All;
For those that think politics and investments somehow may be related this following post from another thread:
The poster is a professor of economics residing in Hong Kong.
To: +Ron Bower (4992 )
From: +Jess Beltz Tuesday, Mar 17 1998 3:37AM EST
Reply # of 4996
Ron, RE: "Not meaning to argue, just present my view." Don't apologize. I love to argue intelligently put positions (which yours are.) My only response would be that (1) you are right (I believe) with respect to HK, but (2) I have no confidence with respect
to the mainland. The PRC is not a land which respect the rights and obligations of contracts in hardly any form, (ask McDonalds) and it is (I also believe) a mistake to take them at their word about anything, especially when things change to their disadvantage. Yes, they have pretty much left HK alone, which they said they would do. Why? Because it is completely to their advantage to do so with Macau due to be handed back in two years and their ongoing desire for reunification with Taiwan, which would never happen if they beat up Hong Kong.
Now, back to economics....I don't believe that they have factored into their equation the extent to which SE Asian currencies are going to continue to fall in value. I think a more accurate statement on their part would be, they will not devalue the Yuan IF things stay where they are now. I don't think they will. The currencies will continue to fall in value due to a substantial increase in inflation. This will result in one of two possibilities for the Chinese:
(1) They support the current level of the Yuan
This presupposes that they have the US dollars to undertake a very expensive monetary policy. (Only HK has been able to do it so far because they have massive US dollar reserves relative to the number of HK dollars in circulation.) This WILL result in massive unemployment as they become less competitive on the world market.
If they continue the plan to dismantle the inefficient state run enterprises, the amount of unemployment will be gigantic and real social unrest becomes a consideration.
If they scrap the plan to dismantle the state-run enterprises, there may be real problems with a sick economy that is supported by state subsidies and there may be complications in the banking sector as well.
(2) They devalue the Yuan to remain competitive, reducing the amount of market driven unemployment and continue with the plan to dismantle the inefficient state-run enterprises and institute free-market reforms.
I have to feel that given the cost of defending the currency, which may not be feasible anyway, and the desire for free market reforms that they have (the path laid down by Deng Xiaoping), they will opt for the devalue path and to hell with what that means for the rest of SE Asia. I do NOT believe that they can both defend the currency and implement the reforms.
jess |
