Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Competing with China, the Real Answers are Never that Simple

Economics / China Economy Sep 04, 2012 - 06:57 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes:Q - The Chinese copy everything. Companies can't make money there, especially lately.

A - That's simply not true. Domestic Chinese companies have made plenty of money. So have foreign companies like McDonalds, ABB, Coke, and even GM, which have been fabulously successful there because they've taken the time to localize their products.


Not many people know this, but the ultimate sign of executive status is a jet black Buick minivan in Beijing at the moment. How's that for a contradiction?!

As you might imagine, I get a lot of questions about China - it's topical and it's very important to our future.

Most are really just reincarnations of concerns voiced since 1970 when China first began to open up. In that sense, they're really nothing new.

So rather than tackling the same old "they'll never succeed because they're not democratic" or "ghost cities" arguments that seem to incessantly make the rounds, let's frame them in terms of what's in the news lately and dig into the subtleties that escape most Westerners.

And, let's start with one of the questions I get the most.

Q - Is China going to have a "hard" or "soft" landing?

A - This one stumps me. Where have the people asking this question been? China's had a soft landing for the last four years. They are already there - the economy is slowing, debt is rising, and the urban migration may be closer to an end than people think.

The fact is that nobody can define what a Chinese soft or hard landing actually is because Western metrics don't apply. It's just a catch phrase that gets bandied about in the media.

That's why I believe this question is really a matter of perspective. For example, there is no question China faces huge challenges, but those challenges are no different than many we've faced here in our own past.

During the last century we experienced two world wars, multiple recessions, a depression, and a presidential assassination -- and still the Dow rose more than 20,000%.

China will, too. The genie is not going back in the bottle.

As I recall, many people in England thought that America was a pretty silly venture at one time. And don't forget that the world thought Japan was good for nothing more than cheap tin toys following WWII.

Looking at China through Western lenses is a mistake.

The losers are those who show up simply expecting to "show the Chinese a thing or two" by virtue of their success in Western markets.

In their rush to condemn China, people have conveniently forgotten that European markets were problematic to crack, too.

It wasn't all that long ago, for instance, that executives anxious to sell into Germany via the Internet didn't understand that many German consumers still prefer cash. Eventually they began to understand that the payment framework was a big deal and the key to profitability.

With regard to imitation and copycats, both frustrate Western executives unused to the practice, which has existed for centuries as a matter of China's cultural fabric.

In reality, both speed up the product development cycle and sales.

Companies that are unprepared or do not have the right partners cannot compete no matter where in the world they operate (an argument, by the way, that is laid out very well by Kal Raustiala and Christopher Sprigman in their new book, The Knockoff Economy (Oxford University Press).

People may not like how the Chinese handle things, but that's a different story and one that requires a different set of responses.

Q - Export growth is failing, therefore China must be failing...right?

A - Nope. The inconvenient reality is that China is still operating at 3-5 times the speed of Western economies, which will be extremely lucky to eke out 1% growth this year despite the trillions thrown into the hopper.

I find that people who voice the connection between exports and China's complete collapse are often voicing their own frustrations about the lack of growth in the West, or perhaps outright jealousy that it continues practically unabated there.

Even if the data is completely faked, Chinese demand backed by 1.3 billion people completely outstrips anything we have in the West and creates a tailwind that will last for decades. Like every country that's gone before it, this will involve ups and downs both political and economic. It will not be a flawless nor smooth journey by any stretch of the imagination.

The challenge - and what makes so many people so uncomfortable -- is that China's goals are now intertwined with the world's fiscal future.

Q - Doesn't Bo Xilai's recent removal imply that China's leadership is more fractured than ever?

A - I hear this one a lot lately.

By way of background, in case you are not familiar with him, Bo Xilai was China's version of a political rock star.

Rising from meager beginnings as Dalian's mayor, he became one of the most powerful men in the Communist Party as its Secretary in Chongqing and a member of China's Central Politburo. He was widely considered to be in line for President of the People's Republic of China.

Unusually charismatic for a senior Chinese politician, he seemingly could do no wrong...right up until his top lieutenant and police chief sought asylum in the American consulate in Chengdu and exposed all sorts of conduct unbecoming of a senior politician.

It didn't help that his wife, Gu Kailai, was charged and subsequently found guilty of murdering British business man Neil Heywood, possibly with Bo's help.

Contrary to what most Westerners believe, the speed and totality of Bo Xilai's dismissal is not a sign of weakness.

Instead, it reflects significant strength because it suggests that the Chinese leadership is consolidating power and closing ranks to keep the system strong, just as they have over 2,000 years of history whenever a dynastic structure was threatened.

And yes, before somebody gets going on that one, I consider the Communist Party to be another dynastic structure for all intents and purposes, even though technically speaking it's something entirely different.

Q - There's no way the dollar can lose out to the yuan as the world's reserve currency. Besides, the amount of trading allowed now is so small that it can't possibly have an effect on the U.S. dollar and the euro...Right?

A - I know this is the perception, but the reality is different.

First, the United States has gone from the world's single biggest creditor to the greatest debtor in the history of the world. We owe ourselves more than $222 trillion at last count, according to Boston University Professor Lawrence Kotlikoff and the CBO. The dollar is a disaster enjoying temporary strength by virtue of the EU crisis.

Second, it's already well under way. China has quietly set up hundreds of billions in bilateral yuan swaps with nations all over the world to safeguard against the global financial crisis, strengthen the yuan outside the normal currency pairs, eliminate currency risk and strengthen trade ties.

As of last February, China had signed agreements with 18 nations, the most recent of which is the $30 billion bilateral contract with Brazil.

Lest you think this is isolated to second tier players, it's worth noting that the Bank of England was actively considering such an agreement until March when it was kyboshed. Germany is also rumored to be considering the possibility.

At the same time, there are also new "panda-bonds" being floated that further tie the international community into yuan. Shanghai, meanwhile and on a related note, has set up futures markets already trading in yuan-denominated instruments.

Citi just became the first Western bank to launch a yuan-denominated credit card, obviously with a local partner.

The implications are clearly global and already in process. The dollar is already being supplanted. It's only a matter of time before traditional dollar-based markets find themselves outgunned by the amount of yuan-based trade that bypasses traditional currency channels. The same can be said for the euro, although on a lesser scale...so far.

Not only that, but I believe there is a good argument to be made that the establishment of these agreements actually takes a lot of pressure off the dollar, too.

At the end of the day, what Western leaders and bankers fail to grasp is that a parallel currency exchange mechanism is being built right under our noses.

So what should you do?

That's up to you, but the way I see things you've only got one decision to make. Imagine the Dragon is coming to lunch next Tuesday; ask yourself if you want to be at the table or on the menu?

Then, consider this bit of common sense advice from the legendary Jim Rogers: it's far easier to get rich in China with its tailwinds than it is to get rich in America with its headwinds.

And place your order - unless you actually fancy being barbequed.

Source :http://moneymorning.com/2012/09/04/qa-with-keith-the-real-answers-in-china-are-never-that-simple/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules