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« 9/15 trumps 9/11 | Main | CIVETS to replace N11 to replace BRIC: it's a mad, mad mad men world! »
12:03AM

Does China rebalance the world economy in its search for resources?

FT full-pager analysis definitely worth a read.

It explores the notion that China's reach for raw materials around the planet is creating such a self-sustaining bond between Asia and Latin America/Africa as to constitute a real rebalancing in the works--truly post-American consumer, so to speak.

China's outbound FDI was about $5B in 2003.  By 2013 it could be $100B, with two-thirds staying in Asia (a pattern found among all Asia states), one-sixth going to LATAM and presumable most of the rest going to Africa.  On this basis, China comes out of nowhere to become Brazil's biggest trade partner and--next year--its biggest foreign investor (filling up all those CHINAMAX mega ships with iron ore and what not).

Meanwhile, with China experimenting through Hong Kong with letting foreign companies hold and thus settle their business with China in yuan, Beijing is described--accurately I think--as rerunning the same strategy they pursued with the US over the previous three decades:  recycling the trade surplus back into the partner's financial nets so as to stimulate further demand of Chinese exports.  In effect, that means China will run up trade surpluses with a lot of poor countries just like it did with rich America.  We'll see how that works in terms of triggering a political backlash.  My guess is that it won't run three decades before China feels the friction.

And yet, is this not what we asked for?

Well, not exactly.  What we really wanted was for Asia's stubborn trade surplus with America (ably consolidated by China over the past two decades) to shift over into something far more even. This isn't happening, in large part because China seeks to have its cake (surplus with America) and eat it too (replicate it across the Gap).

The one good thing:  by slowly increasing the circulation of the yuan, Beijing progressively loses control of its exchange and interest rates, meaning it becomes harder to "cheat" through monetary means.

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