yuan Archives - Page 5 of 5 - the patient investor %

October 27, 2011

Here’s What Will Happen When China’s Bubble Bursts

What would a China slowdown mean for the rest of us? In the main, three things will become evident.

First, China will remain committed to letting its currency, the yuan, rise in international foreign-exchange markets. A stronger currency will encourage companies to rely less on exports and more on goods and services consumed domestically.
Second, Chinese products will no longer be the cheapest on the shelves in years to come because China’s inflation rate will rise along with its wages. This is natural when any nation climbs a rung on the development ladder, which is what China is now doing.
Third, the Chinese market for raw materials and heavy equipment—cranes, bulldozers, factory machinery—will slow….

via Here’s What Will Happen When China’s Bubble Bursts.

October 21, 2011

China’s U.S. Debt Holdings

According to China Daily, China owns $1.13 trillion of US debt. China has $3.20 trillion in foreign exchange reserves.

via Chart of the day: China’s U.S. Debt Holdings | Credit Writedowns.

The key statistic here is the $36.5 billion decline in August which dwarfs previous monthly changes. No wonder the yuan jumped against the dollar.

But ask yourself: why has a poor country like China (GDP per capita of $4000 a year) invested more than $1T in US Treasuries? It could not be for the yield. Inflows on the US capital account are used by China to suppress its currency and give its exporters a massive trade advantage against US manufacturers. Imposing punitive tariffs on Chinese imports would provoke a tit-for-tat response and lead to a trade war. But a US withholding tax on foreign capital inflows could not provoke retaliation as China already strictly controls capital inflows. And exemptions to the withholding tax — only to countries who have reciprocal open capital markets — could be negotiated on a country-by-country basis as an extension of existing tax treaties.

That would force currency manipulators to repatriate their investments in US capital markets. This should be welcomed by the US as it would suppress the dollar against the yuan and other currencies, giving US manufacturers a massive advantage in export markets.

October 5, 2011

Bernanke criticises China over currency – FT.com

The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi.

…..“Right now, our concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy,” he said. “It is to some extent hurting the recovery”.

via Bernanke criticises China over currency – FT.com.