Is China's Politburo spoiling for a showdown with America?

[alienlovechild 75]

Within a month the US Treasury must rule whether China is a "currency manipulator", triggering sanctions under US law. This has been finessed before, but we are in a new world now with America's U6 unemployment at 16.8pc.

"It's going to be really hard for them yet again to fudge on the obvious fact that China is manipulating. Without a credible threat, we're not going to get anywhere," said Paul Krugman, this year's Nobel economist.

China's premier Wen Jiabao is defiant.

"I don’t think the yuan is undervalued. We oppose countries pointing fingers at each other and even forcing a country to appreciate its currency," he said yesterday. Once again he demanded that the US takes "concrete steps to reassure investors" over the safety of US assets.

Days earlier the State Council accused America of serial villainy. "In the US, civil and political rights of citizens are severely restricted and violated by the government. Workers' rights are seriously violated," it said.

"The US, with its strong military power, has pursued hegemony in the world, trampling upon the sovereignty of other countries and trespassing their human rights," it said.

"At a time when the world is suffering a serious human rights disaster caused by the US subprime crisis-induced global financial crisis, the US government revels in accusing other countries." And so forth.

Is the Politiburo smoking weed?

I let others discuss the rights and wrongs of this, itself a response to the US report card on China. Clearly, Beijing is in denial about is own part in the global imbalances behind the credit crisis, specifically by running structural trade surpluses, and driving down long rates through dollar and euro bond purchases. No doubt the West has made a hash of things, but the Chinese view of events is twisted to the point of delusional.

What interests me is Beijing's willingness to up the ante. It has vowed sanctions against any US firm that takes part in a $6.4bn weapons contract for Taiwan, a threat to ban Boeing from China and a new level of escalation in the Taiwan dispute.

We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur. Emerging Asia, Brazil, Egypt and Europe are all irked by China's yuan-rigged export dumping.

Michael Pettis from Beijing University argues that China's reserves of $2.4 trillion - arguably $3 trillion - are a sign of weakness, not strength. Only twice before in modern history has a country amassed such a stash equal to 5pc-6pc of global GDP: the US in the 1920s, and Japan in the 1980s. Each time preceeded depression.

The reserves cannot be used internally to support China's economy. They are dead weight, beyond any level needed for macro-credibility. Indeed, they are the ultimate indictment of China's dysfunctional strategy, which is to buy $30bn to $40bn of foreign bonds every month to hold down the yuan, refusing to let the economy adjust to trade realities. The result is over-investment in plant, flooding the world with goods at wafer-thin export margins. China's over-capacity in steel is now greater than Europe's output.

This is catching up with China, in any case. Professor Victor Shuh from Northerwestern University warns that the 8,000 financing vehicles used by China's local governments to stretch credit limits have built up debts and commitments of $3.5 trillion, mostly linked to infrastructure. He says the banks may require a bail-out nearing half a trillion dollars.

As America's creditor - owner of some $1.4 trillion of US Treasuries, agency bonds, and US instruments - China can exert leverage. But this is not what it seems. If the Politburo deploys its illusiory power, Washington can pull the plug on China's export economy instantly by shutting markets. Who holds whom to ransom?

Any attempt to retaliate by triggering a US bond crisis would rebound against China, and could be stopped - in extremis - by capital controls. Roosevelt changed the rules in 1933. Such things happen. The China-US relationship is no doubt symbiotic, but a clash would not be "mutual assured destruction", as often claimed. Washington would win.

Contrary to myth, the slide to protectionism after the 1930 Smoot-Hawley Tariff Act did not cause the Depression. Trade contracted more slowly in the 1930s than this time. The Smoot-Hawley lesson is that tariffs have asymmetrical effects. They devastate surplus countries: then America. Deficit Britain did well by retreating into Imperial Preference.

Barack Obama has never exalted free trade. This orthodoxy is, in any case, under threat in the West. His top economic adviser Larry Summers let drop in Davos that free-trade arguments no longer hold when dealing with "mercantilist" powers. Adam Smith recognized this too, despite efforts by free-trade ultras to appropriate him for their cause.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html

[w¡n9Nµ7 §£@¥€r 123]

"At a time when the world is suffering a serious human rights disaster caused by the US subprime crisis ...

what?????

China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove.

