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They say that China is a land of contradictions. It built a wall over three thousand kilometers long to keep out foreign invaders, but in 700 years of the past millenium, it was ruled by the Mongols and the Manchus, and later that wall did nothing to prevent 20 million Chinese from being slaughtered in the name of the Japanese Emperor. China makes more clothes than the rest of the world combined, yet most Chinese would rather buy something that has been shipped out of the country once, branded, and then shipped back in and retailing at Armani under a 60,000% markup.
And China has more foreign reserves of liquid capital than any other nation on Earth, yet it cannot use that capital to buy control within the capitalist system. This is because China lacks mature capital markets and hence must use markets elsewhere. When that happens, restrictions are placed on the usage of capital, informally and formally.
The Rio Tinto-Chinalco debacle and China's conundrum with regards to U.S. debt are facets of the same gem. It is exceedingly hard for China to spend its money on anything valuable within the Western world, unless it is spent with a significant premium.
The most egregious example comes from buying corporate control. Data shows that when a Chinese company buys out a foreign firm, it typically pays 18-28% extra versus a comparable international purchase by someone from a 3rd country. Interestingly enough, this premium disappears when the Chinese company in question is only buying a minority stake, or putting in money without acquiring control; in those cases China pays what the world pays.
Put this case through forensics. Two questions need to be answered. The first--why? The second--how?
Intent towards this behavior is a slippery and difficult question, and something I don't know much about either. But data suggests that this premia will get worse as the Chinese economy continues to grow. Obviously, as no Chinese official in their right mind would like to see the PRC economy shrink, then this cost must be accounted for, somehow.
The capability towards this harm is the lack of a capital market within China. Put simply, even with all this surplus capital generation, firms and individuals can still get capital more cheaply in and, seemingly out of habit, still flock to the capital markets within, the Western world. This does not make sense. Nations undergoing massive capital accumulation should see their markets booming, and they should be acquiring interest, their pound of flesh, so to speak, in firms around the world which come to them to get money. Instead, China sends its capital overseas as debt, and lets others play around with it and convert it into equity. Why not just use it directly as equity itself? Why not do everything possible to have international companies directly raise capital from Chinese investors, and do it in the RMB instead of the dollar?
And yet the Chinese government continues to restrict the flows of capital both inward and outward, preferring to keep control over its little slice of the pie without realizing that China has a golden opportunity right now to firmly grasp some of the levers of the world economy.
But this opportunity won't last. In another 20 years, China will become feeble, thanks to the one-child policy. China will become old, and its savings rate will drop as people naturally consume their nest eggs through retirement. Hence China must act now to secure as many advantages as it can in the capitalist system, to buy as many threads in the puppet show as it can, so that when it gets old, its income will not be determined by dollar-denominated debt but rather equity control over the output of the rest of the world.
That is the contradiction--by keeping such a firm grip on the markets itself, the powers that be within the Middle Kingdom are losing the chance to procure something far greater.
  
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The US owes China Trillions of dollars you know.
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On July 28 2009 14:02 tobi9999 wrote:
The US owes China Trillions of dollars you know.
The US owes everybody money and soon their dollar will collapse and be replace so they will end up with no debt..
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United States4796 Posts
The Chinese and their ability to play StarCraft will save them in their time of need.
Oh wait, StarCraft doesn't have that power.
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the one child policy doesnt really exist...i mean im in a famly of 2 both born in china. so are my all my cousins. people has found ways to get thru it man.
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is awesome32275 Posts
The one child policy isn't a one child policy and it's getting changes soon.
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Nice troll, really.
The Great Wall (as you see now) was built after the mongols were expelt from the mainland; and its purpose was to keep the mongols out. Its purpose died out in 1600s when gunpowders were incoperated in warfare. This is the same as how all the European castles went useless.
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Lol t_co you still owe me food  , I forgot about it until I read your name on this blog post.
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Interesting stuff. Is this just the result of having an artificially fixed exchange rate? I mean, if the exchange rate was allowed to float freely, the RMB would increase in value. Would that eliminate the 20% extra that they pay?
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United States22883 Posts
On July 28 2009 14:35 IntoTheWow wrote:
The one child policy isn't a one child policy and it's getting changes soon.
The issue isn't the current one child policy/execution, it's that it already had a major effect 20 years ago. The Chinese population's average age is increasing (which is always a bad indicator) and the economy is going to stall in about 10 years under the weight of the health care system. There won't be enough young people to take care of the old people (due to the one child policy) and right now there doesn't seem to be a feasible way to cover the costs for those people. It's happening to some degree in the US, but at a much lower level than it'll happen in China, plus American culture doesn't dictate that children need to care for parents as much as Chinese culture does. We're pretty much ok with abandoning old folks or dropping them off at senior communities, but the same won't work over there.
The sad thing is that some Chinese researchers wrote a major report on the impending dangers of rapid population growth in the late 60s but Mao totally ignored it.
