THE MATH OF HOW CHINA SURPASSES USA IN 5 YEARS

[antonius123]

I don't think China today is manipulating their currency like what the US is accusing of. Even the IMF thinks the RMB is fairly valued, but the USD is slightly overvalued.

https://www.chinadaily.com.cn/a/201908/09/WS5d4cb4aaa310cf3e35564b42.html

That's because China's current account surplus, although large, makes up only around 2% of GDP today, quite different from more than a decade ago which made up to 10% of GDP. Their foreign reserves has been stable at around $3 trillion+ and not rapid increasing like in the 2000s.

Their currency's strength is in line with their economic fundamentals.

IMO the real currency manipulators are Singapore and Taiwan lol.

Current account surpluses made up >10% of GDP, and PPP to nominal ratio is very high which is unusual for a developed economy. Taiwan has PPP/nominal ratio similar to Angola and Singapore to Lebanon.

View attachment 660811
https://qz.com/1257865/singapore-prime-minister-lee-hsien-loong-schooled-trump-on-trade/

View attachment 660807

View attachment 660806
https://www.piie.com/blogs/trade-and-investment-policy-watch/currency-manipulation-update-2015-17

PPP/Nominal GDP ratio:
http://statisticstimes.com/economy/gdp-nominal-vs-gdp-ppp.php

Regardless what US accuse, China adopt the fixed exchange rate policy, while she has been doing devaluation several times.

 

[Mista]

China adopt the fixed exchange rate policy

Wrong, it's the managed float system. China has abandoned the fixed exchange rate policy since 2005.

https://www.reuters.com/article/uk-...rk-central-bank-deputy-governor-idUSKBN16D0SH

 

[Song Hong]

Mista is an educated fool.

He still has his use an a myopic technocrat and he is mostly correct on his very narrow scope. CNY is moving on a very narrow band, aka managed float, since a one off appreciation in 2005-2008.

Wrong, it's the managed float system. China has abandoned the fixed exchange rate policy since 2005.

View attachment 660877

https://www.reuters.com/article/uk-...rk-central-bank-deputy-governor-idUSKBN16D0SH

 

[antonius123]

Wrong, it's the managed float system. China has abandoned the fixed exchange rate policy since 2005.

View attachment 660877

https://www.reuters.com/article/uk-...rk-central-bank-deputy-governor-idUSKBN16D0SH

Doesnt matter. The point is China is still controlling the value of Yuan, and history show China tend to devaluate Yuan value hence explaining why nominal GDP growth is slower than expected.

The managed floating system that currently China adopt is within narrow band, means control is still there.

 

[Song Hong]

Every single nation on earth is a currency manipulator.

The Mundell-Fleming thesis, for which Robert Mundell won the 1999 Nobel Prize, states that in international finance, a government has the choice between (1) stable exchange rates, (2) international capital mobility and (3) domestic policy autonomy (full employment/low interest rates, counter-cyclical fiscal spending, etc). With unregulated global financial markets, a government can have only two of the three options.

This is what we call the holy trinity.

Through dollar hegemony, the United States is the only country that can defy the Mundell-Fleming thesis. For more than a decade since the end of the Cold War, the US has kept the fiat dollar significantly above its real economic value, attracted capital account surpluses and exercised unilateral policy autonomy within a globalized financial system dictated by dollar hegemony. The reasons for this are complex but the single most important reason is that all major commodities, most notably oil, are denominated in dollars, mostly as an extension of superpower geopolitics. This fact is the anchor for dollar hegemony. Thus dollar hegemony makes possible US finance hegemony, which makes possible US exceptionism and unilateralism.

In essence, China being de facto world largest economic power can hike her currency, but apparently now, this does not fit into China best possible interest. It could provoke US into compulsive actions considering the sudden loss of prestige as world biggest economy.

We seen a one off Yuan appreciation 2005-2008. China should be able to pull it off now but she didn't.

Some reform and restructuring need to be in place first. China need to prepare the world, and US to accept the mindset the China is world biggest.

The current lower nominal GDP of China vs US is just a anachronistic anomaly, resulted from historical reasons.

 

[AViet]

Some countries such as China can use PPP, as a fairer measurement, but certainly not for india as they import everything from overseas using USD...

Correct. For countries with similar industrial capability, comparing PPP does matter, for example Germany and France or China and the US.

But for countries which has to import almost every industrial products and services using US$, PPP is incorrect. You cannot pay an American engineer 70,000 Indian rupi in India and say that your salary is equal to $8,000 in the US in PPP. You cannot import high-speed trains from Japan and pay them the PPP price.

To compare countries, for example Sub-Saharan Africa or India to the US using PPP is hilarious and just a trick by the elite to fool their people "See, we are just a little behind". (and Indian and SS Africans seems to be the only ones who prefer to mention PPP in any discussion).

In Vietnam, I've never seen mainstream media to publish GDP data in PPP, ever.

 

[Globenim]

The deflecting and goalpost moving by the same angsty little trolls that have been on a crusade to proclaim and shill for "Chinas impending collapse" for the last 20 years is hilarious. Every year the gap keeps getting significantly smaller well within the predictions. Not even a global pandemic they had bet all their hopes on to fullfill their wish of Chinas demise could stop it. What was once a selfdeluding "never" has become "decades away" even in the language of trolls and naysayers while informed and educated guesses are speaking about years.

