFULLY: PBOC'S ZHOU
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China's going to reveal its true gold holdings and leave Barclays and JPM promoting paper and Obama promoting martial law:
Unprecedented Development Ahead for Renminbi
http://europe.chinadaily.com.cn/business/2015-04/18/content_20468392.htm
Since this is China we are talking about, it's the "Largest Capital Outflow since Lae Moon" ... in ZH-speak, that is.
Pinto,
Great to see you following the China trends.
Everyone should see this chart, that too, from St Louis Fed: https://research.stlouisfed.org/fred2/series/TRESEGCNM052N
China's reserves have risen from USD 647 billion to USD 4 trillion in just the last decade. They need some outflows too. Once we lose USD 1 trillion and come down to USD 3 trillion, maybe then we should start worrying a bit but not much until they reach USD 1 trillion in reserves. All this is productive spending unlike US/NATO who are involved in completely unproductive spending from Yemen to Syria to Ukraine and many more nations.
Also, here is the full version of the interview and comments on the Unprecedented developments ahead for Renminbi. http://news.xinhuanet.com/english/2015-04/17/c_134160792.htm
China is investing billions of dollars worldwide by buying real assets not just property or bonds. The whole thing is here: http://www.heritage.org/research/projects/china-global-investment-tracke...
And finally, I can present to you that Chinese currency will get included into the international SDR basket which is from the horse's mouth (sorry, not Kerry) but Lagarde herself which will be the unprecedented development of the century, much more than AIIB or BRICS bank or whatever else: http://philosophyofmetrics.com/2015/04/17/more-confirmation-of-sdrrmb-up...
Or could it be the trading of oil in Renminbi on a global scale?......;) ;)
http://news.xinhuanet.com/english/2015-03/29/c_134107627.htm
Or will it be international trading of gold in Renminbi which will spike up?...http://www.gold-eagle.com/article/shanghai-international-gold-exchange-c...
They have already announced deposit insurance recently for all bank depositors. http://qz.com/373375/china-is-about-to-make-its-boldest-financial-reform...
Also have announced short selling expansion on Friday.
All this points to one mega thing since everything is moving so rapidly in 2015:
The Chinese yuan peg may get broken from the USD.
Once that news hits the markets, the tsunami of Western media could hurt China. In reality, there will be nothing.
I believe China is preparing for the breaking of the peg. And if western media and foreigners try to cause any major movements (like what we saw in Russian markets last year), then the deposit insurance, trading in oil and gold in yuan, rapidly rising trade settlement in yuan etc, will provide a lot of defence and comfort to all concerned and all normalcy will return within weeks and the foreigners (read US and NATO) will not be able to cause any financial havoc in China (without hurting themselves (because the Renminbi will keep rising and will hurt US and other foreigners if they don't keep investing or if they try to manipulate stocks and currency). Logically, foreigners will not pull out because their asset values will rise due to Renminbi appreciation.
As far as the capital flows are concerned, let them flow, because they are being used to buy all of us! Just look at all the foreign manufacturing, service and energy companies that the Chinese have bought aside from real estate. Damn, even several Hollywood blockbusters are being financed by them!
The breaking of Renminbi Dollar peg news will be the biggest news along with inclusion of Renminbi into SDR. What remains to be seen, whether both will be announced simulataneously and leaves all these silly foreign bankers and million dollar blind analysts eating crow like they always do!
Dubai,
SDRs are a basket of paper.
China will soon reveal its official sector gold and it will spike the value of the RMB.
If you include gold and RMB in the SDR, and if RMB are redeemable for gold in the Shanghai International Gold Exchange, RMB and gold will be the only ones standing as the other currencies collapse in value and the SDR will disappear.
I missed mentioning the announcement of Chiense gold reserves which is due anytime. I wonder why they have not announced for almost 5 years now.
Since it is uncertain so we can only speculate. Even last year we thought they would. But thus far nothing.
I think SDR has some value just for comparison sake. Else, why would Chinese PM hiself request Lagarde last month/week to include the yuan into SDR?
