Sushu's Travel Journal

August 2, 2008

Filed under: Asia — Tags: — admin @ 10:51 pm

I feel like after the last post there needs to be a little explanation about Chinese economy. As I said before, all I know is non-disciplinary, which means I won’t be using the proper terms and stuff.

Brian said, “part of the problem facing China is that they have too many dollars, and investors apparently respond to this problem by using the strong yuan to buy more dollars, which they already have too many of. This is nonsensical”,
and Alexis asked a question about “how is lack of domestic investment America’s fault?”

So let me try to, um… explicate? Please correct me if I’m wrong.

Alexis’ question first:
Whenever foreign money goes into China, money isn’t actually exchanged. For example, if I go to a Chinese bank and say, “I’d like to exchange this $100,” they don’t magically change it. Instead, what happens with international money is that they take my $100 and put it in a “foreign reserve”. And then they give me brand spanking new 700 rmb that’s in the hands of me, a foreigner. This has two effects:
- One, China has a lot of foreign reserve of American dollars — buying power in America, not in China. So they end up buying bonds. In America.
- Two, China is printing lots of rmb for the foreigners to use. And what happens when you increase the supply of money? Inflation. Which is bad. To prevent inflation, China takes in the domestic rmb and destroys it, bringing the money supply back to normal. But this means there’s less domestic rmb floating around for domestic investments.
So it’s kind of like having a pool of 1000 rmb. They used to be held by Chinese people. But I come in with my $100. I say “here, I want to exchange this money,” so they take 700 rmb out of the hands of the Chinese people and give it to me. And they have a shiny $100 bill that they can’t use in China. So they ask me, “do you have anything to sell?” I’m like … “um… democracy?”

Now, Brian’s question. Indeed! It seems nonsensical. Except that it benefits the foreigners. It’s like playing the stock market. If I convert my $100 to rmb right now and get 700rmb. Then I wait a year and convert it back to USD, I’d get, like, $130. Yay $30 profit! But the Chinese government won’t let me speculate blatantly. So I say to a Chinese company, “Hey, wanna make a quick buck? For every $30 I get in this way, you get $10.” And the Chinese company’s like, “60 rmb? All right!” And then the company turns around and tells the Chinese stock market, “dudes, I’m making money!” And the everyday people then speculate on their stock, and it’s all a big mess. So yes, it is nonsensical, except very profitable for a small subset of people.

Again, my ideas about econ is quite shoddy. (A mixture of High School Econ and listening to a professor for an hour last year) Please correct!

August 1, 2008

talking economics in China

Filed under: Asia — Tags: — admin @ 10:48 pm

Oh my god, I think I’ve just had the most frustrating conversation about economics EVER. Now, granted, my knowledge of economics is shoddy, but that’s not why it’s frustrating.

So, me and uncle. It started out with him saying that China is suffering because America raised oil prices. And I’m like, “so America raised oil prices just to make you suffer?”

So he’s like: “Of course. America wants to slow China’s GDP growth”

Me: “How does raising the price of oil slow China’s GDP growth? I thought China was slowing itself?”

He proceeds to explain to me the “three horses that pull the chariot of Chinese Economy:
- Foreign trade (export) and investment
- Domestic investment (incl. government tax breaks, etc)
- Consumption

Me: “Yeah, I get this. China is too much export, which means there’s a large foreign reserve of US dollars that they can only spend by buying bonds or otherwise investing in America. And since all the foreign money coming in means producing more rmb, they end up collecting the rmb from domestic investments to prevent inflation, meaning that banks don’t get to do domestic investment.”
(Well, I understood those concepts. It was hard to say that in Chinese, though. We got into some translation problems)

So he says: “Yeah, well now Foreign trade is down because the value of the Chinese yuan is up and the value of the American dollar is down.”

