Hello WFG, I left the thread for a few days of travel (Beijing, Chengdu, Chongqin), dining with officialdom here, rapping with bureaucracy there, and interspersing the above with an occasional sauna, a daily reflexology session, and a regular cold brew down in the basement of every hotel.
I am spending the weekend here in Chengdu chinats.com .
I visited this 71-meter (200+ ft) tall Buddha chinats.com yesterday for R&R, after checking out a domestic entrepreneur owned low-end semiconductor plant, and a foreign-invested fibre-optic cable factory. The semiconductor plant sells 80% of its output internationally, and the cable factory sells 100% of its output in China.
The city is vibrant, booming with consumption, charged with energy. I had drinks and dinner at the Irish-themed Shamrock, one of many privately owned bars and restaurants along “Bar Street”.
After dinner, I visited the hotel health facility, boiling myself in the Jacuzzi, steaming in the sauna, quenching in the cold plunge pool, and then had my feet knuckled into, normalizing yin/yang balance, and detoxifying my energy flow.
The hotel’s comforter was heavenly, and I enjoyed delicious sleep, wrapped in said comforter, snug as a sausage roll.
I took time today to get on the Internet and I found myself a little poorer than a few days ago, due to once again renewed hope that all is not going to TeoTwawKi, and thus a USD rise, a commodity currencies drop, and a gold decline.
Why am I not worried?
Because I also found ACF Mike rampaging on the BBR thread, accusing experience-wealthy and wealth-aplenty Malcolm of being a Communist, condemning helpful Yiwu of being another Communist, certifying BubbaFred of being a resident in a dark Beijing basement, and reiterating a bullish call, claiming that the next 7 years are equity-rich years.
BTW, I had an opportunity to listen in a back-and-forth discussions by various officialdoms and bureaucracies on the unbalanced state of Sino-US trade relations, the health of US multinationals vs the tribulation of its Small/Medium enterprises, the logic of the USD:RMB exchange rate, and conditions of investment flows. Taking bit of matter and anti-matter into consideration, I believe we remain on the road to TeoTwawKi.
The Executive, and Legislative branches of the US officialdom are suggesting that RMB should be revalued against the USD, and this view is supported by the US monetary authorities and propagandized by the US media.
I believe and said as much that the US officialdom thinking behind revaluation is (a) flawed, (b) not thought through to its natural conclusion, (c) satisfies some domestic interest groups, (d) hurts other native interest groups, (e) cannot be materially achieved, (f) will not make any substantive difference in line with articulated objectives, and (g) will in fact push matters closer to anti-matters, because:
(a) Chinese domestic companies and China-based subsidiaries of global companies make many things for domestic consumption and for overseas clients’ global markets. The products for overseas market contain quite a bit of imported components and raw materials. The China-based factories add value by taking advantage of low cost of plentiful skilled-labour, sometimes high volume due to domestic market size, and in many cases, low capital investment burden (for domestic machine tools, factory buildings, etc). Revaluing RMB:USD exchange rate will simply encourage, in line with central government policy, lower-value-add factories to expand/relocate from the coast to the interior, and further localize imported components. Unlike Eastern Europe and SE Asian nations, China will not likely run out of cheap skilled labour, and China will not be stumped by many imported components. RMB:USD exchange rate revaluation will not help US manufacturing employment.
(b) Chinese central bank is a large buyer of US treasuries and agency debts, and should China buy less, all other private and official entities may be tempted to cut in front of the USD sales queue, triggering an uncontrolled implosion of the USD, adding to US consumer burden with higher cost of imported goods, and higher interest rate. RMB:USD exchange rate revaluation may hurt US consumers.
(c) Chinese engineers working for multinational companies (MSFT, IBM, etc) are already making a difference in original product development, marrying new software to new hardware, and the Chinese engineers working for domestic companies are already following on the same path. This is a development model materially different from the Indian model, which focuses on contracting for software development divorced from hardware design, and on such ventures as call-centers etc. Both approach makes money and benefits economic growth, but the former will destroy more higher valued jobs around the world. RMB:USD exchange rate revaluation will likely accelerate the coastal Chinese to move up the value-chain, even as they move factories further inland to lower cost. The RMB:USD exchange rate revaluation may end up bring hurt to US tech centers sooner.
(d) Besides US-owned factories, there are also a lot of Taiwanese, Hong Kongese, Korean, Japanese, and European factories in China. US multinationals compete in a global market place, and part and parcel to that competitive effort is the relocation of US capacities to China. Any set of policies that increases their manufacturing cost will put them at a disadvantage against their global competitors. The RMB:USD exchange rate revaluation may hurt the US global companies without helping the US SMEs.
I believe selective protectionism in the US is a must should the US wish to retain some metal-bashing and other manufacturing capabilities, and I believe selective loosening of US export-control is crucial should the US wish to sell more to China.
The private Chinese entrepreneurs seem keen to borrow from Bank of China USD at 3.5% instead of RMB at 5.5%. Bless Maestro Greensputin’s productivity miracle that is powered by Chinese manufacturing and American assembly and/or labeling, and cherish Professor BurnAndKaput’s deflation fear that is energized by the very same Chinese manufacturing and American assembly and/or labeling, or financed by the back-and-forth shoveling of the same growing pool of toxic liquid spewed by Maurice’s idol and ACF Mike’s hero.
I do not know what fiddling with the exchange rate regime will do, but I intuitively fear that approach, because I do not know what it will do.
I am as curious as everyone about how TeoTwawKi comes about, whether slowly and gently, during our sleep, or suddenly, with shock and awe, together with blinding flashes and portfolio implosions.
The trip to TeoTwawKi is a lot like progression of the life cycle, where it is not about policies and interventions but about the progression of time and the cyclicity of boom and doom.
Anyhow, whichever way I look, I see that all roads lead to TeoTwawKi.
Chugs, Jay |