I dont think Chinese are ready to let yuan be exchangeable into gold directly. Only a percentage will be converted into gold, IMHO. Because there is USD 1.3 trillion waiting just in HK. If we add rest of the world, we could easily touch a few trillion dollars worth today. I dont think they or anyone has that amount of gold available for conversion. Hence, I believe in the percentage theory.
Thanks to global trade (commodities and everything else included) and travel, I dont think USD can simply collapse. There will be a gradual transition/slowdown because we need USD for trade and such. EUR and JPY and GBP will lose their lustre but even they would have some need for global trade settlement.
Despite everyone's opinion I dont think all these major currencies including USD can simply collapse. They are needed and US does buy a lot of stuff globally and also exports a lot. This is one more reason US has been accumulating so much oil and gas and building capacity in both storage and production that they will need this to cushion any Chinese movements and ocntinue to sell in USD and hence creating robust demand, as much as possible.
What if gold is revalued to $50,000 /oz as the central bank driven western debt level collapses our economies and currencies.
Perhaps there will be sufficient gold for RMB redeemability at the SGE-International.
A real potential outcome, IMO.
In the world market gold only works if everybody can play. If they go to a gold based currency, they will have to fix a value to it and make it exchangable, but considering that most of the world sold off their gold they won't be able to find many people to play with and they don't have anywhere near the internal markets to absorb their industrial output. Its a bitch to be the king if there's nobody else who can play....
The gold is out there - more than 5 billion oz above ground.
But economic disruption will be used to impose martial law and suspend the Constitution that Obama loaths so much.
The debt will be kept alive until it is written off....it can be collateralised and assets given to bond holders.. or .it can be sold to the Chinese or whoever else has the money to buy etc. There will be solutions of some form.
Iceland and Argentina and Detroit all defaulted and nothing much happenned. Same with Greece, once it defaults, nothing will happen except some (1%) of us will lose some money because 99% of the people dont have any money or savings anyways. Look at Zimbabwe or Iran, they survived despite the massive decline in value of their money. It will be difficult and become a hellhole but trade will continue and life will go on and thousands will die and millions will fight and die penniless.
Let us assume for a minute that US defaults tomorrow morning....let us see what will happen to all of us. Not much.
The currency is just a mechanism to transfer money from one person to another for any goods or services provided in return.
Our houses will still remain, as will our gold, as will our jobs for most part (because someone still has to deliver the milk or mail etc), some of our assets will get revalued up or down and hence offset the losses.
Everyone cannot lose money overnight because billions of us hold non dollar assets as well.
Gold at 50,000 dollars cannot happen, not yet, inspite of a default because normalcy has to remain. It can go to 2,000 or 5,000 but not 50,000 yet.
The reason Europeans have EUR and Chinese have Yuan is that they will not be hurt with any dollar collpase. British empire collapsed and nothing happened. Roman empire collapsed and nothing happened.
Humans are innovative but what worries me most is that there are 7.2 billion people on the planet and there will be more terror, more food shortages, more crime, more corruption as money becomes difficult to make etc. The humans will keep growing to 8 bn and then 9bn over the next few years and all problems will become insolvable.
Only Americans will sufffer if US defaults or USD depreciates but millions are already suffering. Dollar will get replaced by Amero or whatever else and life will continue with an exchange mechanism. Millions live hand to mouth anyways or on monthly pay checks.
If Buffett and billionaires lose bulk of their money then all the glory for equalization. But I dont think we will see that day in this life or anytime soon! :)
Do not buy into the population fear meme.
There is room for many more people with farming techiques that give much higher crop yields:
http://craftsmanship.net/drought-fighters/
It's not just the population fear meme.
What we have seen in Israel-Palestine and India-Pakistan border a decade ago has now expanded into the following countries:
Syria
Libya
Afghanistan
Iraq
Ukraine
South Africa
Venezuela
Brazil
Mexico
Colombia
Ferguson
Egypt
Tunisia
Yemen
Bahrain
Not to mention dozen others where violence escalates occassionally or immigration has been stopped or water/food scarcity is being noted. California's recent unprecedented drought comes to mind along with weird weather and landslides and floods everywhere.
Humans are destrying the planet and more humans will destroy the planet faster. It is not just about the food.
It is about survival at a time when jobs and money are not available leading to an explosion of violence the world over.
We are the only animals with the power to think and utilize it, however, we have used it to destroy forests, cause destruction of trees leading to flooding and landslides, melting of ice caps at an unprecedented speed in the last 50 years which can be mostly correlated with the massive rise in population which stood barely at 2bn in 1927 and 1 bn in 1870's.
And reference the article, if food could be grown without water in infertile land under low water conditions, then there would have been no deserts left in this world. All of this is good and progressive but in my view certainly not sufficient to help the root cause of the problems i.e. over population and human greed. We would also have no hunger in Africa and India where perhaps half a billion people go to sleep every day without food. It has something to do with greed, not our innovation.
In none of the long list of countries mentioned above have problems related to hunger or food been determined as the primary cause of terrorism or conflict or violence.
We are just busy enslaving and uprooting the animals from their natural habitat and growing ourselves like parasites and increasing by a billion humans every 12 years. This simply cannot continue without the planet falling apart and all the problems that come along with it of basic survival.
Mother nature shall take care of balancing itself by reducing or eliminating the parasites that are us.
Look at the list - I see at least 9 of these countries that we have intentionally destabilized with 'arab spring' style operations.
Our debt-based consumption dynamic is what is dangerous.
There is tremendous capacity to grow food and live peacefully in the west - we are too busy raising hell in these countries and it is unsustainable.
To believe that West can live peacefully after 'intentionally destabilising' these many countries is wishful thinking.
It is just a matter of time, this carnage will spread EVERYWHERE and come to haunt everyone involved.
ALthough some countries have been destabilized by external intervention but the Govts have sold out which is what caused foreign intervention and now everything is a clusterfuck.
People are rising everywhere. Most of it has to do with unemployment. If we provide employment everywhere, we will have no violence. Look at China for the same. I wish if we never had globalization we would still be eating local food, wearing local clothes etc. But no, all that was sacrificed at the altar of globalization and money making. Now small sector enterprises have shut down and large ones are collapsing due to excessive debt. The whole Krugman thinking and Friedman world is coming to a disastrous end.
Debt can be tamed but an unhappy, unemployed, hungry and desperate populace cannot, especially those who have nothing to lose.
There are peaceful solutions.
The sooner we stop our unsustainable ways, the sooner we can restructure albeit with an initially lower standard of living.
"There are peaceful solutions."
What a load of crap. You have no understanding of human nature. People invade and conquer because it is human nature. You can pick flowers all day long but eventually you are going to run into someone who wants your flowers and will take them from you because they can. That's just the way it goes.
We've been taking everyone's flowers for too long.
We have a period to negotiate from a position of technological and relative military strength.
If we don't we'll get the chaos that you can only see.
I am afraid such chaos has a limited outreach and we are seeing the extent already. US cannot cause sow any chaos in Russia nor China nor in India. In Africa, they have been tired out and walked away after many decades about a decade ago and many African nations have started flourishing except Nigeria and South Africa. Venezuela or Colombia, they cannot enter, no more. Having deals with Cuba and Iran shows they are indeed getting tired out.
Chaos was a word used until a few years ago.
In the future, all countries will be run like fortresses, with limited visit visas, almost no immigration, no foreign technology, low imports, less diplomatic talks, deglobalization etc.
All this will cause grave hurt to the US and UK who claim moral superiority yet had none. We have seen what chaos has been caused in the last few years in Switzerland just because all foreigners started pulling out their illegal moneys. Same will happen to US or UK etc but gradually.
We have already seen signs whereby cash is being accumulated on balance sheets of all major US and UK corporations with nowhere to grow or expand. IBM stock has declined 25% approx. Lehman is dead. so is Merrill and Bear Stearns. Hilton and Marriott cannot expand globally except franchising though Dubai and China have created global hotel brands. Retail giants like Michael Kors (down 36%) and Ralph Lauren (down 29%) cannot understand why their sales and stocks are plumetting (wink wink ..because your Govt will fight so many wars overseas that no one will want to have US companies on their shores nor do business with them). Mcdonalds (only 8% down due to constant innovation and rising poverty levels) and Burger King (got bought by a Canadian company...lol...and a billionaire....as well cannot expand. HP is down 40% since 2010. Finally, the grand daddy of them all, Wal Mart is having troubles of no expansion (down 14%).
