'Chinas manufacturing recorded the weakest performance since the global recession eased in 2009, underscoring the case for monetary stimulus as Europes crisis weighs on the worlds second-largest economy. A purchasing managers index compiled by the China Federation of Logistics and Purchasing slid to 49 in November, lower than all but two of 18 forecasts in a Bloomberg News survey. Readings below 50 signal a contraction. Separate reports showed slowing retail sales and an industrial slump in Australia, which relies on China as its biggest export customer.' http://www.bloomberg.com/news/2011-...since-2009-augurs-further-easing-economy.html
lowering interest rates in china is not a very good idea right now....china has high inflation thanks to their dollar peg....they are issueing way to many yuans...if they want to curb inflation then they need to let the yuan rise!
Last time I looked it was easing (down for 3 straight months). Are you suggesting that is no longer occurring?
china is printing yuans like crazy in order to maintain the dollar peg....even though short term there might be a slight drop in the inflation rate the longer term is clear.....they need to stop printing yuans....also remember that china had raised interest rates several times in the past year to slow down growth so of course inflation would ease slightly!
The RMB hasn't been hard pegged to the dollar for quite a while already, over the last couple years it rose over 10% against the dollar, if anything in recent weeks it actually FELL big time against the dollar . http://www.exchangerateusd.com/CNY (notice the recent spike back up?) Inflation is high in China, though Wage is rising fast as well, the biggest inflation is comming in (not surprisingly) food stuff, which obviously hurts the average folks more, though this is true in the US and around the world as well ni recent years, food prices are rising considerablly faster than the overall CPI. The CCP is letting the RMB grow towards their more normal range, but they are trying to do it in a paced fashion, it doesn't take a economist to tell you that if your money rate changes 50% over a couple months a lot of bad things will happen.
Part of a Report on my desk yesterday .China will not be bailing out anybody in the foreseeable ....... with a wave of strikes erupting last month in plants across China's coastal provinces, in protest at the failure to pay promised wage rises and cuts in overtime. Workers in factories making New Balance shoes, Apple and IBM keyboards, underwear, furniture and Citizen watches staged unofficial strikes. After a series of 20 percent wage rises last year and the year before, the sudden slowdown has jolted labor relations, and not only in the private sector. In Nanjing, angry garbage collectors made their usual collections and then heaped the refuse into unsavory piles in the middle of the main shopping streets. Inspired by the Occupy Wall Street movement, which has received wide publicity in China, supermarket employees in Zhejiang have taken up residence outside a Tesco store to complain of layoffs and broken promises of wage increases. And along with strikes by teachers in more than a dozen cities, often backed by parents and pupils, car salesmen for the Biyadi group came from all across China to protest at the manufacturer's Beijing headquarters to protest layoffs as car sales stalled. The once-booming property market is in real crisis. The nationwide property company Centaline reported last week that prices for previously owned apartments had fallen to all-time lows in Beijing, Shenzhen and Tianjin. Centaline added that sales for newly built residential projects in 30 large and mid-sized cities fell 42 percent in October from the same period last year. There are similar falls in the price of vacant land zoned for development and most local authorities raise the bulk of their investment budget this way. The China Index Research Institute reported a 45 percent decline in October, compared to the same month last year, averaged over 133 cities nationwide. The institute also reported that Shanghai's government revenues from land sales were down 25 percent from last year. The Hangzhou and Nanjing governments each saw their revenues down by 30 percent each and the cities of Xi'an and Changsha faced drops in revenue of 50 percent. "Capital market support of the real estate industry has basically been cut off,". Housing prices will continue to fall, and many companies will go bankrupt." Worse still, the property crisis threatens to become a banking crisis, since local government finance vehicles borrowed more than $786 billion in the past three years to finance land purchases for development. Many of those loans are turning sour, with new apartment blocks and shopping malls still vacant and prices tumbling.
the yuan is undervalued by at least 50%.....the chinese government is only allowing the yuan to rise a lousy 4% to 5% per year.....and in order to do this they need to buy dollars like crazy.....if the chinese government would let the yuan rise naturally then anual increases would be much more. And the printing of yuans is where the inflation is coming from!
what you explained above is all the end result of issueing too many yuans....the resulting inflation has worked its way through the economy and now employees want raises similar to what happened in north america in the 70's. They need to let the yuan rise.....mind you there will be pain such as a severe recession. Once you start printing and causing bubbles then there is no way getting around the pain the awaits! You had the drug ( money printing and inflation) and now you need the hangover ( the recession)
how do you figure? China is issueing new yuans two ways.....to redeem dollars from merchants selling abroad and to buy dollars to maintain the dollar peg. These new yuans being created are the root cause of all the inflation in china right now.....what part of that don't you understand?