 

[Mista]

Doesnt matter. The point is China is still controlling the value of Yuan, and history show China tend to devaluate Yuan value hence explaining why nominal GDP growth is slower than expected.

The managed floating system that currently China adopt is within narrow band, means control is still there.

It does matter, because policymakers allow long-term market trends. A managed float system allows fluctuations within a narrow band trend, you can see that over the years the RMB has already been slowly strengthening against the USD until China's current account surplus has diminished as a percentage of GDP.

This is why the IMF doesn't consider the RMB to be undervalued anymore; it has appreciated since it de-peg against the USD in 2005.

Foreign reserves has also stabilized at around $3 trillion, which mean that China is no longer manipulating her currency by buying other currencies. In fact her foreign reserves dropped from a peak of $4 trillion+ in 2015 to $3 trillion+ today, which indicates that China has used her reserves to defend the RMB.

 

[Song Hong]

Bad news. China no longer financing US as per before.

I am sure US will start a war if China drastically dump forex to zero within one day.

US is a nutty state that does not know what she want. The other face of huge forex reserve elsewhere means dollar supremacy (currency manipulator) which she sought.

The whole world suffers under the dollar hegemony for too long.

It does matter, because policymakers allow long-term market trends. A managed float system allows fluctuations within a narrow band trend, you can see that over the years the RMB has already been slowly strengthening against the USD until China's current account surplus has diminished as a percentage of GDP.

This is why the IMF doesn't consider the RMB to be undervalued anymore; it has appreciated since it de-peg against the USD in 2005.

Foreign reserves has also stabilized at around $3 trillion, which mean that China is no longer manipulating her currency by buying other currencies. In fact her foreign reserves dropped from a peak of $4 trillion+ in 2015 to $3 trillion+ today, which indicates that China has used her reserves to defend the RMB.

 

[antonius123]

It does matter, because policymakers allow long-term market trends. A managed float system allows fluctuations within a narrow band trend, you can see that over the years the RMB has already been slowly strengthening against the USD until China's current account surplus has diminished as a percentage of GDP.

This is why the IMF doesn't consider the RMB to be undervalued anymore; it has appreciated since it de-peg against the USD in 2005.

Foreign reserves has also stabilized at around $3 trillion, which mean that China is no longer manipulating her currency by buying other currencies. In fact her foreign reserves dropped from a peak of $4 trillion+ in 2015 to $3 trillion+ today, which indicates that China has used her reserves to defend the RMB.

Not really. If you notice RMB was weakening during recent year.

The decline or the stagnancy of China foreign reserve is due to capital flight during that period, rather than her effort to strengthen Yuan. Without capital flight her reserve should increase inline with her consistent trade surplus.

 

[Mista]

Not really. If you notice RMB was weakening during recent year.

The decline or the stagnancy of China foreign reserve is due to capital flight during that period, rather than her effort to strengthen Yuan. Without capital flight her reserve should increase inline with her consistent trade surplus.

Precisely. The devaluation is due to market forces and not a policy decision, otherwise they wouldn't need to spend around $1 trillion to defend the currency and enact stricter capital controls.

 

[letsrock]

PPP makes sense in like for like comparisions . For example comparing usa with chinese urban areas. Or canda with western europe or singapore. It makes no sense to compare usa with india on ppp. You cant even have big mac index in india as mcd doesnt sell beef patties there. Even if you take the chicken maharaja mac the water supply in india is unreliable, the oil used can be suspect, the drive to mcd can be polluted, the eatery can be crowded. If you include all that usually even in PPP countries like india will come off worse. ONly some rare exceptions like hair cuts make sense.

 

[SuperStar20]

PPP makes sense in like for like comparisions . For example comparing usa with chinese urban areas. Or canda with western europe or singapore. It makes no sense to compare usa with india on ppp. You cant even have big mac index in india as mcd doesnt sell beef patties there. Even if you take the chicken maharaja mac the water supply in india is unreliable, the oil used can be suspect, the drive to mcd can be polluted, the eatery can be crowded. If you include all that usually even in PPP countries like india will come off worse. ONly some rare exceptions like hair cuts make sense.

Have you ever been to India? I guess your info about India from PDF online forum.

 

[antonius123]

Precisely. The devaluation is due to market forces and not a policy decision, otherwise they wouldn't need to spend around $1 trillion to defend the currency and enact stricter capital controls.

Wrong. Devaluation is always government/central bank act, what market forces do is incurring depreciation.

Although the decrease of RMB value recent years might not be by China' CB act, it doesn't mean that she doesnt control the RMB anymore. As long as China still embrace managed floating regime she always control the RMB.

 

[Mista]

Although the decrease of RMB value recent years might not be by China' CB act, it doesn't mean that she doesnt control the RMB anymore. As long as China still embrace managed floating regime she always control the RMB.

I've never alleged that the PBoC doesn't control the RMB; you're the one who's putting words in my mouth.

I'm saying the RMB is no longer undervalued and is largely in line with her economic fundamentals. It's not just me saying, but reputable institutions such as IMF as well, unlike some random blog the OP is citing. Those who are expecting a miraculous appreciation of the RMB to bring forward a change in the world's largest economy position in 2025 are just delusional.

4% appreciation annually, you know how dumb that sounds to anyone's who financially literate? That's almost 10x better than putting money in the bank. Everyone would be shorting the USD right now instead of investing in bonds and equities, except for the blogger himself of course lmao.