What one taketh, must giveth back to the world.
The British Empire didn't collapse. It handed off to a bigger benevolent ally, the US.
The Roman Empire collapsed and Rome was sacked multiple times. They had not big friend to take over.
The US has no big friend. We do have a lot of barbarians and no gates.
Thereplacement,
I agree with you completely, but 2 things to clarify and some things to add:
I was giving the reference of Roman and British empires and their collapse in the overall historical context. There have been many empires before too who left the scene i.e. French or Spanish but nothing happened. You are right that the British empire did not collapse. However, they did leave Middle East, Africa and India/Pakistan (whether voluntarily or involuntarily, but leave they did). Even handed over to bigger and benevolent (only to UK themselves) on top.
All I can correlate to is, that even at the time of WW 1 and WW 2, Earth had low population and we used industrial revolution, general peace, green revolution etc for growth and prosperity for many worldwide. For the last decade we have stopped doing so and are regressing instead, if we look at the list of countries above who are waging civil wars within or terror attacks or wars outside or interefering in other countries' affairs etc.
However, in the 1980's, the Japanese lost their clout and were the only ones with ageing populations and have lost a lot of their clout since then. Debt and everything else is a consequence, not a cause.
Since the 1950's, the British have consistently been losing their clout globally just like the French, not to mention that Spanish are the bottom of the heap. Mostly because of global overpopulation and now ageing.
Even the Americans will now go down consistently mostly due to over population. POTUS is trying to get as many immigrants as possible, legal or illegal doesnt matter no more, else the circle of life will take over and reduce American clout, military or technology superiority or not.
China is the only one who can take over, though reluctantly. The difference with them is that they dont conquer foreigners unlike Romans, Spanish, French, British and Americans who all needed foreign clout and power and so called empire. Chinese are happy and content within because they know that the nature of the global beast is such that it is inherently unmanageable and cannot be tamed or conquered for a long period of time and continues to overpower the minds of local lpopulation which ultimately must lead to erosion of power and most importantly, they have 1.4 billion of their own to deal with.
As Chinese Master Sun said:"Ultimate excellence lies not in winning every battle but in defeating the enemy without ever fighting".
The Chinese grandmaster and followed and read by most Chinese also said: "Every battle is won before it is fought".
The planning and execution of the Chinese is flawless and no outer power has been able to read them or tame them and yet they have reached global superiority in a very short span of time and since they are content with not expanding their boundaries or extending their empire, they are able to win along any number of countries with their financial assistance which is almost always non interventionist.
The US will lose to the Chinese without ever fighting a battle.
I can confirm this, in my country they buy all lands that produce wine and champagne but also corporation and more recently took a 49% participation of one of our biggest airport !
The capital leaving China is not only just leaving it ! Yes, it leave, but it's productive for the Chinese mainland !
Instead of making useless war like USA they buy land and develop the economy where they operate like in Africa.
Yep, the ongoing desperation for our respective governments to prop up economic figures by allowing wealthy Chinese to purchase our nations out from beneath us with fabricated money will only lead to our own downfall.
The Chinese aren't dumb - they're spending their funny money as quickly as they can fabricate their GDP figures, but we're dumb enough to let them.
It looks indeed like a 'moment of truth' approaches China, Pinto. There is a reason for their mad dash to physical gold over the past 6 years or more and it looks as though the world is about to find out why. All the same, we need to remain cognizant of the fact that the scenario you outline has already been 'war-gamed' by the State Department and various intelligence agencies. It stands to reason then, the unprecedented militarization 'ramp-up' of domestic law enforcement agencies and contingency plans. The 'leadership' definitely knows something wicked this way comes.
