The yuan is now a commodity for global exchange. (Photo Credit: CC BY/Jason Wesley Upton/Flickr)

China has played its hand very close to the vest when it comes to controlling its currency, but as the Wall Street Journal reports, the time has come to spread the wealth. The yuan, which Beijing once prohibited from being bought or sold outside China’s borders, has been released into global currency trading for the first time. Considering China’s position as a world economic power, interest in yuan exchange has been tremendous.

Yuan exchange: from zero to $400 million

Daily yuan trading quickly accelerated from zero to $400 million, according to reports. As China has loosened the reins on its currency, other nations are now able to transact with China in yuan for the first time, whether it be in finance trade, investment or borrowing. While the value of the yuan is still under tight control – China believes this will keep the currency from fluctuating as wildly as the dollar and euro – the availability of the yuan worldwide could change the face of world business, writes the Wall Street Journal. And demand for the yuan is already extremely high.

‘Full convertibility of the yuan’

Norman Chan, head of Hong Kong’s central bank, told the WSJ that “This is a step moving to full convertibility of the yuan … a major change of the international financial landscape.”

While the dollar, yen and euro currently dominate the $4 trillion global currency market, the yuan is fast-approaching critical mass, according to traders. Chinese companies bank their yuan in Hong Kong accounts – where offshore trading is permitted – in tremendous amounts. By year’s end, experts predict that 300 billion yuan ($45 billion) will be ready for convertibility.

How yuan trading works

Global currency trading in yuan will require traders to have a Hong Kong bank account. Chinese companies will be allowed to move yuan offshore for business purposes like exports and imports. Once the yuan is in an offshore account, the holder of the account can use the currency as they please.

As banks like Citigroup and HSBC are already offering investors yuan-priced options and companies like McDonald’s and Caterpillar are selling debt priced in yuan, it is clear that yuan exchange won’t be slowing down any time soon.

Sources

Wall Street Journal

Just when inflation was going so well…

George Soros at the 2003 World Economic Forum meeting in Davos, Switzerland. (Photo Credit: CC BY-SA/World Economic Forum/Flickr)

Billionaire Hungarian-American financier and philanthropist George Soros has stirred more than his fair share of controversy in the economic and political arenas. His recent statement regarding China’s government being “better functioning” than the United States government should give conservative commentators like Glenn Beck a great deal to discuss, writes Foreign Policy.

Soros says China must now take responsibility for the world

China has spent much of its time focusing on its own economic interests, rather than spreading itself too thin via some kaleidoscopic foreign policy, argues Soros. The shift of economic power from the United States to China has occurred along the way. Soros even compares the United States’ financial decline to that of the United Kingdom following World War II.

Now that the balance of economic power has swayed toward China, Soros says that China needs to now look outward. It has a responsibility to help maintain the world economic order, Soros believes. Loosening up on the reins of its currency would be one way to achieve that end.

Gridlock: A Congressional dysfunction

In The Globe and Mail, Soros argues that China has a “more vigorous economy” and a “better-functioning government” largely because Congress is so ineffective at making decisions and focusing upon key issues that would move the U.S. economy toward more solid ground. Such time-tested distractions as the filibuster, as Kay King of the Council on Foreign Relations argues in a recently released report, have hamstrung the U.S. government when it comes to such issues as national security. King’s argument mirrors many of Soros’ statements:

When Congress fails to perform, national security suffers thanks to ill-considered policies, delayed or inadequate resources, and insufficient personnel. Without congressional guidance, allies and adversaries alike devalue U.S. policies because they lack the support of the American people that is provided through their representatives in Congress.

Sources:

Council on Foreign Relations report

Foreign Policy

The Globe and Mail

Soros on a lack of confidence in currency

(Photo: Artemuestra/Flickr/CC BY-SA)

In the news, allegations have surfaced accusing China of forcing various entities in the technology industry to give Chinese establishments technology. Allegedly, this is required as part of their cost to do business in China, although China denies this. China’s increasing integration with the global economy has contributed to sustained growth in international trade.

The new wave of Chinese economics

China’s exports have recently become more diversified and have achieved greater penetration of industrial markets. This has been accompanied by a surge in Chinese imports from all regions — especially Asia, where China plays an increasingly central role in regional specialization. Tariff reforms have been implemented in China since the 1980s, and with its recent WTO accession, China has committed itself to additional reforms that are far reaching. Sustained implementation of these commitments would further deepen China’s international integration and generate benefits for most partner countries.

China emerges as a global power

Approaching this from a skeptical point of view, all the economic policies and trade processes that China is seen to be following could be a ruse in order to conduct or pursue its agenda in terms of increasing its advancement, even through illicit or prohibited means. It’s not as though China’s markets are free enough to have financial options like bad credit cash loans and installment loans. As China emerges as a global power, it is important to understand what role it will play and the security perceptions it has of both Asia and the world.

China’s view of U.S. society

The most important issue for China today is political stability at home. Any attempt to influence the status quo is not welcome and is deemed to be interference in China’s internal affairs. Many Chinese believe that the United States represents the core values of Western Civilization. Several believe the U.S. is in conflict with the Eastern civilizations represented by China. As a result, Chinese leadership views any American influence as a challenge to China’s political stability.

China aggressively pursues technology

In the 21st century, the status of superpower or world power requires a certain degree of technological advancement and progression. This is the age of information technology, and the fundamental resource of most modern and fast developing economies is technology. For a country to be powerful, it needs to possess a significant amount of advanced technology.

China is the world’s most populous country

Let’s assume for the moment that the allegations are true. Will the U.S. or any other country really do anything about it? Will the U.S. do as they said and really “push” China on the issue? That is highly unlikely. China is the world’s most populous country and the second largest energy consumer behind the United States. Rising oil demand and imports have made China a significant factor in world oil markets. Given this fact, China is a necessary part of the international economic system.

There would be significant repercussions if China is antagonized in any way. This means that by setting aside international trade policies, China can do pretty much what it wants in most cases. Given its status and place in the international arena, who can really do anything about it?

Source:

RePEc: http://ideas.repec.org/p/imf/imfwpa/04-36.html

"They carried all they could bear, and then some, including a silent awe for the terrible power of the things they carried." — Tim O'Brien, "The Things They Carried" (Photo Credit: CC BY/Jackie/Wikipedia)

According to some right-wing reports, there is speculation that President Obama – in light of falling approval numbers and pressure from Israel – may push for war with Iran. Chairman of the Joint Chiefs of Staff Mike Mullen recently told “Meet the Press” that the Pentagon is in fact prepared to attack the nation bordering Afghanistan. However, such speculation may be premature. According to Front Page Magazine, war against North Korea is more likely. And from a modern business perspective, a New Korean War would be disastrous.

The coming of a New Korean War

Recent territorial clashes between North Korea and South Korea – as well as the sinking of the South Korean ship Cheonan – have drawn the United States into a fray that could easily lead to a New Korean War, suggests Front Page and other sources. Tensions are high, and North Korean leader Kim Jong-il’s pronouncement that his nation is on “combat readiness” has caused a fall in stock prices. In a recent military broadcast, Jong-il stated that “We do not hope for war, but if South Korea, with the United States and Japan on its back, tries to attack us, (we) will finish the task of unification left undone during the…(Korean) war (in 1953).” That task of unification, according to the Associated Press, could include “powerful nuclear deterrence.”

Jong-il has also threatened violent retaliation if additional sanctions are placed on North Korea by the United States and the European Union, a move both nations have seriously considered.

The U.S. will protect its ally

UPI reports that a recent Angus Reid Public Opinion survey showed that more than half of U.S. adults expect a war between North Korean and South Korea soon. Less than half of respondents were opposed to U.S. involvement. The U.S. would almost certainly be involved if war were to occur on the Korean peninsula, as Secretary of State Hillary Clinton has pledged on numerous occasions following the Cheonan incident that the United States will protect their South Korean ally in the event of hostilities.

Saber rattling and business chattering

American consumers, dealers and importers of products made in South Korea are very worried about the prospect of a New Korean War, reports The Detroit Bureau. Setting aside the potential for tragic loss of life on all sides and the United States’ arguable over-commitment in Iraq and Afghanistan, business numbers could also suffer. Hyundai, Daewoo, LG, Wal-Mart, Best Buy and a host of other big-box retailers would be severely impacted. South Korea’s economy would take a nosedive amidst the chaos of war, sending refugees into China who would be a severe drain on the Chinese economy. Dominoes would continue to fall, and the United States would not avoid the collision entirely.

America wants South Korean products

Considering reports that South Korean manufacturers are largely unprepared for the possibility of a New Korean War, shipping lanes would likely be shut down or severely impeded. Even with the North Korean military reportedly in shambles – although accurate information on such topics is difficult to determine with certainty – the impact of violent conflict would be felt. No new products or parts coming out of South Korea would make things difficult for the American market.

Sources:

Associated Press

The Detroit Bureau

Front Page Magazine

Real Clear Politics

UPI

U.S.-S. Korean war games a threat to peace, claims N. Korea

These rare dogs are a sign of status in China. CC by Mimayin/Wikmedia Commons

Tibetan Mastiff dogs are becoming more and more popular in China, and that has some people very worried. The Tibetan Mastiff is considered the protector of Tibet, and a sign of prosperity. With price tags as high as $600,000 for a purebred animal, Tibetan Mastiffs are concerning some animal welfare activists.

How the Tibetan Mastiff is seen in China

At one point, the Tibetan Mastiff was considered a holy animal by Tibetans. Having a Tibetan Mastiff is considered a sign of security. Some Tibetan Mastiff dogs are huge, reaching 180 pounds or more. Finding Tibetan Mastiff purebreds is difficult. Some breeders will even poach purebred Tibetan Mastiffs if they find them.

Expense of a Tibetan Mastiff

Owning a dog in China used to be banned. Having a dog is often considered a pure and simple status symbol. Animal ownership is no longer banned, but it takes months and hundreds of dollars to license them. Both the neighborhood community and police security bureau must approve the dog before it can be registered. The yearly registration renewal must include passport photos, registration documents, even proof of home ownership. In short, owning a dog in China is an expensive and difficult proposition on top of the high cost.

Mastiffs as a status symbol?

The Tibetan Mastiff is viewed by many breeders and owners as slightly more than just pets. The couple that purchased the dog known as Yangtze River Number Two keeps their $600,000 dog in a cage. In Beijing, the International Center for Veterinary Services calls the obsession “dangerous.” It’s noted that many of these so-called “pets” are put on display more than treated like pets. Many breeders and owners point out that they spend extensive amounts of time and money caring for these pets.

Read More:

MSNBC http:

Global Times:

8.4 earthquake prediction

After a 6.9 magnitude earthquake injured more than 8,000 people in Qinghai, China last night, Twitter, Facebook and text messages lit up with warnings of an 8.4 earthquake prediction for California. The 5.0 magnitude earthquake in Guerrero, Mexico seemed to confirm the 8.4 earthquake prediction. The rumor started with an email claiming that CalTech had sent its employees home with notice to “prepare for the big one.” CalTech has confirmed that no such e-mail was sent out.

Earthquake prediction

The 8.4 earthquake prediction claiming it will happen in the next 72 hours is simply not possible. The closest thing in existence to a reliable earthquake prediction is the seismic activity detectors that allow researchers to immediately warn areas that are seeing increased seismic activity. However, as Popular Mechnics outlined, true earthquake prediction is “still a long way off.”

The 8.4 earthquake prediction may eventually come true

The fact that an 8.4 earthquake in California has not been predicted does not mean that the big earthquake is not coming. California is a well-known earthquake zone. In 2008, the Working Group on California Earthquake Probabilities predicted that a 6.7 or larger magnitude earthquake has a 67 percent likelihood of happening. In other words, an 8.4 earthquake prediction is generally true – it may very well happen. An accurate earthquake prediction is just not possible, though.

