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USA plan for China [Copy link] 中文

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Post time 2005-10-16 18:35:29 |Display all floors
This is a balanced story on the issues.  China is a rising power, while the USA is a wealthy country.  The USA leaders may have some good ideas, but, as the article recognizes, China does not respond well to western economic pontifcation.  

Two facts I question are the vulnerability caused by an export economy and the rich-poor gap in China.  China isn't the worst in the rich-poor gap, but there is a bigger issue.  The estimated 600 million really poor Chinese are a valuable labor source that can underprice any rich country manufacturer while making a bigger profit, shipping included.  Once more Chinese have more disposable income, then they'll be buying goods made in China, which will reduce the percentage of products made for export.  

Who needs nuclear bombs when a dynamic that destroys rich country factories while raising living standards in China is well in place?  China has discovered a power greater than the biggest megaton bomb on earth and it is called capitalism.

U.S. Offers Plan for Open Markets in China

Published: October 16, 2005

XIANGHE, China, Oct. 15 - The Bush administration is expected to present China's political leaders on Sunday with a sweeping plan to overhaul China's financial markets and open the country to foreign banks, investment firms and insurance companies.

Administration officials say the plan is part of an effort to put the yuan into a broader debate over China's lopsided reliance on exports as the main source of economic growth.

The plan, to be discussed in two days of talks here and in Beijing, calls for China to speed up the privatization of state-owned companies, including banks; to develop a Chicago-style futures market for currency trading; to establish an independent credit-rating agency; and to crack down on bailouts for banks left holding bad loans.

"What we tried to do is take a quantum leap in sophistication and scope," said Timothy D. Adams, undersecretary for international affairs at the Treasury Department. "It gives you a picture of the truly complex nature of what we are trying to do."

Though many of the ideas are familiar, and often supported by Chinese leaders in principle, the list reflects an increased effort to lecture China about internal financial issues.

That could backfire. Chinese leaders invariably bristle at pressure from American officials, and they could view the new American "priorities" as an unwelcome intrusion.

The new tack comes as Treasury Secretary John W. Snow continues to show little progress on the volatile economic dispute with China over exchange rates.

Republican and Democratic lawmakers in Congress have long complained that the yuan has been pegged at an artificially low value against the dollar, making Chinese exports to the United States cheaper than they would otherwise be.

China announced a 2 percent revaluation in July, but have yet to follow with any additional changes. Based on signals from senior Chinese officials on Friday and Saturday, Mr. Snow is unlikely to return to Washington next week with any evidence of new progress.

Mr. Snow has been arguing that China needs to get people to spend more and save less. Administration officials say that a financial overhaul would help make that happen.

Many economists agree with that assessment, but they caution that there are limits to what the United States can do to speed up change.

"They are doing a smart thing, because the exchange rate is a small part of the overall economic relationship," said Andrew Rothman, a Shanghai-based strategist at CLSA Asia-Pacific, a brokerage firm. But he added, "This is not the kind of thing where someone flips a switch and it happens overnight."

Mr. Rothman said that China had already embraced many of the ideas that Mr. Snow was promoting and that consumer spending has grown sharply in the past few years.

Retail sales in China have been climbing about 10 percent a year for the past several years, he said. Household credit, virtually nonexistent five years ago, now accounts for 16 percent of all outstanding credit.

But many of the Bush administration's proposals would encounter fierce political opposition from many quarters.

China's state-owned banks and far-flung rural credit cooperatives have many defenders in the ruling Communist party, and they are certain to oppose well-financed competition from Western banks.

Even without opposition from vested interests, many Chinese leaders are likely to fret over giving more freedom to foreign financial institutions to enter Chinese markets.

Under current laws, foreign investors are usually prohibited from owning more than 25 percent of a commercial bank, and no single foreign investor can own more than 20 percent.

According to a document that Treasury officials plan to circulate among Chinese leaders, the Bush administration would remove the limits on foreign ownership as well as a host of other restricitons.

Foreign financial institutions that want to buy Chinese securities would be freed from having to have at least $10 billion in assets and to have been in business at least five years.

Foreign-affiliated banks, brokerage firms and insurers would be freed from restrictions on setting up multiple branches at one time.

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Post time 2005-10-17 00:10:50 |Display all floors

I think the USA should stay out of it

It is a lose-lose for America.

If it goes well then the Chinese will be deemed victorious and America did little to help.

If it goes bad the Chinese will be looked upon as victims and America did this with ill intent.

There is no winning for America in this one.

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Post time 2005-10-17 07:25:58 |Display all floors

The USA is a Wealthy Country?

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Post time 2005-10-17 08:52:46 |Display all floors

Flot...I am just a blue collar worker but...

Me thinks these USA movers and shakers know what they are doing.

Example -

If I got a liter of wine from you and I told you I would repay you with a liter of wine in one year with a 10% interest would you do it?

The wine at that time you gave it to me was $20. One year later the value of the liter of wine went from $20 to $6...who wins? You got your liter of wine back with 10% interest.

When the dollar get devalued down next to nothing expect debt payments from the USA to come in abundance at a saving to the U. S. federal reserve in the $trillions.

Remember, I grew up on a farm and this is just a farm boys two cents worth.

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Post time 2005-10-17 12:29:21 |Display all floors

Mr. Fish, now you understand!!!!! I am a Hao Ji..we also protect our white cousi

..don't worry...

we need to be calm and it wll all work out well.

America remains wealthy and China becomes wealthy.

and then we work on Latin America and India.


Cheeky Game Master
Lord of the code

Council of Malaya

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Post time 2005-10-17 19:40:27 |Display all floors

Who makes a bad deal?

2fish, your assumption is that inflation will erode the value of the debt that the USA has to repay through time.  But if you can see it and I can see it, why can't the lenders see it?  Why would they make such a bad deal for themselves?

Also, if the USA prime rate is 3.5% and the inflation rate is 4%, then the actual interest rate is -0.5%.  How is that a good deal?

Many people think that America is just too big and too important to fail, meaning the risk and upheaval caused by the potential economic disruption cause others to go along even when the numbers are not with them.  They will to a point, I guess, but it is an unsustainable situation.  And if it is unsustainable, eventually it will stop.

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Post time 2005-10-18 08:11:59 |Display all floors

"Why would they make such a bad deal for themselves?"

Matt, I am not a banker or have knowledge of economics. I do not have a college degree so take my words the same as you would a Chinese miner. (one that is still alive).

"Why would they make such a bad deal for themselves?"

Because China is trapped.

Do you remember the latest decline in the stock market? It went down 10% and then 20% and everyone thought it would go up again so they kept their stock. Then it went down 30% and then 40 % and it was too late to now pull you money out. It is now more than 50% down what it was in 2001 so what do you do? You wait it out.

I have friends that enjoyed the increase in the stock market of the 90's and they were ready to retire. Then the decline came and now today....they are still working and waiting for the stocks to get back to what it was.

This is where China is at. China has bought High (so to speak) and if China where to "cash out" they would realize a 50% loss or trillions of dollars. So what does China waits or better buys more at this low price for how low can it go?

The worst thing that could happen to China is if the USA goes bust and claims bankruptcy. So China, we depend on each other so try, please try to be just a little bit nicer to me.

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