I freelance over th? internet and earn about 80-85$ an hour. I was without a job for 7 months but last month my paycheck with big fat bonus was $15000 just working on my computer from my home for 5-6 hours. Here's what i have been doing... www.globe-report.com
You rock!
Are the Tylers overwhelmed by the number and variety of internet attacks on their site,
too disinterested to coordinate an effective response,
or just pissing on the floor in their own house?
... China is transforming from a major commodity exporter to a capital exporter,' [...] 'The large going-out of Chinese capital means the country is able to participate in the restructuring of global industrial, supply and value chains, which are the keys to foster new competitive advantages ...
Commercial paper market might be seizing up as happened in the USA in 2008.
China doesn't really have a private banking system so you're fighting against the State when you have a bank run.
Loss of confidence in a Bank is one thing but loss in the entire financial system quite another.
Accounting still matters. "Everything that counts can be counted" unlike what Einstein said.
The reason the Chinese are in a pickle is because GDP is the product of credit and resulting debt.
14% GDP just means you are about the world's worst quasi-suicidal debt junkie.
Oh, what's that? They have a little debt to GDP problem that's consistent with that thesis?
gee ... so unexpected
"Our BEER model estimates that the CNY is around 20% overvalued..."
Have six beers and this will all seem perfectly normal. That, or get a PhD in Economics.
If this research analyst knew anything, he wouldn't be working for a bank spouting garbage and using acronyms for the simple hard working folks who are his/her clients.
Overvalued my ass....Yuan is the only currency that has risen in an uninterrupted manner since 1994. If anyting, the yuan will keep appreciating and very radically in the next year or two, at any time.
How can this jerk say this is overvalued, according to his BEER?
If only I could slap him/her!
If it turned out to be a her, maybe I wont slap her, on second thoughts....:) I would slap her somewhere else....
Love your comments and insight dubai. your contribution is much appreciated.
Thanks Rory!
I am glad you enjoy my thoughts. Appreciate.
Question Db: Does the case of China having similar if not worse spending and debt habits than the US impact your outlook for RMB?
If not why not, given that is generally pointed to as being the source of the USD's bother and asserted immanent demise?
Take it from the wider historical context if you wish;
Is extremely high debt to GDP and massive spending with exponential debt growth, consistent with the rise of a new global reserve currency, or the fall and dissipation of one?
Do you propose RMB is immune to the same disease? Which logically should exclude it from further serous contention.
Element,
As of now, nothing can and will change my outlook on RMB. It has to and will appreciate. Please read the reasoning below.
Not only because USD is losing it's global lustre but RMB is needed by all of us to buy products made in China, whether we like or not. All our shoes, shirts, laptops, furniture etc is made in China.
Secondly, Chinese spending is what I call productive debt and not unproductive debt. China has spent USD 1 trillion just in Africa in rebuilding them over the last decade and thus bringing their economies up. China is spending billions on energy assets worldwide and stabilsing those economies. China is buying real estate worldwide creating demand when Arabs and Russians are withdrawing. China is building assets in Sri Lanka, Pakistan, Nepal, Africa, Argentina, Brazil, Russia i.e. anywhere and everywhere with the exception of India and thus stabilising those economies and enhancing trade.
China has 4 times more population than US so its debt has to rise 4 times that of US today and still it won't fall because unlike US, Chinese debt is productive debt.
China does not intervene in any country's internal affairs so it literally has no enemies who are trying to destabilize it and do unproductive and unnecessary military spending unlike the US or UK who are wasting billions of tax payer funds in Middle East endlessly as an example. I could justify a few years, but after a decade, it is indefensible and not only morally wrong to intervene in other country's affairs and blast them back to the Middle ages but kill several millon people for no reason. If they expect no retribution, then they are either senile or crazy or both. Howver, only poor people and soldiers will die.
A currency cannot be just seen with the perspective of debt. That is just one way of looking at it and hence is biased. For example, even today, at its worst, USD is being used worldwide for trade. Same will happen to China but they dont have as much debt, even if they do, it is mostly productive debt. For example, all military spending in Middle East by the Americans does not provide them a return but just fills the pockets of the defence industry contractors and billionaires. While Chinese spending in Africa, US or wherever, provides them with a return on those assets. Plus China is not spending in unwarranted wars to keep up its empire. She simply has no such desires.
