Chinese Influence in East African Waters Grows

Oh yes it does.

From the inevitable B&T

Red Star Rising...But Not Over the Thames?

Ah, my old comrade Martin Jacques is back on his favourite subject today I see: China. & a good deal of sense he makes on the subject even if, let's be fair about this, there is a lot of truth in the accusation that he has something of a 'tin ear' about the regime's various inadequacies and human rights abuses. Nor does he often mention the periodic simmering unrest, in the manner Blood and Treasure so usefully does. Jacques' focus is always on the sheer world changing scale and speed of the economic rise of China.

Today, he's on about how the Americans will have to concede a degree of control over the IMF - and more widely, over any international settlement designed to be the Bretton Woods II - to the Chinese. This seems broadly inevitable to me - eventually. But I never discount the ability of power politics or a brute refusal to accept economic facts to get in the way of reality. Jacques argues that the alternative is trade war and Depression. Well, the Chinese do hold an awful to of their wealth in American assets, after all...

& it looks as though they plan to continue to do so. The FT says,

"Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.

Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

He sounds a lot less keen on propping up the UK, doesn't he? & if you accept the general line that the City of London has very largely provided a 'semi-offshore' playground for Wall St then perhaps there will be less American money around to restore the British financial services industries to their, er, 'former glory' after this recession. All of which tends to point to a switch in the balance of activities which make up our national economy as we work through this recession.

Bear with me on this, as it could just be a failure of my imagination, but I have real difficulty with all this post-industrial economic development stuff. Yes, I can accept that English, as a language, gives us certain competitive advantages in the global market and that this can be traded in the form of widely accepted cultural products, be they films or anything else. I can even, just about, understand the idea of culture led regeneration, even if part of me thinks it boils down to little more than an extended riff on the theme of "Wouldn't It be Nice if Everywhere Was A Bit Like Hoxton?"

What I can't quite grasp, no matter how I try, is the idea that the relative income and wealth generated by such activities should indefinitely remain so much higher than that generated by, say, making things like clothing or electronic goods. Why should we get paid more for inessentials than a Chinese, Brazilian, Korean or Indian worker who makes necessary stuff? I can see that for as long as the City of London was a primary global financial centre the money men could, in effect, impose their own terms of trade. But if that declines and we're dependent on - I dunno, lets say software, films and, ahem, premier league highlights - I can't see why we should continue to be able to buy as many white goods per copy of Grand Theft Auto or Ronaldo goal.

Plus, of course, it is becoming increasingly easy to pirate (ignore copyright of) films, games and music, and no-one has a convincing argument on how to deal with this as Will points out .

OK that's me revealed as a economic ignoramus. But I would like someone to explain this to me.

"Hang on a minute, lads. I've got a great idea"

So says Michael Caine at the end of the Italian Job, as the crooks balance precariously in a coach with its back end - the end with the gold in - perched half way off an Alp. One wrong move and the gold slips out of the door and down the mountain - but trying to pull it back towards the criminals means approaching the gold and tipping the whole coach off the mountain.

Why does this quote remind me of that scene?

"We know that by pulling out money, we’re not serving anyone’s good. Including ourselves." Gao Xiqing, president of the China Investment Corporation. This is the famous modern “balance of financial terror.” If Chinese officials started pulling assets out of the U.S. and touched off a run on the dollar, their vast remaining dollar holdings would plummet in value, losing the savings of the Chinese as well as ruining the American economy. In other words - the whole coach tips off the cliff.

But there's more: Caine says the film ended the way it did because there was going to be a sequel:

"In the coach I crawl up, switch on the engine, stay there for four hours until all the petrol runs out. The van bounces back up so we can all get out, but then the gold goes over. There are a load of Corsican Mafia at the bottom watching the whole thing with binoculars. They grab the gold, and then the sequel is us chasing it."

Yeah, I can see America doing quite a lot of 'chasing' after all this, even if they get out of their coach alive - that is, get away with a bad recession rather than a full blown repeat of the 1930s. But who, exactly, will they be chasing?

Once I Built A Railroad...

Via Marginal Revolution comes news of China's response to the crisis: a $586 billion infrastructural investment package. M-R doesn't reckon it'll work, but still...

They're going to focus on railways, subways, airports and rebuilding communities devastated by an earthquake in southwest China in May. So perhaps we all need to learn the Chinese for "Auf Wiedersehen Pet": 再见宠物

What Do You Mean, They’re Not Coming to Save Us?

What are the Chinese going to do now there's no point in them investing in the bust American economy?

Blood and Treasure says the old men on the Central Committee, having gone through Stalinism and market orientated development, are being advised to try social democracy.

Caijing- which B& T calls " China's version of the Economist and " a kind of external brain of the Chinese economic apparatus" reports:

"The government's main priority will now be to introduce policies to prevent a hard landing and this will be the focus of the meeting of Communist Party leaders in November. Caijing notes that because of the US financial crisis a prolonged slowdown in export growth is to be expected. They suggest policies to strengthen domestic demand are the best and most likely option for the government. In particular they propose: 1. expanding medical insurance and constructing a rural health care network; 2. increasing the provision of affordable housing; 3. an end to control of food prices combined with food subsidies for poor people; and 4. a tax cut for middle income families to help boost domestic consumption. With these policies, GDP growth could be increased by 1.5-2% - enabling China to achieve GDP growth in 2009 of 8.5%-9.5%. "