That is true, but the alternative of having your money rise 50% in one year or so would be pretty disastorous for many obvious reasons. There's no realistic way you can argue that an economy can instantly shift from export to consumer in a year, it usually take decades.
not in one year but in three years sounds reasonable...and no...it wont be the dissaster that people seem to think it would become. PS the canadian dollar rose from 70 cents to over a dollar in about 18 months and as you can see there was no great dissaster in fact our economy is doing much better than the US!
But the Canadian Economy is not based on labor intensive export, the math is pretty simple for China, if their currency rise by 50% against the dollar, basically their labor cost rise 50%, seeing that at least for a significant part of their economy consist of factories where labor cost makes up the largest portion of their cost, the problem would be quite obvious when already struggling western economies suddenly see many of their commodities price rise significantly. For China, there is a close approixmation of what could happen in the recent past, the Plaza Accord causing the Japanese currency to inflate big time in a short span essentially put an end to the Japanese boom era, the alternative problem is that, China's still no where close to Japan's economy in the later 80s at this point (based on relative average income comparisons). so while Japan didn't really blow up so to speak (though they became significantly less powerful relatively speaking economically). China's case would be much more dangerous.
two problems with your theory: 1) because of all the money printing labor rates are rising anyways since prices of basic needs are rising in china! I believe in the past year many factories are paying something like 30% more for labor! So you see.....prices will rise anyways but it just takes a littile longer! 2) with a rising yuan then the citizens of china will be able to afford more and would be able to consume more of what they produce as they will have a higher disposable incoome. I just see a win win for china..the only losers would be the US as they would have to pay double for things at walmart!
you are correct that labor cost will go up anyway only at a delayed frame, which is the whole point, the Chinese government is essentially "buying time" for their society to adapt to the changing situation, even if it's only a little bit of it. you are underplaying the relative problems a dramatic rise in currency in a short period would bring, first off, almost everyone agree that in China's major cities the housing prices are absurd beyond reasonable level, raising the currency in effect just raise those prices even more. Japan's big problem in the Plaza Accord aftermath was precisely because everyone knew the currency rise would mean the housing price go up as well, thus creating a housin bubble of unimaginable purportion, for China, who's already in rather serious danger of going this route without such a huge rise, it's hard to see how letting it rise up faster would do much to help. Unless ofcourse, you do it without notice, but that's even more dangerous, since the fundemental of any economics relies on reliability.
but what you are forgetting is the reason that china has a real estate bubble is because of all the money printing that the chinese government is doing in order to buy treasuries...this is why I keep saying that china is importing america's inflation.....and this is why I say that china needs to stop pegging the yuan to the dollar! But since the bubble in real estate already has formed there will be some pain...thats the price they must pay for the foolishness of pegging to the dollar and issueing so many yuans for so long!
I would have thought that for the most part the excess money is only a small part of the housing bubble problem (though it is a part) the bigger part is the lack of access for Chinese to invest their capital abroad, which forces their capital to look for the few domestic alternatives left. China will have excess money anyway even without factoring in inflation because it has a huge trade surplus. if that surplus is not allowed to leave the steam pot so to speak it's obviously going to increase pressure.
whenever you print too many yuans ( or any currency) you end up creating bubbles....thats just basic economics. Now as for the lack of places to put money? I dissagree...there are banks and there are businesses to invest in. In fact the large investment pool is actually bullish as it creates a pool of capital for businesses to tap into to invest in new business ventures!
As you pointed out yourself in the other thread, China's inflation is going faster than it's interest rate, so most invest savvy folks are not going to leave their money in banks. You don't have a very strong understanding of China's internal workings, there are severe limitations on internal investments (and even more on external once), most "investing in busniess" are informal stuff, like borrowing to friends / relatives or through private unregulated lenders , legal / formal route of investments are often very limited. and if anything in recent years we're seeing capital exiting the manufacturing sector and going into what the CCP calls "illusionary economics" aka shark lending or property / asset speculation. At the same time many manufacturers are being very hard pressed by lack of credits.
