Thursday 22 March 2012

Why China will dictate the America?

In the past few years, many pundits have been arguing that china will be taking over the America and renminbi will be trade as international currency around the globe. After analysing some data, true enough that 10 years down the road, if the Americans are still not growing, China might take over the U.S. Why?

First and foremost, comparatively, China Gdp is growing at a much faster pace for the pass few years than the U.S. China debt to GDP is much lower and China reserve is around 3.2 trillion. What about U.S? U.S growth has came to a halt and stagnant after the global financial crisis in 2008. Many parts of the US economy were imploding or had ceased to function. The U.S central bank has been pumping money like there is no tomorrow. But the question that ponders one's m is that where does the money come from? Interestingly, Washington has lose out of cash and had been borrowing money from China.

Secondly, China tax revenue is increasing nearly 30% for the pas few years while the U.S tax revenue is plummeting due to sluggish economy. China has 810 million workers and US has only 160 million workers. Which is a tremendously 5 times more than U.S and the unemployment in China is only 3%. On the other hand, U.S unemployment is at the all time high of 8.6% that is around 14 millions people that is unemployed.

In the case of U.S, gasoline prices have skyrocketed, heating oil futures are escalating, milk and cheese prices are up around 18% and 15% respectively. All this are causing the decline in the dollar's buying power. As a result, IMF, UN are also calling for the end of the dollar's reign as the world reserve currency. For instance, Caterpillar and Macdonald's recently finance their mainland china projects directly via yuan bond offerings instead of the U.S dollars. Besides, Apple computer is even accepting itunes payments in yuan. Therefore, why is U.S claiming the China authority to unpegged the yuan and their claiming the yuan is undervalued which causes the demand for china product to be more attractive. But, the average U,S worker earns 6.5 times more than his or her chinese counterpart. These skyhigh labour costs are cooked into every product in America. Thus, a simple term can make one's understand that why product in America is much more expensive comparatively to China.

However, the only reason i can think of why the U.S is demanding the Yuan to appreciate their value is because by raising the value of the chinese yuan, U.S and china will automatically crush the value of the U.S dollar. So the U.S can repay its otherwise unpayable debts with cheaper value. U.S debt which is standing at 15 Trillion while Europe debt is standing at a high of 5.8 Trillion. U.S debt is 5 times more than the Europe debt. In fact, U.S only hope of avoiding default is to destroy the value of its own currency. In addition, the weaker dollar and stronger chinese yuan, China will be able to buy up even more of U.S debt and protect the massive investment it has already made in America by helping U.S to avoid default.

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