China threatens 'nuclear option' of dollar sales

[bparker]

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml

China threatens 'nuclear option' of dollar sales


By Ambrose Evans-Pritchard
Last Updated: 9:54am BST 08/08/2007


The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Blog - Dollar to collapse?

Fistful of dollars - China's trade surplus reached $26.9bn in June

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.
"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

[usetosellhummer]

We mortaged our future with the debt, and guess who holds the purse strings. If we don't play nice and get our house in order we will get our a$$ handed to us. Try Depression. An army means nothing in this time, it's money that is the true power.

[NEOCON1]

as long as we keep buyin all their crap we will be safe

[marin8703]

Originally Posted by NEOCON1

as long as we keep buyin all their crap we will be safe

thats exactly what it is crap.

if they dont play this card now they will later. i agree with the bit** on this one. asia has control of the us economy, and thereby can makes us so anything. we have to get out of this position anyway possible.

i say better sooner than later.

[H2Finally]

The reason why everything is made in China, is so that the owners/shareholders can get more profit. If they are not made in China, consumer will be forced to pay more, and they won't, because the other Chinese competitors will come out with much cheaper generic / copy cat versions within weeks if not hours of the original item launching. The only way mfr can be competitive is to have their original designs also mfrd in China.

In fact you'd be hard pressed to find items NOT made in China anymore. Including of course, the new iPhones.

So all crap? Not anymore. Especially if you're buying a fundamentally well designed product from a solid company that backs it with good warranty & support program.

[bparker]

You are referring to the 1% of the stuff that comes from China - the other 99% is crap.

I am old enough to remember when things lasted till you were tired of looking at it or it just wore out. Now things are so cheap and cheaply built when it breaks we just say screw it I will buy another one.

People used to use the saying "well made" all the time and now its a rarity or surprise to hear someone say that - and its most often associated with premuim products or antiques.

Originally Posted by H2Finally

So all crap? Not anymore. Especially if you're buying a fundamentally well designed product from a solid company that backs it with good warranty & support program.

[bparker]

I guess openly and verbally threatening to crash our economy causing us to go into economic turmoil with no bottom in sight isnt very new eh?

Sure we have seen the writing on the wall but hell they are openly saying it now as thier "nuke" on us.

Maybe I get stirred up too easily

Originally Posted by Steve - SanJose

Nothing new here.

[DennisAJC]

Does that mean that in the near future, Chinese food will be edible whenever I visit the USA?

[marin8703]

Originally Posted by bparker

You are referring to the 1% of the stuff that comes from China - the other 99% is crap.

i so agree with that!

[DennisAJC]

Originally Posted by bparker

You are referring to the 1% of the stuff that comes from China - the other 99% is crap.

I am old enough to remember when things lasted till you were tired of looking at it or it just wore out. Now things are so cheap and cheaply built when it breaks we just say screw it I will buy another one.

People used to use the saying "well made" all the time and now its a rarity or surprise to hear someone say that - and its most often associated with premuim products or antiques.

I kick my dog everytime I remember when I got an American made (Radio Shack) remote controlled car with 3 feet of attached wire and they only turned fawking left.

[bparker]

Dont make me bring up the old school Tonka Toys from back in the day - hell you could even try to destory them and you couldnt...

Originally Posted by DennisAJC

I kick my dog everytime I remember when I got an American made (Radio Shack) remote controlled car with 3 feet of attached wire and they only turned fawking left.

[BKLYNH2]

I have seen this same type of story several times now and most of the time it's written by a complete nut job, and when you research their sources you find out that the quotes have been distorted as well. You should all click the link at the top of BP's first post. It is a much more credible source with a completely oppisite viewpoint.
If China were to flood the market with dollars not only would they damage the US economy and currency they would also be shooting themselves in the foot and probably 70% of all the countries in the world. Japan has even larger reserves of dollars. The rest of the world including China have far too much interest in keeping the dollar afloat to do something as stupid as dump there reserves on the market.

[h2co-pilot]

Cheap manufacturing is one thing, good for all and yea for capitalism- unsafe is another and it was bound to happen.

Just a refresher: Petfood, Toothpaste, Seafood, lead painted Toys and now Tires.

The world is looking at their products in a different light. It must be frightening.

They have been cracking down on manufacturers and putting money into food and drug safety.

But they sure wigged out on our beef when we had that one mad cow.... from Canada.

Since my Google is still messed up I cannot find out what percentage of their exports come here but I assume it is large and any backlash ie: new tariff tax policy would be devastating for thier economy. no? We are still ranked above them in world currency rates right?

I have a hard time grasping big pictures of PPP and personal GDP rates so early in the morning.

[BKLYNH2]

We import from China almost 6 times what we export to them, measured in dollars. China has for years kept their currency exchange rate fixed at a lower rate than many countries believe it would be in a free market. They do it by buying buying us currency and bonds. The low value of their currency is what makes their products cheap and appealing. This has been a good thing for US consumers (quality issues aside) and they have been picking up the tab for the enormous amounts of debt americans have been running up in order to have things they can't really afford. Now things are starting to unravel and so the large reserves they hold have become more of a threat than we have cared to notice before. While some politicians are attacking China for the currency imbalance the real issue is the trade restrictions that they impose on us while enjoying far less restrictions here.

[CO Hummer]

If I can't buy cheapo stuff at Harbor Freight anymore, I'm gonna move to another country.

[BKLYNH2]

Found this after I wrote the first response to this. From B Berg says basically the same thing i did. Also the guy who was quoted is not an official of the Chinese treasurie or Central Bank. There are a lot of loose cannons in China and when the media puts this stuff out it usually creates a momentary panic in the market but you gotta sort through this crap and not get burnt.
http://www.bloomberg.com/apps/news?p...d=a9_E9yIQIBAU

[usetosellhummer]

The question is what kind of revolution will we have? We could have a spending push into debt with rebuilding infrastructure? another war? Tech is drying up. Housing is shot. What will be the next great economic push to keep this growth based spending going? If it stops growing we will feel th pinch in a recession right? Debt load (me included) is out of control on all levels

[bparker]

hahaha Harbor Freight pwns

Originally Posted by CO Hummer

If I can't buy cheapo stuff at Harbor Freight anymore, I'm gonna move to another country.

[bparker]

Dood, it was all over CNN yesterday. I think Lou Dobbs did a peice on it last night.

Originally Posted by BKLYNH2

Found this after I wrote the first response to this. From B Berg says basically the same thing i did. Also the guy who was quoted is not an official of the Chinese treasurie or Central Bank. There are a lot of loose cannons in China and when the media puts this stuff out it usually creates a momentary panic in the market but you gotta sort through this crap and not get burnt.
http://www.bloomberg.com/apps/news?p...d=a9_E9yIQIBAU

[BKLYNH2]

I was running around all day yesterday and then was out at a dinner. Please excuse me for not being up to speed.