Chinese debt had to rise because every single country in the world is busy printing money. Thus we have to see Chinese debt as a percentage of debt of other large nations as well not just at Chinese debt in isolation.
But look at the positive aspects of it. Chinese traders, banks, manufacturers and contractors are busy like there is no tomorrow and selling and making everything for us. They are building homes now in Dubai, NZ, US, Europe, Asia....They are building car plants in Bulgaria and buying Italian giants. They are buying Volvo and Peugeot plus largest Portuguese investment bank or largest Canadian energy company. They are buying and building infra in Pakistan, Afghanistan, Iraq, Africa, Sri Lanka etc.
All these assets are built with a profit motive not with a geo-political motive which always has been US agenda. For which US is now paying the price when they are not being allowed or not winning the contracts or selling the energy assets of Exxon or BP or Shell etc.
RMB will be needed whether we like it or not because they produce 80% or more of every item that we use on a daily basis.
The need for RMB is very simple if we think that way: It is purely based on demand and supply. That simple.
Until all Fortune 500 global giants and thousands more close their factories in China (which I think is impossible) we will not see RMB decline for the next few decades. Even the US intervention like in Russia or Venezuela etc will have no impact.
China creates over 13 million jobs per annum for the same population that India has. Whereas India creates barely 2 million jobs per annum which also have now started to shrink. Debt is required to promote such job growth and infra growth etc. Please do note that tax revenues also increase at the same time.
I dont believe Chinese have ANY interest to become a global dominating superpower. They are just doing all the things that any smart businessman would do. Keep noise to the minimum, do the job, make the money and shut the hell up. Anyone who purely focuses on Chinese debt does not see the big picture and the reasons behind the debt.
The facts are there for all to see. Billions is on standby in HK to enter China into their currency or stocks or any form of investment.
One major catalyst that could take China to the stratosphere has still not been used. Which is allowing foreigners to buy real estate in China. If that occurs, Chiense real estate will become the most expensive in the world. I wonder if Govt will ever allow it to happen, but if they do, the world will be in shock and awe.
China is barely opening up their stocks and currency since last 2 years in the form of Shanghai free trade zone anow Shenzen free trade zone and the Shanghai-HK stock connect and we have seen the results.
Thus far, in the last 1.5 years, not 1 country (except Argentina in 2014 annually) has surpassed stock market returns of China or HK. Argentina went up because they were down so much in 2013 and then zoomed up but they had a 25% currency loss.
China's currency has been very stable in the last decade despite 3 tsunamis (Tech crash, 2008 global collapse and 9/11) and yet their stock marlets are best in the world when everyone says that US is overvalued and Europe is going to have a breakdown of their currency or South Africa is imploding etc.
China simply has their mathematics right and a lot of luck on their side. They are opening up when everyone else is imploding. Plus they have positives of FDI, deposits, stocks, real estate etc on the upper end.
The best of China has yet to come. But it will be a very gradual, very stable rise, not a rapid ascent.
So how many 'tons' is it going to be - 10,000? 20,000? 30,000...? I remember the Larry Holmes/Mike Tyson fight of 1988, where Holmes and his entourage paraded out in custom robes that had the phrase 'Shock the World' embroidered on them. And while China may well do the 'shocking', they're not the ones who are going to be K.O.'d...
And one more thing... Every time there is a 'McCain' incident, the resolve of these nations (Russia & China specifically), just ratchets up a click more. To wit, the lastest flap about the airstrip down there in the Spratly's. China would be fine to let Sun Tzu carry out his task - patiently, but today's foreign policy aggressions in the backyards of other soveriegn nations call for a somewhat more 'aggressive' response in return.
Some of the best beer on the planet ...
https://sp.yimg.com/ib/th?id=JN.gBxRZfEeq%2feKL9XSV6hlxQ&pid=15.1
Well, at least best ... since Lehman.