Monday, December 30, 2013

movements of the yuan

the chinese yuan strengthened to a twenty year high against the dollar this past week.  at the end of the 27th, the yuan was trading at 6.0686 to the dollar.  the historic high signifies a buoyant chinese economy, but on the flip side, this present success can only mean that american exports in china could become more competitive even as the chinese economy opens up to foreign exports.  apple begins selling its iphone through china mobile in january.

unfortunately, a lot of the money being created in china comes from a shadow banking system that the chinese central bank has been slowly trying to quell this year.  banks in china "typically scramble for short-term cash to meet month-, quarter- and year-end regulatory requirements. Demand for cash is also high among Chinese companies seeking to meet year-end payments, too." individuals with political or business connections have been able to borrow money from state controlled banks which receive loans from the central bank at very loan interest rates.  these individuals then provide loans to the wider chinese economy at extremely high interest rates.  several problems develop from a system like this.  first, wealth becomes concentrated abnormally in the hands of just a few shadow bankers while state run and private banks do not make the returns they could if they had loaned the money directly.  second, artificially inflated interest rates from shadow banking make it harder for individuals and business to repay loans, and the inflated repayment means that less money is being directly injected into the economy.  third, the high interest rate loans are less likely to be repaid and are thus across the board more risky.  subsequently the state controlled banks are less likely to be able to re-pay the central bank, producing fears of a wider financial instability.

the chinese government has attempted to rein in this risky lending, but has been mostly unsuccessful as of yet. writers for the new york times note that, “the central bank allowed rates late last week and early this week to soar to unsustainable levels. Instead of regularly scheduled open-market operations, the bank tried unconventional methods of guiding money markets.” However, the central bank was forced to quickly inject fresh money into the banking sector as interest rates soared.

this seems like the creaks and groans of a giant, growing economic system.  more growing pains for a young economy.  the central bank wants to move the financial system away from the artificial risk created by the shadow banking system.  the question now will be whether banks will be able to clean their balance sheets of the toxic loans before a financial meltdown not orchestrated by the central government occurs.  if the central government does more to investigate and imprison politicians and businessmen directly involved in graft (as it has been recently doing,) the banks might correct their lending practices directly.  this correction would still produce some short term jolts as less money could potentially be made, but more long term stability.  

Saturday, December 21, 2013

chinese bluffs

china may be aggressively asserting itself on the international political stage, but there’s no reason to believe a global take over by china is militarily or politically imminent.  in this article from the telegraph, writer james delingpole entertains assertions that china is about to call an end to the game and the world as we know it is about to change.

in terms of economic change in china, dalingpole quotes economist michael snyder who notes that economic governors in china have discussed limiting the country’s foreign currency investments, particularly the american dollar.  snyder quotes a chinese official as saying, “The monetary authority will ‘basically’ end normal intervention in the currency market and broaden the yuan’s daily trading range.”  though such a move would be detrimental to american investment, particularly in the short run, but the move is a sound financial decision that i think any economist would offer as advice to china.  america and western europe’s currently shaky markets do make investment in their monies particularly attractive.  in the long run, if china does shake its peg of the yuan to the dollar and its trading range is broadened, the effects could be good for american exports in the future.  american economists have been trying to convince china to make a similar move for decades.

delingpole also quotes a scholar who believes a military strike against the west is inevitable and will probably occur soon.  china has definitely ramped up its aggressive stance in the past few months, but its behavior should not be compared to pre-war japan.  china has claimed sovereignty over certain islands in the sea of china and recently claimed an extended air space, but it has committed to aggressive actions beyond this posturing.  “Ego would also play a large part in the decision for a pre-emptive attack.  China wants to be recognised as the most powerful country on the planet.  Successfully driving the United States from the western Pacific would put that beyond doubt.”  with the second largest economy on the planet, china is already an economic powerhouse and may soon be the most economically powerful country in the world before too much longer.  even with the largest standing army on the planet, china does not have the naval, air, or technological prowess that other countries have.  the limitations of its military are widely known.  though it may be attempting to assert itself now militarily or territorially, as it grows economically, and grows economically secure, it will more and more be able to secure what external resources it requires economically.

these military threats are indicative of economic growing pains.  these should be seen as bluffs.  these should be seen as actions to secure power, intimidate.  but i cannot see any evidence that china would follow through on its threats and that it would especially make a strike against more powerful western nations.

Friday, December 6, 2013

freezing fog

a freezing fog had come and gone before i woke, leaving white footprints over the morning: grass that crunched under foot, solid white car windows, a spider web thickly crystalized on the railing. it didn’t smell like snow, but almost. it could. it could be soon. even in oregon, even in alabama.
and i remember a morning in bed, back in birmingham, watching the snow fall, the window directly in front of us full of static. cold, we stayed wrapped up under the covers. i read the paper and he flipped through a book filled with pictures of paris.
clear skies with a chance of snow. i want one of those mornings with adam. i want to wake up with him and see flurries, to decide it’s too dangerous to go into work, to drink coffee and stay in bed. i want the day to be so quiet, the city stopped by magic. i want to re-live all these memories with this man who i now love.
having dated adam for a while, memories that were once cherished and meaningful and beautiful to me have changed. moments that i once lamented as lost, times i would have gladly lived again, i now want to re-edit with adam in that picture. these reminiscences have turned sour and i question how happy i had been, how much i loved any moment. i wonder if i had just been delusional or naive.
this is unfair to my memories and to the people that i loved. adam and i won’t eat sesame tofu at my favorite chinese restaurant in birmingham. i’m not even vegetarian anymore! but we do search portland for good chinese restaurants and authentic chinese dishes. recently adam introduced me to dan dan mien, thick spicy ground beef over noodles like spaghetti. adam can’t coo in french with me but teaches me mandarin, the tones awkward and stilted as they come out of my mouth, my throat hoarse from strangling the 3rd tone.
adam and i might miss the snow. the weather report threatens snow tomorrow but we won’t wake up together. tonight, i’ll sleep at my house, take care of my cat who has become listless and sad because of the cold weather. we’ll wake up separately and go to work. and tomorrow after work we might warm ourselves with whiskey, bundles up against the un-snowy cold.

Tuesday, December 3, 2013

changes in china

china looks like the united states one hundred years ago. and china looks like the united states three decades ago. and china and the united states mirror each other now. the asian country has seen different changes and trends, both economic and social, compressed together in a way that echoes the development of the united states economy but varies radically.
the chinese government made two important announcements recently: the government will ease restrictions on the national one-child policy and will abolish labor re-education camps.
the one-child per family policy has always been contentious internationally. passed in the 70s, the law reflects a consciousness by the government of a problem that has beleaguered chinese governments for centuries. in europe and north america, where population rates hover around zero or lower, many see the policy as unfair, a violation of human rights. reporting on the change in the law points out the shift may be more than an apologia on human rights. a labor shortage haunts china.
damien ma and william adams have written about the labor shortage in china for foreign affairs:
“By early 2010, job postings began to outnumber jobseekers for the first time since the start of China’s resource-intensive economic boom at the beginning of the twenty-first century, a period we call the Panda Boom (after that cuddly creature’s voracious habit of eating 10–15 percent of its body weight in bamboo each day).”
since the industrial revolution in the united states and western europe, the economies in these countries have seen a similar shift. as once workers pressed for jobs in factories and the population (particularly in america) changed from an agrarian civilization to an urban workforce, the labor pool grew immensely and unemployment grew. however, post-world war ii prosperity, with the export of american products and culture, changed the labor market in america, shifting production overseas as it followed cheaper labor.
china currently finds itself in a similar position. even before the global recession, china couldn’t meet the entire global demand for cheap labor even with its massive populations. factories in india, malaysia, indonesia, thailand, cambodia, and bangladesh provided more, and often cheaper, labor for factories producing merchandise for north america and europe. and ma and adams note that in China “Occupational safety, collective bargaining rights, and other costly labor protections were vastly less important, and summarily ignored,” but this was a problem both countries have faced in their history. 
chinese growth and prosperity during the last few decades has created a bubbling middle class with extra income to spend and a desire for something more for themselves and the next generation. even during the recession, ma and adams note that chinese wages grew faster than gdp. the writers also point out that, “From 2000 to 2010, the number of young people enrolling in higher education programs rather than entering the workforce after high school tripled, growing from 2.2 million to 6.6 million.” this greater population of educated citizens points to a larger affluence but also indicates a growing population that will look for work outside low-paying factory work, adding to china’s labor shortage.
as china comes into its own as a middle class country, the united states struggles to maintain its economic status quo. china has enacted seemingly extreme measures to control its population and provide prosperity, measures that seem unreasonable from the comfort of our middle class stability. we should not forget the negligence, violence, and instability of our own past when attempting to understand the quick and momentous transformation currently taking place in china.