India an American ally? When push comes to shove, the only country that can ever count on India being an "ally" is India.

The China-US relationship is no doubt symbiotic, but a clash would not be "mutual assured destruction", as often claimed. Washington would win.

Barack Obama's ... top economic adviser Larry Summers let drop in Davos that free-trade arguments no longer hold when dealing with "mercantilist" powers.

[scandal 951]

India an American ally? When push comes to shove, the only country that can ever count on India being an "ally" is India.

I interpret that statement to mean an economic ally, not an ideological one. And in the sense that the US and India both have common economic interests, namely stable growth without a 400lb gorilla dumping below cost of production goods on us while claiming WTO trading privileges.

The dumbest thing we ever did was to let China join the WTO without requiring it to let the yuan float freely.

[w¡n9Nµ7 §£@¥€r 123]

I interpret that statement to mean an economic ally, not an ideological one.

We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur.

Perhaps your reading of it is correct. That's not how I read it. I read 'hyper-power' to imply power that transcends the mere economic. That is, military power.

[scandal 951]

We have talked ourselves into believing that China is already a hyper-power. It may become one: it is not one yet. China is ringed by states - Japan, Korea, Vietnam, India - that are American allies when push comes to shove. It faces a prickly Russia on its 4,000km border, where Chinese migrants are itching for Lebensraum across the Amur.

Perhaps your reading of it is correct. That's not how I read it. I read 'hyper-power' to imply power that transcends the mere economic. That is, military power.

I think Vietnam is the most interesting one on that list. That's the very same Communist Vietnam that we had a drag-down knock-em-out war with just a generation or so ago. They haven't overturned their ideology, all they've done is come yearning for our greenbacks, and now they're in the "allies" column. Who says economics doesn't transcend ideology?

[w¡n9Nµ7 §£@¥€r 123]

I think Vietnam is the most interesting one on that list. That's the very same Communist Vietnam that we had a drag-down knock-em-out war with just a generation or so ago. They haven't overturned their ideology, all they've done is come yearning for our greenbacks, and now they're in the "allies" column. Who says economics doesn't transcend ideology?

Right.

The other thing that is interesting is how the author of the original article describes a "ring" of US allies around China. This is interesting because the Indian media is full of anxiety over being "ringed" by Chinese allies. Pakistan, Bangladesh, Myanmar.

[scandal 951]

Right.

The other thing that is interesting is how the author of the original article describes a "ring" of US allies around China. This is interesting because the Indian media is full of anxiety over being "ringed" by Chinese allies. Pakistan, Bangladesh, Myanmar.

Ring around the rosie, a pocketful of posie.

Iran is ringed by American satellite puppets in Iraq and Afghanistan.

Israel is ringed by hostile Arab states at war with it since 1948.

Australia is ringed too. By the rest of the freaking crazy world that can't appreciate how great they are.

[w¡n9Nµ7 §£@¥€r 123]

Australia is ringed too. By the rest of the freaking crazy world that can't appreciate how great they are.

And reef sharks.

[Pooky 3,807]

Right.

The other thing that is interesting is how the author of the original article describes a "ring" of US allies around China. This is interesting because the Indian media is full of anxiety over being "ringed" by Chinese allies. Pakistan, Bangladesh, Myanmar.

Which is why I'd list India as a political, economic and military "friend" of the USA, specifically when it comes to China.

The Chinese threat to the North is a very good reason for India to find as many friends as it can. India is very pragmatic when it comes to world relations, being isolated from the post-war East vs West ideological split. But China is a direct competitor/threat, so India, who traditionally counts Russia as a close trading partner, is courting the USA. And the USA is eager to become as good a "friend" as Russia.

It's a funny old world, these days.

[alienlovechild 75]

I think Vietnam is the most interesting one on that list. That's the very same Communist Vietnam that we had a drag-down knock-em-out war with just a generation or so ago. They haven't overturned their ideology, all they've done is come yearning for our greenbacks, and now they're in the "allies" column. Who says economics doesn't transcend ideology?

It's deeper than economics as Vietnam historically distrusted Chinese power. China and Vietnam fought a short by intense border war long after the U.S. Vietnam War was over and Vietnam kicked out Chinese businessmen. U.S. naval ships make ports of call in Vietnam and the dollar more desired there than the Vietnamese dong.