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China Strong
July 27, 2009 | Issue 45•30
NEW YORK—According to all sources, the People's Republic of China is strong. The nation is united, the military unmatched, the economy vibrant, and the people ever joyful.
Similarly correct sources verified that China has always been triumphant.
In other news, the Chinese government is fair, all-knowing, and wise, propelled by the strength of two billion loyal hands, all pulling together as one under the Great Celestial Bureaucracy high above.
Experts all agreed that there can be no question of this claim, as this claim is the truth.
As of press time, the brute and inexpressive English language could not convey the full magnificence of China, nor its excellence in every arena, nor the protective warmth of the red sun that shines forever on its borders, nor the innumerable glories of its Great Leaders.
New reports also indicate that China will grow stronger yet. 鱼
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On July 28 2009 15:17 H wrote:
China Strong
July 27, 2009 | Issue 45•30
NEW YORK—According to all sources, the People's Republic of China is strong. The nation is united, the military unmatched, the economy vibrant, and the people ever joyful.
Similarly correct sources verified that China has always been triumphant.
In other news, the Chinese government is fair, all-knowing, and wise, propelled by the strength of two billion loyal hands, all pulling together as one under the Great Celestial Bureaucracy high above.
Experts all agreed that there can be no question of this claim, as this claim is the truth.
As of press time, the brute and inexpressive English language could not convey the full magnificence of China, nor its excellence in every arena, nor the protective warmth of the red sun that shines forever on its borders, nor the innumerable glories of its Great Leaders.
New reports also indicate that China will grow stronger yet. 鱼
Don't forget the magnifence and brilliance of the little Red Book!
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Terrible troll. The title gives it away, "china's dollars". -1/5.
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On July 28 2009 15:17 H wrote:
China Strong
July 27, 2009 | Issue 45•30
NEW YORK—According to all sources, the People's Republic of China is strong. The nation is united, the military unmatched, the economy vibrant, and the people ever joyful.
Similarly correct sources verified that China has always been triumphant.
In other news, the Chinese government is fair, all-knowing, and wise, propelled by the strength of two billion loyal hands, all pulling together as one under the Great Celestial Bureaucracy high above.
Experts all agreed that there can be no question of this claim, as this claim is the truth.
As of press time, the brute and inexpressive English language could not convey the full magnificence of China, nor its excellence in every arena, nor the protective warmth of the red sun that shines forever on its borders, nor the innumerable glories of its Great Leaders.
New reports also indicate that China will grow stronger yet. 鱼
fish?
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On July 28 2009 14:11 xJacky wrote:
the one child policy doesnt really exist...i mean im in a famly of 2 both born in china. so are my all my cousins. people has found ways to get thru it man.
so we get it....your family has money
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On July 28 2009 16:05 skronch wrote:Show nested quote +On July 28 2009 14:11 xJacky wrote:
the one child policy doesnt really exist...i mean im in a famly of 2 both born in china. so are my all my cousins. people has found ways to get thru it man. so we get it....your family has money
... i know plenty of people in china who are not rich who have more than 1 child.
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On July 28 2009 16:51 krazymunky wrote:Show nested quote +On July 28 2009 16:05 skronch wrote:On July 28 2009 14:11 xJacky wrote:
the one child policy doesnt really exist...i mean im in a famly of 2 both born in china. so are my all my cousins. people has found ways to get thru it man. so we get it....your family has money ... i know plenty of people in china who are not rich who have more than 1 child.
That's probably because either the mom or the dad (or both) can claim to be an ethnic minority (even though in reality they may not fully be). Generally speaking, that's the loophole for getting around the one child policy. There may be other ways of getting around it (such as having twins I believe), but usually those families that are purely Han will have to pay a fine of some sort.
The one child policy really only applies to pure Han families, because there are so many Han Chinese. Ethnic minorities receive quite a bit of special benefits from the government, and this is pretty commonly abused.
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On July 28 2009 15:17 H wrote:
China Strong
July 27, 2009 | Issue 45•30
NEW YORK—According to all sources, the People's Republic of China is strong. The nation is united, the military unmatched, the economy vibrant, and the people ever joyful.
Similarly correct sources verified that China has always been triumphant.
In other news, the Chinese government is fair, all-knowing, and wise, propelled by the strength of two billion loyal hands, all pulling together as one under the Great Celestial Bureaucracy high above.
Experts all agreed that there can be no question of this claim, as this claim is the truth.
As of press time, the brute and inexpressive English language could not convey the full magnificence of China, nor its excellence in every arena, nor the protective warmth of the red sun that shines forever on its borders, nor the innumerable glories of its Great Leaders.
New reports also indicate that China will grow stronger yet. 鱼
is this from the onion?
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Yeah, it's from the onion. Hilarious. Should definitely check it out.
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EPT
