Asset protection or export growth: Politics suggest which matters more to China

Fascinating post from Brad Setser detailing China's holdings of USD holdings.

Therein, he describes the dilemma facing China: On the one hand, it wants the US to demonstrate fiscal restraint to protect the value of its USD holdings. But, China also wants a large and vigorous government stimulus package to keep exports humming along.

One dimension that isn't addressed in Brad's post is how (Chinese) politics affect how this dilemma gets resolved.

In my view, the political calculations made by China's leadership should make export growth the preferred option. Exports will bolster employment both directly and through continued attraction of foreign direct investment. This, of course, promotes social stability and keeping the party in power.

While any losses in Chinese USD holdings will likely provoke a firestorm of criticism, this will likely be contained and less likely to up-end the CCP apple cart than the former outcome. Also, losses due to debt monetization may not be as great as when the value of China's holdings are viewed in term of purchasing power parity.

This suggests that the US will, of course, offer the requisite genuflecting to China's concerns. But, from a practical perspective, it isn't in the political interest of China to take any serious action to deter the US from any fiscal actions that threaten the value of its USD holdings.

Jewelery Queen Sees Opportunity in Downturn

According to a recent story in the Globe and Mail, Ms. ZHOU Xiaoguang, founder of Neoglory Holdings Group (the world's largest maker of costume jewelery), survived much tougher times than the current downturn. Instead of being discouraged, she sees the downturn as a chance to position her company for the inevitable recovery. 

Having come so far, so fast - the company is just 14 years old - she is not inclined to throw in the towel over something as trifling as a global economic crisis.

To the contrary, she says the crisis is a chance to snap up faltering rivals, shift into new markets and move up the food chain from maker of costume jewellery to designer, retailer and marketer.

"It's a dangerous time but it's an opportunity too and we are ready to take advantage of it," said Ms. Zhou, dubbed the "queen of costume jewellery" by a Chinese newspaper. "We are the top company in China in this industry. Why not take this chance to buy?"

That gung-ho attitude is common in Chinese business these days. China may be going through its sharpest downturn in years, with exports crashing and millions thrown out of work, but many companies see it not as a disaster to moan about but an opportunity to seize.

Why China may come roaring back

James Fallows, as usual, offers a clear and compelling description of what's going on in China:

The small-business culture of China is one of the few parts of the world where Americans are considered sluggish and hyper-deliberative. As small companies scramble against each other to cut pennies from costs and minutes from schedules, they have become more nimble as subcontractors. But they still don’t keep much of the final rewards for themselves. Thus today’s shock is more than such companies can offset just by cutting costs.


In Beijing, in Shanghai, in Shenzhen, and elsewhere, I’ve recently visited companies that are trying to use the disruption of this moment to enter wholly new markets and do what so few Chinese firms have yet done: make high-tech, high-value products that bring high rewards.

The rest of this excellent article from this month's Atlantic is well-worth a careful read.

Our experience confirms Fallows' description. We are seeing keen interest from Chinese professional service companies as well as product manufacturers looking to ramp up their U.S. presence. In fact, I'll be in Shanghai and Hangzhou for a good two weeks meeting with some of these companies.

Tips for better blogging

While this isn't about China per se, there are some really great tips about how to make a blog more effective. You'll be seeing some of these tips here soon.



My favorites:



1. Pick three blogs that you respect and introduce your readers to them



2. Ask your readers to ask you questions



3. Write something nice about the coolest person you recently met



More great suggestions here:



http://michaelmartine.com/2009/03/10/ten-topics-in-ten-mins/

Jack Ma presenting at Asia Society in NYC

Check out Jack Ma's webcast from Asia Society in NYC tomorrow: