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  • China's forex reserves bigger than G-7 combined

    China's forex reserves bigger than G-7 combined

    China's forex reserves hit 1.76 trillion dollars this april.according to economic experts,this figure is already bigger than all the G-7 (group of seven industrialized nations of the world, Canada ,France, Germany, Italy, Japan, United Kingdom, United States of America)combined,and is still recreasing at the speed of 10 millions dollars per hour.

    SHANGHAI (AFP) - China's foreign exchange reserves rose to 1.76 trillion dollars at the end of April, state media reported Monday, reaching a level higher than the rest of Northeast Asia's combined.

    China's reserves, by far the largest in the world, expanded by another 74.5 billion dollars during April, the China Business News reported, equivalent to about 100 million dollars every hour.

  • #2
    Splendid! Now you will be able to invest some of that great wealth into improving the infrastructure of your country, and bettering the living standards of your people.
    Semper in excretum. Solum profunda variat.

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    • #3
      They can't spend it. Once they start spending, the value of the Yuan goes up and there goes Chinese price competition.

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      • #4
        If that is so, what is the answer to this huge pile of forex that can make China Shining and all the disparity of wealth that is there can vanish since China is a Communist country and it is claimed they do invest money in the welfare of the people than other countries of the world.


        "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

        I don't have to attend every argument I'm invited to.

        HAKUNA MATATA

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        • #5
          Originally posted by Officer of Engineers View Post
          They can't spend it. Once they start spending, the value of the Yuan goes up and there goes Chinese price competition.
          Then it is totally useless. If you cannot spend it, then what is the point of having it in the first place?

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          • #6
            So what!!!!!!!!!!!!!!!!!! China also has the worlds biggest supply of bicycles per capita. It also means you have a lot of rubber.Just imagine how many spokes China has stashed away in strategic reserve. Talk about talking about nothing! If anything beijinghaidian;if your Government were to spend 1 tenth of 1 per cent of this fanciful"I feel good to be Chinese" economic logic of your post on pollution control around Beijing during the up-coming Olympics, we might actually be able to see the events without goggles, such is the deadly state of pollution in your suddenly rich country. What's next. Never mind, I don't want to know.

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            • #7
              Originally posted by Blademaster View Post
              Then it is totally useless. If you cannot spend it, then what is the point of having it in the first place?
              It is there to maintain currency exchange ratio, not for spending.

              The purpose is to keep Chinese products cheap and attract more jobs and investment.

              I'm not sure where this policy will ultimately lead to. The best China can do is probably slowly let the yuan rise and improve Chinese people's lives by giving them more purchasing power abroad. However, that would cut into the export based economy and transition into a more consumer based economy. There are still millions of poor Chinese who didn't catch the manufacturing boom.

              It's really a complex problem and maybe Shek can shed some light on the subject.
              "Only Nixon can go to China." -- Old Vulcan proverb.

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              • #8
                Originally posted by Blademaster View Post
                Then it is totally useless. If you cannot spend it, then what is the point of having it in the first place?
                China has a managed float exchange rate regime, with more emphasis on managed than float. Until three years ago, it was a fixed exchange rate regime.

                Their fixed exchange rate regime was pegged at a rate that almost all experts believe undervalued the yuan. In other words, Chinese goods looked cheap to holders of other currencies. This fostered a high demand for Chinese exports and assisted China in an export-driven growth strategy.

                However, as demand for Chinese goods increases, demand for Chinese currency also increases, which will push up its price and make it less valuable. To counter this, the Chinese have to supply more yuan to the market to fight this depreciation pressure, and so they buy foreign-denominated assets using yuan - this increases the supply of yuan and decreases the supply of foreign-denominated assets (dollars and euros) in the marketplace, allowing them to maintain the fixed peg. This acquisition of foreign-denominated assets becomes their foreign exchange reserve.

                What has changed since moving from a fixed to a managed float regime is that the Chinese have allowed the yuan to appreciate very slowly, indicating that the yuan was undervalued. It has appreciated approximately 16% or so in those 3 years.

                While this sounds like a good position for China to be in with regards to the FX reserves, what you really have is a lot of Chinese wealth tied up in low yield assets, so they are losing money in terms of what they could be getting with the FX reserves. Also, it's not possible for China to liquidate these reserves quickly or else they undercut the price they could receive for the reserves. China has no choice but to allow their currency to be moved closer to market levels and then slowly reduce their reserves. I suspect that it will be several years at the current pace before China moves to a "market" exchange rate and can then reduce reserves.
                "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

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                • #9
                  I have a question sir. If and when the yuan becomes more valuable (market rate), would that depress Chinese manufacturing business? How can they deal with that? Or is China resigned to the fact that 10% a year growth can't last forever?

