Posts Tagged China

China Eclipsed the U.S. as the Biggest Trading Nation. Questions to ask from an Austrian Perspective

Great-Wall-of-ChinaLast month one of the Bloomberg’s headline news was titled “China Eclipses the U.S. as Biggest Trading Nation”. There seems to be of concern China’s 2012 reported trade of $3.87 trillion surpassing the U.S. report of $3.82 trillion.  For the full article click here.

The concern arises with the fact that…

China’s growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.’s Jim O’Neill.

Why worry so much about an Olympic athlete that had worked hard for many years to win the gold medal?  The benefits of twenty and some years of manufacturing and producing real capital in the world are evident and well deserved.  As far as Germany increasing its exports to China there should be no big surprise. Germany, one of the few productive economies left in the EU, needs to find a strong trading partner with whom to exchange goods and services.  The key word is “strong”, financially strong.  Who else should Germany trade with?  France, Spain, Italy, Greece, countries which are literally economically insolvent?

O’Neill goes on saying that…

“For so many countries around the world, China is becoming rapidly the most important bilateral trade partner.  At this kind of pace by the end of the decade many European countries will be         doing more individual trade with China than with bilateral partners in Europe.”

So, what’s wrong with that? If I owned a company and found that my best consumers for my product are on another continent, I would not hesitate.  In addition, knowing that my consumers are financially capable of buying my products gives me even more reasons to target that market.  Why settle for local consumers heavily in debt who can’t afford my products and/or would have to acquire more debt to afford it?  Competition and free markets are key components of growth and success. At this point, those European countries should pay serious attention and do whatever it takes to become competitive in the market.

Then, under the chapter U.S. Leadership, we’re finding out that…

When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis.  The U.S. recorded a surplus in services of $195.3 billion  last year and a goods deficit of more than $700 billion, according to BEA figures released Feb. 8. China’s 2012 trade surplus, measured in goods, totaled $231.1 billion.

The U.S. economy is also double the size of China’s, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China’s totaled $7.3 trillion.  China’s National      Bureau of Statistics reported Jan. 18 that the country’s nominal gross domestic product in 2012 totaled 51.93 trillion yuan ($8.3 trillion).

“It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume,” Nicholas Lardy, a senior fellow at the Peterson Institute for International         Economics in Washington, said in an e-mail.  The increase isn’t all the result of an undervalued yuan fueling an export boom, as Chinese imports have grown more rapidly than exports since 2007,  he said.

As far as services versus goods provided this is a clear sign that the U.S. does not provide enough goods. Goods are of two kinds. Consumer goods (those items we shop for such as cars, furniture, toys, clothing, jewelry, etc) and capital goods (which are the machinery and equipment with which consumer goods are being produced). Maybe the U.S.’s protectionist agenda, taxation, heavy unionism in conjunction with a national trend of favoring a socialist, if not fascist, economic system did not help after all.  Maybe the corporate bailouts and Quantitative Easing did not in the end help the private manufacturing sector.

If I were in a position of power I would wonder – and would want to find out – how come my country with a GDP of $15 trillion has a trade deficit higher than my competition, which has a GDP half of my country’s GDP. Could it be that too much of our GDP is comprised of 1. the growing of the federal government, and 2. military exposure all over the world?  Could it be that such a big economy has little to justify its big number considering its producing capacity is in a less than desirable stage?  Mr. Lardy addresses such a question but he seems surprised.  But the small businessman in America is hardly surprised.  Why?  Because it’s become very hard for the small business owner to compete with the government subsidized corporations when he has to jump government imposed barriers in form of rules and regulations, when he’s coerced with providing health insurance coverage to his employees, and when he’s faced with minimum wage restrictions.  Then Mr. Lardy brings up a good point. China’s imports are now replacing its exports.  The answer is: Think of the U.S. back during the 1980’s, when it was the largest manufacturer in the world and the largest creditor. There seems to be a role reversing going on.

The article goes on…

Biggest Exporter

The U.S. emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture. Protectionist policies in the 1930s had         exacerbated the global economic depression. At the same time the U.K., the leading trading nation of the 19th century, began to dismantle its colonial empire.

Wait a minute, did I read that right? It says that Protectionist policies in the 1930’s had exacerbated the Depression. Wasn’t Goldman Sachs concerned with Germany not trading locally within the E.U. territory? What Germany is doing is simply trading in a free market exchange. Why use protectionism to stifle it?

If the article referred to the U.K. as a colonial empire what makes today’s U.S.A. different than Great Britain during the beginning of the last century?

China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong, who died in 1976.  Economic growth averaged 9.9 percent a     year from 1978 through 2012.

After a long period of central planning and economic regression under the communist system China recognized that hard work and free markets are the answer to economic prosperity.

China became the world’s biggest exporter in 2009, while the U.S. remains the biggest importer, taking in $2.28 trillion in goods last year compared with China’s $1.82 trillion of imports. HSBC     Holdings Plc forecast last year that China would overtake the U.S. as the top trading nation by 2016.

This begs the question: Is the U.S. consuming too much and producing too little?

The article continues with claims from a few banking institutions that China’s export figures could be manipulated. Maybe or maybe not. What I know is that wherever I shop in the U.S. , whether Walmart or JC Penney, I can’t help noticing the “Made in China” tags.

Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University in Ithaca, New York, says…

“The U.S.’s bilateral trade deficit with China, which peaked in 2012, could remain a flashpoint of tension between the two countries.”

Why tension?  Is it mutual from both countries, or unilateral?  The question of who benefits the most out of the trading partnership at this time has not been addressed enough. What would happen to American people if Chinese goods imports would stop over night?  Has the American politician explained how the lifestyle of the average American would be impacted?  Has it been argued that an unemployed American may suffer drastic changes?  The typical comment out there is “let’s build American”. Sure, I am all for it but with what? There is no savings to produce the capital required to produce goods.  Or should we borrow more and increase our debt?  Should we allow unions to force manufacturers to keep wages up?  If we do, it means that we should also expect to pay double, if not triple for a product that otherwise would have cost us less if it were imported from China.

On the other side would China and its people be affected as much?  Do they need the U.S. to consume its products?  Maybe. But what if the Chinese renminbi is allowed to freely float? If that happens, the Chinese people’s purchasing power is increased.  If their currency goes up it means their people would be able to afford more.  With a population of more than 1.3 billion I would think there would be a large enough market to consume the locally manufactured products. Not to forget the rest of the countries in the region, some with affluent residents (such as Singapore) and some emerging countries with growing industries and growing wealth (Indonesia, Malaysia, Vietnam, etc).

Mr. Prasad continues…

“This trade imbalance is not representative of the amount of goods actually produced in China and exported to the U.S., but this perspective tends to get lost amidst the heated political rhetoric in the U.S.”

If it’s not indicative of the productive nature of China then what does it represent? The answer is just that. China: Large production and little consumption. U.S.A.: Little production and large consumption.

Goldman Sachs’, O’Neill, is concerned with…

“the trade figures underscore the need to draw China further into the global financial and trading architecture that the U.S. helped create.  One way or another we have to get China more                 involved in the global organizations of today and the future despite some of their own reluctance.  To not have China more symbolically and more importantly actually central to all these things is just increasingly silly.”

Why bring China to be part of the Wall Street game?  So that it becomes part of the Debt web and contributes further to the global economic instability?  No, it’s not silly to be sovereign.  No, it’s not silly to be self-sufficient.  And it’s not silly to be rewarded for hard work leading to production of real goods.  Better than Goldman Sachs’ paper derivatives.  Common sense, if applied, should lead us to think of this as an advance warning.  Maybe it’s time America starts producing real hard assets instead of Wall Street paper assets.

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Chinese, Indian Gold Demand Driven By Rising Wealth, Savings Mentality

Posted 9/20/2011 by Allen Sykora

Montreal– (Kitco News) — A cultural affinity for gold coupled with expanding economies and individual wealth are likely to mean continued strong demand for the metal in the key nations of India and China for years to come, speakers told the London Bullion Market Association Tuesday.

One session was titled, “China & India—the Evolution of Golden Giants.”

The citizens of both nations are only enjoying higher incomes that mean greater consumer spending, including luxury items, the speakers told the LBMA annual conference in Montreal. Further, they have a natural propensity toward saving, particularly without a retirement program such Social Security in the U.S.

In fact, the Chinese save 38% of their disposable income, while the people of India save 29%, according to one graphic shown to the audience.  The U.S. rate was listed as 3.2%.  As the Chinese build their savings, they are faced with low interest rates at banks, a stock market not performing well and limitations on real estate and foreign investments, the audience was told.

“Where else can they turn to?” asked Albert Cheng, managing director, Far East, for the World Gold Council. “We saw in the last year, they put some of it in gold.”  Wai-Chan Chan, director and partner in the Greater China office of the global strategy consulting firm OC&C, described a rapid urbanization and “remarkable” economic growth in China. The country recently became the second-largest economy in the world.

“Fifteen years ago, rush hour was bicycles. No one had a car. Look at it now,” he said, showing a slide with bumper-to-bumper traffic.  For the 20-year period beginning in 1990, per-capita spending grew at a rate of 11% a year, he said. By contrast, the growth was 4% in the U.S. and U.K. and 3% in Germany and France. In particular, the so-called “luxury” market has “exploded” in China, he said.  “Chinese consumers are spending more on gold jewelry, due to higher willingness to spend, better product offering and (the) investment function of gold,” he said.

India has an ingrained cultural affinity for gold, further helped by macroeconomic factors, said Rujan Panjwani, president of Edelweiss Financial Services.  He cited estimates that Indian households have hoarded an estimated 20,000 metric tons in the form of ornaments. Gold ornaments account for some 10% to 15% of the cost of an average Indian wedding, he said.  And, he added, there is a likelihood of 125 million to 150 million weddings in the next decade.  Further, he said, the lack of Social Security and scarcity of insurance or pensions has also made India a nation of savers. Yet, the country of more than 1.2 billion people has only 350 million bank accounts.

“Where do you save? Cash under your mattress? No,” he said, then offering one of the answers: “Gold.”  An estimated 7% of India’s $256 billion in total household savings is currently held in gold, he said, citing the McKinsey Report. In 2010 alone, Indians bought 963 metric tons of gold worth an estimated $38 billion.  Like China, India has a rapidly growing economy. Gross domestic product is headed to an estimated $2 trillion for 2011 from $473 billion in 2001, and is expected to be $4.5 trillion by 2021.

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