Sunday, March 08, 2009

Hu Jintao comments on China's fx reserve

At a meeting between Hu Jintao and Guangdong delegates to the NPC session this year, Hu was quoted as saying:


"Now many countries are saying that China is good and hope that China will emerge (to help them), but honestly we are still a developing country. Don't over estimate the fact that we have almost 2 trillion dollar in our foreign exchange reserve. If you take that amount and divide it by 1.3 billion people, how much per head is that? Therefore, we truly need to conduct our own affairs well."

Okay, what do we learn from this?

Chinese commitment to help bail out other countries is nearly zero. Perhaps a few billion will be thrown at the IMF or World Bank, but beyond that, there will be little. There were some currency swaps recently between China, Japan, South Korea, and Hong Kong, but I view them as largely symbolic gestures than genuine help. Also, part of conducting China's affair well is to continue to expand China's export markets. Earlier in the session he said to the Guangdong delegates that:


"If the European and American markets don't do well, we ca develop the markets in Southeast Asia, South Asia, Middle east, Gulf states, and African states, consolidate and pioneer international markets"

Eh well, I guess all of the above except for the resistant South Asian market! Clearly, beyond doing everything possible to maintain stability, China does not have a fundamental interest in facilitating re-balancing; this process will have to be pushed forward by falling consumption from the US and Europe. As Michael Pettis pointed out recently, the Chinese stimulus package mainly builds up even more capacity, which exacerbates the imbalance. Although there are components which seek to increase domestic consumption over the long run, they are relatively minor parts. (I do give them credit for reducing fixed asset investment by 300 billion RMB though, but only to give to the large SOEs through a 'strategic revaitalization plan'! Great job! deciples of Oscar Lange)

I agree that China has no fundamental interest in global re-balancing. But it seems to me that Beijing is advancing its own version of decoupling as if African and Emerging Asian consumers could possibly replace demand from the US and the EU. EM consumers cannot buy enough Chinese product--most are currency manipulators like China and reliant on exports.
The emerging market consumers can afford Chinese products (profit margins going to Chinese) ... just not the G7 products that are assembled and manufactured in China where the profits go to Japan and America.

China and other countries "manipulate" their currrencies with the blessing of the US ... the dollar is being propped up and massively overvalued by China and other foreign countries.
The Round Table discussion on China with Dr. Weipin Tsai, Dr. Chi-Kwan Mark and Dr. Evelyn Goh - postponed from February - is now up as a podcast and can be listened to at:

China is seeking a better way to using its foreign reserve,obviously it wouldn't be to aid EU or US,more likely to be purchasing foreign resources for its reserve.
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