What's China's Long-Game?
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What's China's Long-Game?
I've been avoiding temptation to get back into the VP game (which I've been out of for around 2 years), but I have a strong interest towards China and their currency. Here's why:
1) China, unlike the US and Europe, doesn't give a shit what it's people think. The leaders are doing some 100+ year plan to make China the next superpower, instead of the 2-year plan (which favors short-term goals and appeasing special interest groups at the expense of the greater economy) that politicians in the US do. In general, I think the economy is efficient without government intervention, it appears that China may have the better government for long-term success relative to the US (given the current Liberalized government we have today).
2) China owns a ton of debt from the US and first world nations. They can "politically leverage" that debt for their benefit. Imagine a recent college grad who borrows money from his parents and relies on new debt from his parents on a regular basis. Those parents have strong control over their kid and what he does, simply by threatening to cut him off from future borrowing.
3) China has a lot of people, a lot of resources, a lot of land mass, and manufacturing capabilities. We can no longer manufacture anything in the US because it's not economically feasible to do so under OSHA, EPA, and union standards.
4) China is artificially debasing their currency, keeping it weak, to allow for a better exports economy.
What if China decides:
1) Fuck it, not going to let the US borrow money anymore.
2) Fuck it, not going to debase our currency any longer, going to let it increase, and then OUR PEOPLE can afford to buy the stuff we manufacture and produce and we won't need to export any longer so it doesn't matter if we're too expensive relative to other currencies to export things
Think about what China is doing:
1) Temporarily keeping their currency low to allow for an export economy to build up their internal infrastructure and economy. US (and first-world) investors are flooding China with money to buy factories and machinery and put the resources into training Chinese citizens into doing jobs.
2) Letting other countries borrow money so that it can exert political influence over them to do things that are beneficial to China in the long-term, that First-World "Democratically-elected" Politicians don't realize or think through the implications of because they are short-term thinkers (much like CEOs worrying about quarterly earnings at expense of 10-year returns).
At a certain point, first-world countries will have helped built up China to the point where China doesn't need to export and would better its citizens by raising the currency and keeping their things in-country. Without being able to borrow money from China, the US government would be forced to make up the loss by printing more money, resulting in inflation (and an even weaker USD to Chinese Currency), which means China can import things from the US (like agriculture products).
As the US Economy goes into recession, the US uses less oil and other raw materials, thus pushing the global supply of those materials up, and driving the costs down for China.
It's win-win-win in the long game for China.
The Chinese National Bank in NYC allows you to buy up to around $10k USD worth of Chinese Currency each year. There's limits and they won't let you get too much.
As much as I am trying to avoid VP speculation, it seems like China may be poised to fuck us over in 10 to 20 years and this may hedge against that. Then again, gold will likely sky rocket in that situation, at least relative to the USD, so I can buy some things in the US more cheaply (using my gold profits), although gold may not skyrocket relative to Chinese currency and if China is buying up global resources, then gas and food may go up just as much as the Gold:USD ratio does.
Or maybe if I was born 40 years earlier, I'd be saying the same thing about the Soviet Union and now holding onto worthless Soviet bills? In all seriousness though, I don't think that's the case and I can't imagine China not being the next superpower and having their currency to USD skyrocket when that happens.
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1) China, unlike the US and Europe, doesn't give a shit what it's people think. The leaders are doing some 100+ year plan to make China the next superpower, instead of the 2-year plan (which favors short-term goals and appeasing special interest groups at the expense of the greater economy) that politicians in the US do. In general, I think the economy is efficient without government intervention, it appears that China may have the better government for long-term success relative to the US (given the current Liberalized government we have today).
2) China owns a ton of debt from the US and first world nations. They can "politically leverage" that debt for their benefit. Imagine a recent college grad who borrows money from his parents and relies on new debt from his parents on a regular basis. Those parents have strong control over their kid and what he does, simply by threatening to cut him off from future borrowing.
3) China has a lot of people, a lot of resources, a lot of land mass, and manufacturing capabilities. We can no longer manufacture anything in the US because it's not economically feasible to do so under OSHA, EPA, and union standards.
4) China is artificially debasing their currency, keeping it weak, to allow for a better exports economy.
What if China decides:
1) Fuck it, not going to let the US borrow money anymore.
2) Fuck it, not going to debase our currency any longer, going to let it increase, and then OUR PEOPLE can afford to buy the stuff we manufacture and produce and we won't need to export any longer so it doesn't matter if we're too expensive relative to other currencies to export things
Think about what China is doing:
1) Temporarily keeping their currency low to allow for an export economy to build up their internal infrastructure and economy. US (and first-world) investors are flooding China with money to buy factories and machinery and put the resources into training Chinese citizens into doing jobs.
2) Letting other countries borrow money so that it can exert political influence over them to do things that are beneficial to China in the long-term, that First-World "Democratically-elected" Politicians don't realize or think through the implications of because they are short-term thinkers (much like CEOs worrying about quarterly earnings at expense of 10-year returns).
At a certain point, first-world countries will have helped built up China to the point where China doesn't need to export and would better its citizens by raising the currency and keeping their things in-country. Without being able to borrow money from China, the US government would be forced to make up the loss by printing more money, resulting in inflation (and an even weaker USD to Chinese Currency), which means China can import things from the US (like agriculture products).
As the US Economy goes into recession, the US uses less oil and other raw materials, thus pushing the global supply of those materials up, and driving the costs down for China.
It's win-win-win in the long game for China.
The Chinese National Bank in NYC allows you to buy up to around $10k USD worth of Chinese Currency each year. There's limits and they won't let you get too much.
As much as I am trying to avoid VP speculation, it seems like China may be poised to fuck us over in 10 to 20 years and this may hedge against that. Then again, gold will likely sky rocket in that situation, at least relative to the USD, so I can buy some things in the US more cheaply (using my gold profits), although gold may not skyrocket relative to Chinese currency and if China is buying up global resources, then gas and food may go up just as much as the Gold:USD ratio does.
Or maybe if I was born 40 years earlier, I'd be saying the same thing about the Soviet Union and now holding onto worthless Soviet bills? In all seriousness though, I don't think that's the case and I can't imagine China not being the next superpower and having their currency to USD skyrocket when that happens.
edit to hide language
Last edited by TripleB on Sun Jan 18, 2015 9:05 am, edited 1 time in total.
- Pointedstick
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Re: What's China's Long-Game?
I sometimes worry about this as well, but keep coming back to feeling bullish about the USA in comparison to China. It's easy to get caught up in the China mania but a lot of the common doom and gloom narrative is actually wrong.
For example:
[img width=600]http://1.bp.blogspot.com/-KuYDwWKLSDA/U ... -to-31.png[/img]
(source)
Substantially more than half U.S. government debt is owned by private U.S citizens or, um, the U.S. government itself (which is a separate issue!). I would argue that with only 8% ownership of U.S. debt, China is relatively powerless to use that to influence much if any U.S. government policy that way.
[img width=600]http://management.curiouscatblog.net/wp ... ermany.jpg[/img]
(Source)
China is a manufacturing powerhouse, but the USA is still the top manufacturer in the world! It's certainly true that regulatory costs impede our production, but I think the biggest culprit is simply our standard of living leading to high wages relative to the 3rd world. Labor is the big cost. And unions are largely broken in this country, for good or ill. They are mostly irrelevant to our actual production, and mostly exist among government employees nowadays, who largely don't produce anything of real value at all. U.S. manufacturing is a powerful and major force in the world economy.
And finally, there was MomTo2Boys' thread which was really eye-opening. Definitely take a look at that.
For example:
China actually owns a relatively small fraction of U.S. debt. About 8% of the total.TripleB wrote: 2) China owns a ton of debt from the US and first world nations. They can "politically leverage" that debt for their benefit. Imagine a recent college grad who borrows money from his parents and relies on new debt from his parents on a regular basis. Those parents have strong control over their kid and what he does, simply by threatening to cut him off from future borrowing.
[img width=600]http://1.bp.blogspot.com/-KuYDwWKLSDA/U ... -to-31.png[/img]
(source)
Substantially more than half U.S. government debt is owned by private U.S citizens or, um, the U.S. government itself (which is a separate issue!). I would argue that with only 8% ownership of U.S. debt, China is relatively powerless to use that to influence much if any U.S. government policy that way.
This is repeated in the alternative and mainstream media all the time but it's not true.TripleB wrote: We can no longer manufacture anything in the US because it's not economically feasible to do so under OSHA, EPA, and union standards.
[img width=600]http://management.curiouscatblog.net/wp ... ermany.jpg[/img]
(Source)
China is a manufacturing powerhouse, but the USA is still the top manufacturer in the world! It's certainly true that regulatory costs impede our production, but I think the biggest culprit is simply our standard of living leading to high wages relative to the 3rd world. Labor is the big cost. And unions are largely broken in this country, for good or ill. They are mostly irrelevant to our actual production, and mostly exist among government employees nowadays, who largely don't produce anything of real value at all. U.S. manufacturing is a powerful and major force in the world economy.
And finally, there was MomTo2Boys' thread which was really eye-opening. Definitely take a look at that.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
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Re: What's China's Long-Game?
