Trade Mirage?

Thats one hell of a Yao Ming

I'm somewhat skeptical about this short brief on The Economist on how emerging economies will be importing more than developed countries (forecasted to take place 2012 / 2013). Referring to the chart below, we can see that ever since the end of 1990s / start of 2000, emerging markets continue to increase their stake in the share of world imports. My first question would be - is the percentage valued in Unit Volume or Value? It is kind of a stupid question but there are different intepretation results; although I think that it is highly unlikely that they used Unit Volume to represent the graph.

Second of all one must understand this set of statistics takes into account manufactured goods, commodities and raw materials - to which without a doubt the emerging economy is eating up; therefore somewhat misleading. Increases in imports could mean massive increases in capital goods and intermediate goods for further use in production and does not necessitate that the domestic consumption in emerging economies is larger than that of developed countries. Just because the West are importing less, does not mean that they're losing out - we still haven't factored in or do a cross-comparison on imports and exports of services to which the West still has a global presence.

Lastly, we need to understand that most of the imports done by emerging markets are probably for the purpose of investment, with a higher probability for re-exports purposes. Its too apparent, even in the article in which I wrote about in my last post, countries like China are still saving up - preferring to mediate growth through savings rather than enjoy the wealth they have gained thus far. I believe the graph is far for complete - if a comparisson of imports is to be made they should also include the types of products in which each of the two sides do. There must be a movement - one would import more of something whereas the other would import less; the question is, what?

Looking forward to see the actual trend next year.

The Chinese Government; Keeping the World in the Dark

Gotta love them pandas

I recently came across this 10 page article (if you print it out) about how the Chinese Government controls certain economic and political aspects of the country. As I read through two things started to happen; I become more and more curious, at the same time even more clueless about what they are doing - a total paradox. But keeping to the point, let me just elaborat on what they're doing as of now;

Now to put it in simple terms, the Chinese Government has a policy where, for transactions conducted in US Dollars, all the money has to be forwaded to their Central Bank, which is then to be exchanged with the Yuan Renmibi - this is apparently a must as they treat dollars as contrabands! Now what do they do with the money? They buy US Dollar denominatd government bonds. Now, if the buying of bonds were only limited to millions, I can understand, but apparently it runs in the billions (refer to chart below).

This is the prime reason why some governments are crying foul play; as this is the prime reason why their currency is undervaluated - to a point where the American Congress nearly went through the Exchange Control Act, and could be the reason why they've been targeted for Trade Protectionist Policies. If you look at their exchange rate, for a period of two years - there have been miniscule if not no major volatility against their exchange rate with the USD, even during the 08/09 financial crisis.

So what does this show? Clearly, a sign of government intervention. Many had hoped for the Chinese Government to change after their ascension into WTO - but apparently based on two articles from the Economist; much of their economic policies and political structure remains the same despite a significant amount of pressure to become "Westernize" and open up their market. This system apparently is much resented by the Chinese Government who prefers to have a stake (even a small one) in all if not the majority of the private entities running in China; for the sole purpose of control.

Now, in actuality, what the world is concerned about is their transparency - What do they plan on doing with the bond? There have been speculations that once reaching a certain threshold, they would do a firesale - but this would in turn hurt them as well as a healthy American economy would be essential to their Export-Driven economy, to which America is a big customer. So if this isn't the case, why don't they spend the money domestically? Why bother buy bonds when you can build infastructure? Well the answer to this is apparently as they build more and more manufacturing plants, major constructions shifts to public utilities would drive their inflation rate to the moon - and when that happens, a global rise in inflation would eventually come.

I believe that this is something long term - my experience which Chinese people, regardless of where they are born is that they have two distinct characteristics; the natural ability to make money and a very good long term vision. So whatever most pundits perdict in the moment is particularly off track - only the Chinese would know, and I'm pretty sure its something more which would develop within the following decades rather than years.  

In any case, keeping the world in the dark would only result in the Chinese Government open to scrutinization by the Western Media and Government. What I can see is definitely, a clash of ideologies from the Capitalist West, to the Communist / Socialist East. Within the coming decades, we would probably see a second Cold War; using not spies as weapons but rather dollars, purchasing power and economic influence.

Thats something new to look forward to.

Bloody British

Meeeeeeeeeee

How come the Brits are always selfish? Can they not see the benefits of an integrated economy? This would be the best time / opportunity to be supportive of the entire EU system. But no - they just have to be the eccentric one (like they always have) in the entire bunch. Bloody brits!

Trade Protectionism On The Rise?

Where do we go from here?

I read this article a couple of weeks ago on the rising number of Trade Defense / Protectionist Measures being taken by policymakers around the world to protect their domestic industry. When I opened People's Daily today - apparently One-Third of Chinese companies are being affected by the defense measures being taken by most of the EU Countries. Obviously not a good thing. Take a look at the map below which I scored from Global Trade Alert;

To put it simply - the bigger the red dot, the more defensive measures its taking. Its obvious that its been mushrooming in Europe, China, North & South America. So in our case, when all of our customers are closing their doors, where do we export the rest of the shit that we keep producing? Another report prepared by GTA showed that we must also take into account that these are the measures enforeceable now; and the figures are prone to lags between the time it takes for policies to be reviewed up to the point where its published in the papers. I'm aware of Argentina's adoption of more Protectionist-measures since 3rd Quarter this yea but didn't expect to see EU propping up like mushrooms.

The way things are going - doesn't seem like 2012 will be a good year.