Preparing for an 8.4 earthquake in California

Any resident of an earthquake-prone area should always be prepared for a large earthquake, just as everyone should be prepared for a large disaster. A basic disaster kit is easy to put together, and getting a quick personal loan to finance one may be a good idea. Check with your local Red Cross to get help putting your emergency kit together. That way, when another earthquake prediction or major disaster comes your way, you will know you’re ready.

Sources:

KHTS AM 1220

Bakersfield Now

Los Angeles Times

Internet cafes provide the majority of internet access on Mainland China. Image from Flickr.

As of 3:03 p.m. Eastern time today, Google has officially shut down Google.cn search operations, ending the online loans of information that Google and China had worked out. Google and China have been in a long-standing debate over the censoring of search results — a debate that has gotten especially heated since Jan. 12. Today, on its official blog, Google announced that had cut the cord to Google.cn and would be redirecting all searches in China to Google.com.hk, the Hong Kong portal for the search engine.

Availability of Google in China

Along with redirecting the Google.cn portal to Google.com.hk, Google also launched an “Apps Status Dashboard” report on China. According to that dashboard, as of 2:15 p.m. Pacific time today, Google users in China are able to access the web and image search functions freely, without censorship. News, advertisements, and Gmail also appear to be freely accessible. However, YouTube, Google Sites, and Blogger are completely blocked, while Google Groups, Picasa, and Google Docs have a small loan from the government – they are only partially blocked.

China’s unique relationship with Hong Kong

Google’s decision to redirect Google.cn to Google.com.hk is a decision made partially possible by the unique relationship of mainland China with Hong Kong. Google has long had a non-censored presence in Hong Kong, even though it is a “special administrative region” of the Republic of China. Hong Kong is technically Chinese, though it is operated as a multi-party democratic republic, rather than under the single-party system of China. Because Hong Kong is financially and politically separate from China, Google has been able to offer a full suite of web services there for many years.

How China’s government will react to Google

Senior Vice President David Drummond, Google’s chief legal officer, stated today that “We very much hope that the Chinese government respects our decision, though we are well aware that it could at any time block access to our services.” Most industry and political watchers do expect China to begin censoring search results from Google.com.hk any day. The Chinese government has a long history of censorship, and China’s “Great Firewall” is surprisingly effective at censoring sections of the internet that the Chinese government determines should not be allowed.

Google is the best-known name in search in most of the world - but Google's China operations will be shutting down. Image from Flickr.

Google is the nearly indisputable king of internet searches; last month alone, it claimed 72.11 percent of all searches in the U.S., according to HitWise. It makes sense, then, that Google would be trying to break into China, where the number of internet users exceeds the entire population of the U.S., according to the McKinsey Quarterly. Google initially censored many search results in order to comply with the government in China – blocking results about democracy, pay day loans, and Tienanmen Square. However, it appears that Google and China have reached an impasse in negotiations about censorship, and google.cn, the Chinese-based portal for Google will be shutting down.

Google’s China-based search

Google.cn, the Google China web site, started in 2005. Originally, Google had agreed to censor search results in China to meet with the Chinese government’s requirements. Google took some very heated opposition to this move, but the proposition of getting their “foot in the door” to the very large Chinese market encouraged Google to work with the requirements of the government in China. There were some that accused Google, a very public supporter of net neutrality of putting their principles on the back shelf by agreeing to censor their results. Like short term loans for bad credit, Google was willing to take out some search results in order to get things on track.

The disagreement between Google and China

After the initial anger about Google censoring its search results to meet with China’s government regulations died down, things remained fairly quiet until January of this year. On Jan. 12, Google announced a “New approach to China.” This move came as the result of cyber attacks not only on Google, but on the Gmail accounts of Chinese human rights activists and advocates. At that point, Google announced that it would no longer be censoring search results in China. The government in China, as reported by the BBC agreed to talks with Google about censoring practices. However, the New York Times reports that those talks appear to have broken down. Nicole Wong, Google’s Vice President outlined in a statement:

“We are no longer willing to censor our search results in China, and we are currently reviewing our options. If the option is that we’ll shutter our .cn operation and leave the country, we are prepared to do that.