                  Hmmm...that's like more than one question...
                  "Only Nixon can go to China." -- Old Vulcan proverb.

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                  • #10
                    Originally posted by gunnut View Post
                    I have a question sir. If and when the yuan becomes more valuable (market rate), would that depress Chinese manufacturing business? How can they deal with that? Or is China resigned to the fact that 10% a year growth can't last forever?

                    Hmmm...that's like more than one question...
                    China is at the point in their glidepath that they've raised incomes such that demand internal to their economy has picked up - they are not as dependent on exports for continued growth, although it does affect the magnitude of their growth.

                    The other thing that I'm not sure about is how much the informal, de facto Bretton Woods II linkages are still in effect - this is where other SE Asia currencies pegged to the yuan so that any change in the yuan exchange rate wouldn't affect their currencies' relative competitiveness. If this hasn't broken down, then the change in yuan shouldn't affect China as much as one might expect.

                    In terms of 10% growth rate forever, China is reaching the limits of this. The growth of the FX reserves is approaching an unhealthy level, and you can only sterilize the impacts of the increasing supply of yuan in the FX market so much, and we are seeing this with the increase of the general price level (with the ethanol/oil induced price level increases also playing a part).
                    "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

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                    • #11
                      economic logic of your post on pollution control around Beijing during the up-coming Olympics, we might actually be able to see the events without goggles, such is the deadly state of pollution in your suddenly rich country.
                      Interesting tack!

                      There are many types of pollution.

                      There is the pollution of the mind.

                      And also the pollution of inaction and inactivity.


                      "Some have learnt many Tricks of sly Evasion, Instead of Truth they use Equivocation, And eke it out with mental Reservation, Which is to good Men an Abomination."

                      I don't have to attend every argument I'm invited to.

                      HAKUNA MATATA

                      Comment


                      • #12
                        gunnut,

                        I have a question sir. If and when the yuan becomes more valuable (market rate), would that depress Chinese manufacturing business? How can they deal with that? Or is China resigned to the fact that 10% a year growth can't last forever?
                        low-end manufacturers are already picking up to head over to vietnam. china's responding by increasing investment in science and technology to move towards higher-end manufacturing and later, science + service industries.

                        the CCP right now isn't too happy about the way most chinese businesses are investing- in big visible buildings a la japan in the 1980s, which provide fairly minimal returns. they've already begun pressuring businesses to stop doing this, but they're getting ignored right now because the CCP is massively doing the very same thing trying to pretty up beijing for the olympics...

                        as you can see, lots of pitfalls. it'll be interesting to see the chinese try to get around the next hump in the development cycle.
                        There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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                        • #13
                          Originally posted by astralis View Post
                          low-end manufacturers are already picking up to head over to vietnam. china's responding by increasing investment in science and technology to move towards higher-end manufacturing and later, science + service industries.
                          Any hard data on this shift? Anecdotally the shift is as much inwards (towards central China), as it is outwards: Plenty of undeveloped areas of China, with hundreds of millions of non-unionizable Chinese still untapped by global economy. Sure the access cost is higher further one gets from the coast, but China is also putting up massive infrastructure to open the inland areas to lower the costs. Further it prefers to brand itself as the "one stop shop" - dominating all markets, no just catering to niche markets.

                          The CCP, IIRC, is quite worried about integrating the rural and hinterland populace into the global economy. It knows that the middle- and the upper-classes can take care of themselves (i.e. moving from basic technician type jobs to engineering jobs in a generation or two), but the poorer people cannot do so. For them, low-end manufacturing is still the only way out.

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                          • #14
                            cactus,

                            quick google search,

                            Vietnam is the New China: Globalization's Victors Hunt for the Next Low-Wage Country - International - SPIEGEL ONLINE - News

                            one problem with moving inland, as the CCP is finding out with its inland development strategy, is that being away from water transport is a real pain.

                            they tried a policy where they paired up underdeveloping regions with the richer coastal regions, all they found was that the former had a tendency to just drag down the growth of the latter...so the plan was quietly shelved a few years later. now they're trying economic incentives to get growth into those areas, which is showing better effect.
                            There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

                            Comment


                            • #15
                              It is there to maintain currency exchange ratio, not for spending.

                              The purpose is to keep Chinese products cheap and attract more jobs and investment.
                              Is it also true that the large amounts of forex reserves are also a political tool to increase Chinas influence and power? ie, releasing large amounts of a country's denomination will cause the value to drop.

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