One thought I had after writing the post last night, was that if we did his the scenario outlined, then as a protection measure, the US Government would likely create huge export tariffs to incentivize keeping US manufactured (and US grown agriculture) within our border, instead of exporting to China (with higher currency valuation).
Because if the USD crashes and all of our manufacturing/growing gets exported, and we can no longer afford to import (due to weak USD), we're really screwed.
Then again, there's more money to be made bleeding out the country and exporting to higher-valued currency countries, and our government is run by big business, so maybe I'm way off and we'll just drain us into nothing without tariffs
Because if the USD crashes and all of our manufacturing/growing gets exported, and we can no longer afford to import (due to weak USD), we're really screwed.
Then again, there's more money to be made bleeding out the country and exporting to higher-valued currency countries, and our government is run by big business, so maybe I'm way off and we'll just drain us into nothing without tariffs
- Mountaineer
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Re: What's China's Long-Game?
Other than "red tape" for the rest of us. And, I really don't hold this against the rank and file - it is just that whenever a "team" is formed, they feel they have to produce something to justify their existence. So, bigger government (more teams) means more "red tape". Just human nature.Pointedstick wrote:
China is a manufacturing powerhouse, but the USA is still the top manufacturer in the world! It's certainly true that regulatory costs impede our production, but I think the biggest culprit is simply our standard of living leading to high wages relative to the 3rd world. Labor is the big cost. And unions are largely broken in this country, for good or ill. They are mostly irrelevant to our actual production, and mostly exist among government employees nowadays, who largely don't produce anything of real value at all. U.S. manufacturing is a powerful and major force in the world economy.
... Mountaineer
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Re: What's China's Long-Game?
This just boggles my mind if it is true. I really wonder how this is calculated. If, for example, an American company is outsourcing a tremendous amount of the manufacturing processes but the goods ultimately get "counted" as Made in America, then I can believe it.Pointedstick wrote: China is a manufacturing powerhouse, but the USA is still the top manufacturer in the world!
Anecdotally, when traveling around the US I see a bunch of old factories that have been closed down. In China the manufacturing is just visible everywhere.
- Pointedstick
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Re: What's China's Long-Game?
If true, I suspect a lot of it has to do with the value of the goods vs their volume. A lot of the stuff we have manufactured in China is small, cheap, disposable stuff. Here in the USA, we seem to make bigger, more expensive, or higher-value goods. It doesn't take as many factories to do that, especially if a lot of the work is heavily automated.
Anecdotally, there is a major factory in my town house where hundreds of millions of dollars of high tech goods are produced.
Anecdotally, there is a major factory in my town house where hundreds of millions of dollars of high tech goods are produced.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
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Re: What's China's Long-Game?
Looks like there are different data regarding to manufacture output of USA and China in 2012
Here are some other indicators:
Car sale in 2013
Here are some other indicators:
Car sale in 2013
- dualstow
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Re: What's China's Long-Game?
You beat me to it, goldfinger!
I was just looking at this: https://en.wikipedia.org/wiki/Manufactu ... known_data
I was just looking at this: https://en.wikipedia.org/wiki/Manufactu ... known_data
Re: What's China's Long-Game?
Touché, PS. Thinking about this a bit more, this manufacturing topic seems to come up a lot in political debates where the only thing that is really being discussed is the number of middle class jobs, not manufacturing output in dollar terms.Pointedstick wrote: Anecdotally, there is a major factory in my town house where hundreds of millions of dollars of high tech goods are produced.
Another thought is that a powerhouse is only as strong as it's weakest link, and in China's case I suspect that might be an inadequate supply of fresh water. The US can always negotiate something with Canada, or just take the water by force as a last resort. Not sure what options China has.
- MachineGhost
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Re: What's China's Long-Game?
They do not. I believe half of the so-called trade deficit with China is just reimports from outsourced manufacturing.barrett wrote: This just boggles my mind if it is true. I really wonder how this is calculated. If, for example, an American company is outsourcing a tremendous amount of the manufacturing processes but the goods ultimately get "counted" as Made in America, then I can believe it.
China makes Cheap Chinese Shit, i.e. low end crap that doesn't contribute much to improved living standards other than making it easier for Walmart to distribute it. America is still the world leader in manufacturing because of creativity, robotics and automation and lately, the low price of natural gas. America doesn't produce Cheap American Shit. It's basic comparative advantage economics. And not to worry, wages have risen so much in China the Cheap Chinese Shit is turning into Cheap Vietnamese Shit.
Anyway, it'll be, say, 50 years before China is ready to be the world's reserve currency (barring any disruptive technological singularities which is a guaranteed bet). They need a wholesale social cleaning and reorganization first.
Last edited by MachineGhost on Sat Jan 24, 2015 3:15 pm, edited 1 time in total.
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Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!