Found this post while trying to understand the current situation in Asia. Comments?
In my understanding of these things...which I confess of attempting to look at things from a rather simplistic point of view.
Excerpts of above post:
The Asia Crisis was prompted by China's earlier devaluation of the yuan. At that time, they were looking to bring in foreign currency in the form of export monies and foreign investment. Since then, the growth in these two areas has exceeded all of Asian. The 'crisis' is due primarily to Japan's failure to realize that China would be attaining such a large portion of market share.
I understood that the current Asia currency fiascoes started with the Thailand Baht put to float around July 1997, as a result of politicians and other leaders false promises and unrealistic scenarios in order to get their particular local pet projects to be accepted, until pressure from the currency markets to align the politician dreams, with market realities.
From there, Korea followed, Indonesia, Japan etc. followed, similar scenarios different places.
I also understand that the Chinese want to preserve Hong Kong status as an important financial center, (not forgetting that such level was achieved under a completely different philosophy), and I find difficult to believe that the current litter of bureaucrats are non-corrupt nor capable of maintaining such important status based on either flawed theory (Communism), nor corrupt practices (reality as it is today).
Further, I understand that in this last run on the Japanese Yen, China's Central Bank, has sold a substantial portion of its holdings in Yen, and that if the JY147/Dollar does not hold, they will sell even more.
As for Japan not realizing (or wanting to) the importance of HK$/China in the region... well, I do not think that Japan is capable of recognizing much these days, either because they are not capable of doing something about it, or being too scared about the consequences.
China has been ahead of the other Asian countries in responding to the 'crisis'. Already projecting high unemployment from the government layoffs, they are spending billions on badly needed infrastructure. They also have shown a capacity to make adjustments as the situation warrants by slowing the rate of privatizing government owned companies because the Asian Crisis will cause unanticipated unemployment. You can expect them to continue making adjustments, but devaluation has been thoroughly examined and rejected.
Well... I confess to being more familiar with Latin American ways, but based on a visit to China, and a few conversations with Chinese officers of a trading company, (which was part of a gigantic conglomerate that owned anything from construction companies, textile manufacturers, banking concerns, real estate ventures, etc. etc... all owned by the Chinese government, as its all mighty Supremo), I do not put much trust in government issued statistics, which obviously will be presented to favor whatever agenda they may have.
As for private enterprise (mostly Western banks and financiers), they have not proven that they are capable of predicting what these countries are going to do next, nor averting crisis....
Logic tells me (again, based on witnessing what was going on in China), that there is not much "middle class" growth, enough so to warrant tax/user fee collection enough to contribute for a significant portion of the infrastructure that is being built, not only because is "badly needed", but because for the most part is non-existent.
That tells me that because is mostly government programs, there can be little efficiency in their money management, and more based on "social engineering". They received an incredibly productive machine in Hong Kong that its momentum will last for a while, (and I am sure the Chinese bureaucrats know this and are banking that the momentum will last enough to bridge a more efficient society, (in their eyes), once more infrastructure is completed.
I simply can not see Hong Kong alone, sustaining the rest of China.
Look at Germany, having "bought" their other half, the Deutsche Mark has been under pressure.... (luckily for them, the French, Italians, and now the Euro, are around, so they do not look that bad, he, he, he...).
Again, politician's dreams and view of the world has proven time, and time again, that bears no relationship to market realities, eventually, (and with the corresponding blasting by the fallen politico of the moment), they grudgingly have to accept the market reality.
In China's case, it may take a little longer, but in the end, unless they surrender their hold on the Chinese people and allow the free market to work its magic, whatever problem exist will only be prolonged. Granted, the Chinese government is a powerful institution, but still, not powerful enough against the world currency markets.
Hong Kong will also hold the $US peg. The currency traders have made their runs at it and, in spite of the rising $US, Hong Kong has maintained the peg. (There was one very hard run by a group of traders trying to force it down that didn't work) The traders have pretty well given up and the $HK is remaining stable.
Yes, for the time being, I guess this proves what I stated above, although.....(at least my bet is on the side of the traders... on paper, that is, I may be an idealist, but not a fool! China CB has easily more speculative $$ than I).
When this all washes out, with Japan procrastinating on necessary reforms and the ASEAN countries in chaos, it is possible that China will replace Japan as the dominant economic force in Asia. If - they continue on their current path to Democracy.
Very likely, but that does not exempt them from cleaning up their own little circus, I am a believer of free markets, and yes I recognize that bureaucrats still have power as we are witnessing. Besides, with all due respect to the "Oriental Mystical Wisdom", it is as flawed as the "Western Spiritual Crap."
I could go on for about 3-4 more pages on why they should and will not devalue related to China's growing domestic economy, privatization plans, imports, raw material exports, property values, loan repayments to foreign creditors (particularly Japan), future efforts to get foreign investment, WTO status, etc. It gets pretty extensive. Leave it that Zhu Rongi has been adamant in this and has stated the reasons.
Yeah well.... but I insist, eventually the day of reckoning will arrive, and it has been proven beyond doubt that free markets are best, regardless of all other collectivist considerations, what does puzzle me is that people at large do not seem to grasp/understand the lessons of the past...
Again, my opinion only, which as stated I view things from a rather simplistic point of view, and it could be wrung...
Z.
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