Opinion

The Great Debate

Flight to “safety” eases China diversification

China appears to be taking steps to diversify its holdings away from the U.S. dollar and may just have chosen a pretty good time to do it.

Longer term a meaningful diversification by China, which holds about a third of its $2.45 trillion currency reserves in U.S. Treasuries, is probably both inevitable and highly risky.

Inevitable, because China probably realises that, given the U.S.’s difficult fiscal and economic challenges it is not sensible to have its own fortunes tied so closely to its major client.

Risky, because wholesale sales of U.S. Treasuries by China would drive up U.S. interest rates and could spark panic selling in the dollar. That would undermine the U.S. economy, hitting demand for Chinese goods, fouling U.S./China relations and, not least, torpedoing China’s own accumulated wealth.

However, it seems, people have more important things to be scared of than Chinese portfolio sales, and are running headlong into Treasuries seeking safety from deflation and the threat of a recession. That is overwhelming any impact that China diversification is having on U.S. instruments, at least so far.

China needs to become a civil society in order to be a true global leader

The following is a guest post by Pei Bin, director of China Partnership Development for BSR, a global business network and consultancy focused on sustainability. The opinions expressed are her own.

At the recent Aspen Institute Socrates Summer Seminar, I attended the session “Soft-Power: U.S. Leadership in a Hardball World,” moderated by Joseph Nye, a professor of International Relations at the Harvard Kennedy School.

The session sparked my own reflections on the existence, or lack thereof, of soft power in China. While everyone at the Aspen Institute expressed strong and positive interest in China, the majority of the United States still views China as a threat.

from Jeremy Gaunt:

The rule of three

It is beginning to look like financial markets cannot handle more than three risks. First we have, as MacroScope reported earlier,  Barclays Wealth worrying about U.S. consumers, euro zone debt and Asian overheating.

Now comes Jim O'Neill and his economic team at Goldman Sachs, with three slightly different notions about risks in the second half, this time in the form of questions. To whit:

1) How deep will the U.S. economic slowdown be and what will  the policy response be? (That's two questions, actually, but let's not nitpick).

Cuba and twisted logic, double standards

It is time for the United States to stop trading with China and ban Americans from travelling there. Why? Look at the U.S. Department of State’s most recent annual report on human rights around the world.

“The (Chinese) government’s human rights record remained poor and worsened in some areas,” the report notes. “Tens of thousands of political prisoners remained incarcerated (in 2009).”

U.S. relations with Egypt should also be frozen, because “the government’s respect for human rights remained poor, and serious abuses continued in many areas…Security forces used unwarranted lethal force and tortured and abused prisoners and detainees, in most cases with impunity.”

from MacroScope:

What are the risks to growth?

Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.

First, there is the risk that U.S., t consumers won't increase spending. Dicks notes that the increase in U.S. consumption has been "extremely moderate" and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.

Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won't see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit.  It leaves the Barclays Wealth's euro zone GDP forecast at just 1 percent for next year.

What the shipping market tells us about the air freight and export market

An interesting contrast is shaping up in global trade, where some indicators of the movement of raw materials are crashing even as exports from China and air traffic continue to show outstanding strength.

Depending on your reading of the data you could decide that the threat of a double-dip recession is overblown or, perhaps more simply, not a threat but a promise.

First, the good news, at least if you are exposed to Chinese exporters. China said last week that export sales rose a stunning 43.9 percent in June from the year before, taking the trade surplus to $20 billion, its highest in eight months.

Google, google everywhere

CEBIT/The following is a post by Stephen Adler, editorial director of Thomson Reuters professional, that was taken from one of his blog posts at aif.thomsonreuters.com. Adler is a moderator at some of the panels at the Aspen Ideas Festival, which runs through July 11. Thomson Reuters is one of the sponsors of the event. The opinions expressed are Adler’s own.

Do a Google search for David Drummond and you’ll learn, amidst the 211,000 hits, that he is Google’s senior vice president and chief legal counsel. What you won’t learn is that he’s an especially eloquent spokesperson for his employer as it tries to live by its own “Don’t Be Evil” rule in a world of complicated choices. You need to come to the Aspen Ideas Festival to learn that — or you could watch a video of him on You Tube, which is also, of course, owned by Google.

Google is on everyone’s mind because it has so quickly become essential to our lives and a powerful disrupter of orthodoxies. It always seems to be on the front lines, on one side or the other, in big societal battles over such issues as censorship, the right to privacy, the meaning of copyright, the evolution of 21st century antitrust law, the future of the news industry, even the nature of the workplace.

Shifting wealth: does the developing world hold the key to building a stronger economy?

The following is a guest post by Angel Gurría, Secretary-General of the Organisation for Economic Co-operation Development. The opinions expressed are his own.

The world’s economic center of gravity is changing. Global GDP growth over the last decade owes more to the developing world than to high-income economies. If these trends continue, by 2030 developing countries will account for nearly 60% of world GDP on a purchasing-power parity basis, according to OECD calculations.

While high-income countries have been languishing in the worst recession since the 1930s, China and India have continued to power ahead. This is not a single stand-alone event, but a sign of an important structural transformation in the global economy, a process we call “shifting wealth.”

China move like history in slow-motion

Asked about 175 years after the fact what he made of the French Revolution, Chinese Premier Zhou Enlai is said to have thought for a moment and concluded: “It is too soon to tell.”

Tell a U.S Congressman up for reelection or an unemployed auto parts worker in Ohio the same thing about China’s new policy to give the yuan more latitude in how it trades against the dollar and, once you’ve picked yourself up off the ground, you’ll have a different answer.

China on Saturday said it would end the yuan’s currency peg to the dollar, allowing it to trade more freely. It also made clear that no big move was forthcoming, preparing the way instead for “gradual” appreciation.

China hits a welcome turning point

CHINA

China’s massive supply of cheap labor may at last be drying up, a development that in time will bring higher wages, inflation, a stronger yuan and help to right dangerous global imbalances.

If these trends hasten financial liberalisation they could eventually set the stage for a broader Chinese bubble.
The formerly extremely unequal balance of power between workers and employers in China appears to be shifting.

Workers for a Chinese company which supplies Honda with auto parts have struck and successfully won large wage increases. Other strikes have followed, and firms have often been quick to compromise.

  •