China has gone so far as to warn Google partners in China that they need to find “alternatives” to their Google search boxes.

History of internet censorship in China

The government in China, for the most part, appears to be very unconcerned about Google’s decision to remove its censored search engine. This is, in part, because China has a fairly well-developed system of internet censorship that they have been monitoring and using for years. Known as the “great Firewall,” there is a massive no-access blockage to many web sites available online.

Many popular web sites, such as YouTube and Wikipedia, are also heavily restricted based on certain topics. China also requires internet users to provide personal information to log onto the internet in Internet cafes, where most internet users in China log on. This massive effort of information control is known as the “Golden Shield Project.” Many U.S. companies, such as Google, have altered the way they do business in China in order to work with their huge population and growing economic power.

What Google will do with China

Now that Google is “most likely” shutting down its Google.cn operations, internet users in China will most likely not be able to access Google.com. Though they will be effectively cutting themselves out of a very large market, Google’s handling of the government in China is just the latest of a long string of U.S. Companies clashing with the Chinese government. Google has stated that it hopes users in China will continue to use Google.com, though in reality, Google will most likely lose the market share available in China.

Will China make the same mistakes the U.S. did?

China enjoyed a year of staggering growth in its GNP and on its stock exchange board in 2009. Most economists believe 2010 will bring more of the same for the Chinese economy, for it seems as though getting money now is not much of a considerable issue for them. The Chinese government has poured $586 billion into a stimulus package aimed at spurring the growth of their economy.

Against the tide

Burgeoning new industries, ample natural resources and government support add up to a winning combination for most financial analysts. One investor, however, with a track record for predicting when big bubbles will burst, isn’t buying what the Chinese government is selling. Billionaire hedge-fund investor James S. Chanos sees a lot of holes in the narrative the Chinese government is spinning out. Chanos believes the Chinese are faking their numbers outright according to an article in the New York Times. He predicts the bust in the real estate sector in China will begin a debt and credit problem a 1000 times worse than Dubai’s late last year.
(See http://www.nytimes.com/2010/01/08/business/global/08chanos.html)

A strong track record

Chanos isn’t just any voice shouting above the crowd. He has a track record of being right when everyone else is going the other way. Chanos predicted the Enron fall, Tyco International’s demise, problems with the Boston Market restaurant chain, and the most recent downfall of home builders. Each time the experts predicted continued growth and prosperity, each time Chanos bet against them and won. Mainstream economists claim he lacks expertise regarding the Chinese economy and is not as familiar with the way it functions compared to Western economies. Chanos argues back that very few Westerners know much about the Chinese economy.

Debt is debt

Chanos bases his evaluations on excesses in credit much more than any excesses in valuation. In other words, he sees the rapid expansion of the Chinese economy as being too debt and credit dependent. Chanos believes that consumers are gaining access to credit far too easily, and this will eventually lead to a mountain of bad debt. Further, he does not believe the growth numbers that China is putting out. Communist governments have a history of putting out propaganda that is not necessarily based on realistic numbers. Much of the credit excess lies in the real estate sector according to Chanos, and this will lead to wide spread default when home buyers and investors can’t pat their notes.

Eerie similarities

Economic growth based on easy credit and hyper-valuation should set off alarm bells for anyone paying attention to the global economy in the past two years. Excesses in the real estate sector combined with abuses in the financial sector brought down the American economy along with more than 130 of its banks during that time period. The Chinese government pouring hundreds of billions into supporting growth in the housing market should give investors a feeling of dreaded familiarity. The Chinese seemed to be making the same mistakes the U.S. did, only they are putting money into a pre-bailout. When the artificial economy hits the fan, the Chinese will look very familiar to American investors.

(Photo Credit: http://www.flickr.com/photos/87913776@N00/ / CC BY 2.0)