Me: “Perfect time for Chinese people to do domestic investment now that they have the rmb!”
Him: “Except that people want to cash in on China’s rising rmb value, so they invest in the (currency? cash?) market, which brings in foreign money in the form of non-investments. (It’s called “hot money” in Chinese? Or “hot cash?”) (I mean, I know what he’s talking about–playing the exchange rate market)

Me: “How do they do that?”

Him: “They might sign a fake trade agreement or investment agreement with a Chinese company. That’s why the amount of Foreign reserve is about $100 billion higher than the actual exports”

Me: “That’s a bummer. Why doesn’t the Chinese government do something about it?”

Him: “They can’t, really. So of our 3 horses, two are down — we have lower foreign trade, and we can’t invest in our own domestic companies. These are the results. So what’s the cause?”

Me: “What?”

Him: “You figure it out.”

Me: “Seriously, I have no idea what *you* think the reason is. I have plenty of things that *I* think can be the cause…”

Him: “No, you figure it out. I’ve laid it all out for you.”

At this stage, I will stop and query the readers: What do *you* think is the cause of the slowing of Chinese economy?

(And I know at least 4 of you have learned Econ properly.)
(I was thinking … uh… didn’t we start this be talking about rising oil prices and the Chinese rmb rising against the falling dollar?)

Finally, after about 5 minutes of awkward silence, he’s like, “America! America’s falling dollar and rising oil prices. Our stock market follows America’s, and so does our real estate! And who is hurt the most? Us! And the other developing nations. (Tiger countries)”

Me: “Um… so you’re saying that there’s a bunch of people at the head of American government/corporations who got together and said, ‘We need to screw China and India so let’s mess up our own economy to make them suffer?”

Him: “No, they don’t need to get together. The point is that there are so many countries invested in America that 2/3 of the effect of America’s failing economy is felt by everyone else in the world!”

Me: “I totally agree that you guys got the short end of the stick there. But we’re suffering, too, and why is America’s economy failing? What you see as a cause, I see as another effect.”

Him: “America needs to fix its regulatory structure. America needs to get out of Iraq. The Federal Reserve needs to increase interest rates.”

Me: “Hah, as if it were as easily said than done. Like backing out of Iraq — there’s so much political capital at stake. I mean, Iraq and the economy, that’s what the election’s going to be about.”

Him: “Don’t take elections so seriously. Nothing’s going to change. Politics are good for a laugh, but there’s no use actually caring about politics. You’ll just be disappointed”

Me: “But there’s a small amount of accountability in terms of next election and legacies and suchlike. I’d rather be disappointed than apathetic.”

Him: “Me, I don’t care.”

Me: “Well, right now Hu’s doing pretty good. But wouldn’t you care if suddenly he went batshit crazy? Wouldn’t you want to participate? Do Something? Or is some God-like figure going to descend from the heavens and fix everything?”

Him: “Natural progression.”

And that’s where we decided to stop talking to each other.

Now! Let’s talk about what made that conversation so frustrating!

- Language barriers in terms of fancy economic terms. It made him think I was stupid. When in fact I just had no idea that 投机 and 投资 were different things.

- The casual way that America is blamed for everything. Well, in this case, yes, the American economy brought the rest of everyone down, but *please*, can we
(a) not personify America? It makes America easier to blame, but also easier to construct conspiracy theories. This is not the first time I’ve heard talk here about “America plotting against us by raising the oil prices”
(b) remember that Americans have lives, too, and that this is an election year? (Which means complaints of the everyman might matter). In other words, WE WANT TO FIX THE PROBLEM, TOO. We may be self-interested, but it’s not like we’re ignoring these problems. My uncle and others seem to think, “We’re hurt more than America, so they’re screwing us at only a small cost to themselves”
(c) remember that it takes two to tango. You were perfectly happy to peg the Chinese rmb 8 to the dollar 10 years ago. Wonder why your foreign reserve is so high?

- the political apathy. I mean, yes, in a way it makes sense given the government and the Cultural Revolution, but still. You’re raising up a generation of economically-involved but politically-apathetic people. That’s … not healthy?

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