First off, let me say that I am so excited to have found the booman tribune…. I was a loyal Kos diarist until today. Lately, the bickering there about being “reality-based” was getting beyond annoying and then, this mornings’ “orange blast” when I checked the Kos site pushed me over the edge… So, here I am.
Anyway, on to my diary. We have all been aware that China has been progressing under the radar quite nicely over the past few years, particularly given the distraction that is Iraq and the War on Terror. However, I have always been careful to pay attention to news related to China and what they’re up to.
The following CNN/Money article highlights a few things, but I will expand my thoughts below the fold.
money.cnn.com
The two main topics related to China that I feel are most important are the currency pegging discussion, which has been given plenty of coverage, and the Chinese move to buy assets in North America, which has not been covered in depth.
With respect to the currency pegging, I have long thought that if China went free float, the US dollar would eventually tank. I won’t get into my thesis long list of reasons as to why I think this, I’ll just leave it as my opinion for this diary. The conventional wisdon, on the other hand, tends to favour the theory that a free float will help the US dollar. This is the opinion of people like Snow and some well-respected economists. Even Greenspan has toted that line, although not with much enthusiasm.
You’ll note a quote from the article linked above that says, “But he (Greenspan) also questioned the idea that a higher-valued yuan would give the U.S. economy the boost that proponents expect.” Doesn’t really sound like Greenspan is all that enthused about the free float idea! I think it is all tied in with the amount of US debt that China owns and politics. Those two combined are what will determine whether the move to free float will be helpful or hurtful to the US dollar. And given the bunch in charge of the politics of the equation (Bush and company), I’m not overly optimistic that the dollar will bounce…
Second, to the slow but sure acquisition of North American assets by the Chinese. The article mentions two such stories; the purchase of Unocal by a state-owned Chinese outfit and a Chinese appliance-maker joining in the bid for Maytag. I have another personal story to add to this trend.
I work in real estate in eastern Canada (the Maritime provinces). Trust me, it’s out of the way, out in the middle of nowhere land here. But guess what? Chinese delegations have been coming here non-stop for the past year, courting small municipal governments. They offer tons of money to buy up real estate, they will fund huge City projects, from hotels to office building. My company has recently signed a contract with a group of Chinese buyers (negotiated by City officials) to develop land all over Atlantic Canada for commercial use.
But is all of this really about expanding China’s market horizons? Or is there something more co-ordinated going on? Are they building political leverage by buying up real assets? China and Japan together already own almost 40% of US government debt ($1.3 trillion as of June 2004 according to the IMF. I’ve read recently that it is even higher now, but I can’t find a link for it…). That alone gives them the leverage to tell George Bush to go fuck himself, and he’d probably have to! Yet here they are, buying up more and more while Bush is galavanting around in the Middle East!
And so I say in closing: Beware the Chinese.