Monday, September 13, 2010

wǒ è le

The stock market was up Monday and the popular belief is that because China is showing strong economic expansion that this is good for the transnational corporations listed on the DOW (you see the American market is just not that important anymore). The problem with their thinking is that China is moving to eat their lunch.

China has for some time been just strip mining the planet. In a few places they have also been investing locally. They have long been involved in Pakistan where Chinese engineers are ubiquitous. Did you really think Pakistan built their own nukes? In recent years they have been building major infrastructure projects in Africa and lately factories too, beside the usual buying of mines, oil fields and vast swaths of farmland.

Now they are moving out into the rest of the world with huge investments in places like Brazil where they have not only passed by the US as their largest trading partner but will soon be their largest investor. China not only mines iron ore in Brazil but is building a huge steel mill that will produce among other things, rails for the high speed trains that will bring Brazil into the 21st century leaving the US behind. Brazil is now finishing road links across Peru to Pacific ports that will allow export of grain direct from the Amazon and cut the heart out of the remaining US trade with China.

Beijing has also been taking significant steps to expand the international use of the Chinese Renminbi, including allowing overseas holdings of the currency to be invested in the Chinese bond market. Some economists believe it could become the base currency for Asian trade over the course of the next ten years. Personally I think it will take far less time.

China came to the aid of all it’s third world trading partners with cash during the ‘08 banking crisis, mostly it used some of its vast reserves of USD but with some of its large partners they provided Yuans, next time you might see China drop the dollar completely. The right will snicker that China won’t do that they n-n-need us and under their breath, don’t they?

China is steadily reducing its holdings in US debt and it’s not clear how much USD in cash they hold anymore. They do hold up to 2.5 trillion in cash but they don’t say how much of that is in USD. Basically, at some point the USD will become worthless and China has no illusions about that and they are acting accordingly. As the rest of the world is rushing to buy US Treasuries with the rumors of the Euro tanking, China is happy to sell.

Don’t worry about your dollars, they will still be accepted at your local Walmart, the shelves will be empty however. If there still is a NYSE the board will probably be priced in Yuan.

Your Standard Chinese phrase for the day: wǒ è le (I am hungry) [for audio go to  ]


ickenittle said...

Great lesson in Mandarin.How do you say "republicans use crooked chopsticks?" That's probably a good insult in Chinese.