Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (19279)	12/22/2004 1:01:34 AM
From: RealMuLan	Respond to of 116555

USD got calls from the United States Last Updated(Beijing Time):2004-12-21 17:01 Recently the Taxation Committee of the United States House of Representative passed the Homeland Investment Act, which reduces the income tax rate of American companies'foreign profits from 35 percent to 5.25 percent with a term of one year, on condition that these profits should be invested back to the United States. According to the calculation of J. P. Morgan Chase, this will bring a repatriate cash flow of more than US$400 billion for the United States. With a growing mutual dependence between Chinese economy and American economy, such "warm current" in the American economy might predict a new "cold snap" of Chinese economy. If from the angle of lessening pressures on RMB appreciation, the dollar repatriation to the United States will bolster the weak dollar in certain extent, and furthermore increase in value of China's foreign exchange reserve in dollars. Such US policy might fit in exactly with the wish of China's Central Bank. However what behinds the seemingly willingness of both parties is not so simple, as here lies low an unparalleled challenge to China's macro-economy. This hidden trouble certainly is not caused by the hortative policy of China's Central Bank on dollar leaving the country, but very likely in 2005, it will jump out unexpectedly and influence China's macro-economy. For more than a decade, capital flow between the United States and China has played a positive role of helping China expand investment and promote consumption. Today its role might be reversed. So far, the persistent strong growth of Chinese economy has mainly benefited from the two aspects of both inside and outside, one is the internal market reform which continually compels the micro-economy to improve efficiency and reduce cost; the other is the continually increased foreign investment and foreign trade exports. The latter, in particular, is regarded as the shortcut of development by many Chinese local governments. Although in the middle of 1990s, some scholars rather aware of adversities already admonished that, the excessive dependence on foreign trade and foreign capital was a two-edged sword to a big nation's economy, in respect that the growth rate of foreign trade and foreign investment couldn't be always upwards, but rather it would fall after reaching its peak, a cold winter might follow a scorcher. Such admonishment is based on a common sense, i.e. corporate investment is not a charity and its objective is to make profits. The operator will return profits to shareholders on condition that the company's competitiveness in the hosting country will not be weakened. As far as multinational companies in manufacturing industry invested in China, their investment peak appeared in the middle and later part of 1990s. Nowadays, quite a few of them have won unshaken market positions in China. To those American multinational companies already succeeded in China, it is time for them to reclaim profits and return home with fame and money. The rather that, the United States has exhibited an uncommonly affection of a loving father by cutting 85 percent down in the income tax rate of repatriate profits; and the hortative policy of China's Central Bank on dollar leaving the country will also make their way home smoother. To give the devil his due, it is perfectly justified for a company to bring profits of investment home, but the question is, does China's economy get ready for this? If the growth rate of foreign investment and foreign trade indeed falls, or even is negative, what can China rely on to maintain its fast economic growth all along in the past? Maybe it is time that China must say farewell to the dependence on foreign capital and foreign trade step by step. What China can do are mainly two jobs, one is to transform the inefficient extension-expanding model of investment in domestic, which requires to establish a more thorough and self-responsible market principal part, instead of stated owned enterprises with growing sizes; the other is to reduce the cost of national macro management, improve the government's efficiency and reduce the proportion of administration expenditure in GDP. In other words, Chinese government must carry through a genuine "self-reform". Together with J. P. Morgan Chase's calculation that there will be US$400 billion cash flow returning to the United States in the next year, its another prediction is that in 2005, China's foreign trade will be in deficit for the first time in many years with a deficit of US$11.7 billion. Perhaps, the wolf is really coming this time. (China Business News) en.ce.cn ================================ I read that the total US investment to China now stands at $4 billion a year, accounting for 8% of total FDI in China. So this call back of US$ will not post major problem for China.