(CNN) – When China's Vice-Premier Wang Qishan appeared Monday on "The Charlie Rose Show" with U.S. Treasury Secretary Timothy Geithner during a two-day round of political and economic talks, Wang was asked what misperceptions the American public has about China.
“It is not easy to really know China because China is an ancient civilization and we are of the Oriental culture,” Wang told Rose on public television, according to a transcript. "The United States is the world's number one superpower, and the American people, they're very simple people," he said.
What did Wang mean by “simple”? Sounds dangerously close to "dumb" to American ears.
Producers from CNN's Beijing bureau weighed in, saying “单纯 is simple and pure, in a good way. Sometimes we translate it into “innocent ,” meaning their thinking is very straightforward, not complicated.” Another producer said “depending on tone, it’s (somewhere between) neutral to patronizing.”
But in the context of the conversation, Wang seemed to be pointing toward parochialism in the average American’s view of the world.
Top officials from China and the United States are meeting in Washington this week –- for the third annual Economic and Strategic Dialogue (E&SD). It’s a two-day session for the two powers to speak face-to-face about issues at the heart of their relationship.
But will anything groundbreaking come out of it? If history is any judge (and China has 5,000 years of it), don’t hold your breath. Beijing is in no hurry to rush reforms. Its fear is that sudden moves, as demanded by some hard-line U.S. critics, would destabilize the status quo it knows. Basically, the fear of the unknown is greater than any current fears it feels now.
On Monday, the dialogue started out candidly but fairly positively. In opening remarks, U.S. Treasury Secretary Timothy Geithner outlined the well-known laundry list of bilateral economic issues - but also praised China for its past achievements.
(CNN) – Time may be running out much faster than we thought for the United States.
In just five years, China may lay claim to the title “World’s Largest Economy”. This is not coming from China fearmongers or doomsayers – this is according to the International Monetary Fund and its new GDP forecasts.
The numbers: China’s gross domestic product will rocket $8 trillion in the next five years to $19 trillion. The U.S. GDP will grow $3.5 trillion in the same timeframe to $18.8 trillion. And it will be in that year - 2016 - that China's slice of world output will start to edge past the United States': 18% versus 17.7%. In the years after, that gap is forecast to widen.
So how can this be? And so soon? Especially after numerous prior estimates have forecast China’s #1 status to occur in the 2020s, if not 2050? Well, the IMF has based its predictions on numbers for purchasing power parity, or PPP. This gauges the strength of China's domestic consumption, which is then compared to that in the U.S. The famous Big Mac index is based on this. That operates on the notion that the iconic McDonald’s burger should cost the same in each of the more than 120 countries it’s produced. If a Big Mac costs less in another country, then that country’s currency is considered undervalued. This year, you’ll pay 40% less for a Big Mac in China than in the United States. Digest the implications of that morsel as you keep reading.
I interviewed Frederic Neumann, HSBC’s Managing Director of Asian Economics Research, here in Hong Kong. He confirmed PPP is one credible way to measure GDP, but that there are also other credible ways. Those 'other' ways, he says, show that China’s path to economic #1 is much longer than the IMF’s forecast leads us to believe.
Neumann says U.S. dollar terms are a different way to measure China growth. Using this "it would take much longer for the Chinese economy to overtake the U.S. - probably 2025," And while PPP measures domestic purchasing power, U.S. dollars are a better gauge for purchasing power on the world stage.
Per capita income is a third way to measure economic power. The CIA World Factbook estimates that China’s 2010 figure was $7,400, compared with $47,100 for the United States. With this in mind, Neumann says China might not overtake the U.S. until the 2040s or 2050s - a date more in line with past estimates.
Regardless, it is not a question of "if" but “when” China - which last year overtook Japan as the world’s second largest economy - will be the world’s biggest economy. Whenever it happens, that day will herald a new dawn for China and the end of an age for America.
New York (CNN) – “We are very concerned that these companies are being financed by the Chinese government and are potentially subject to significant influence by the Chinese military.”
The accusation leveled against two Chinese telecoms firms – ZTE and Huawei – in a letter published by some U.S. lawmakers last October. It was designed to undermine a lucrative deal with a U.S. telecommunications company and illustrates the unease and suspicion still present as Chinese President Hu Jintao begins the last day of his high-profile visit to the U.S.
Today, ZTE – the world's fifth largest telecommunications equipment maker – is still pressing ahead with attempts to expand in the United States. But the experience has clearly left its mark on Lixin Cheng, the company’s CEO for North America.
“In the U.S., the fundamental principle is a free economy, free market and a free country,” he told CNN at the firm’s U.S. headquarters outside Dallas. ”Surprisingly I learned from the press that for some projects the government intervenes. I do not believe that should happen.”
Hong Kong (CNN) – Behind the pomp and pageantry of Wednesday night’s state dinner in Washington for Chinese President Hu Jintao was the undercurrent of rancor foaming in the U.S. over China’s economic rise.
There is a perception of a zero-sum relationship between the world’s two largest economic powers – that China’s rise comes at the expense of the U.S. economy. That perception was heightened right about the time the apple pie was being served at the White House, when back in Beijing, China released data that showed the economy grew 10.3% in 2010. Meanwhile, the latest unemployment figures in the U.S. show nearly one in 10 Americans are out of work.
China’s ascent stands in stark contrast to the anemic economic recovery in the U.S., and has ratcheted pressure from Washington for Beijing to let the value of its currency rise, saying it is being kept far below its actual worth, thereby giving Chinese exports an unfair cost advantage. Beijing has argued that everyone – especially U.S. consumers – would be hurt if the value of yuan suddenly skyrocketed, sending up prices of the vast amount of Chinese goods sold in the U.S.
But for American business interests in China, the current currency battle is a short-term sideshow to the real issue that threatens to dog U.S.-Sino relations in the years to come: Access.
Beijing, China (CNN) - In a battle between the Chinese yuan and the U.S. dollar, which currency would you bet on? Currently, the dollar reigns supreme in the world of trade and finance. But HSBC economist Qu Hongbin told me, longer term, he would bet on the yuan.
The Chinese government is making a big push to raise the stature of its currency. Hardly anyone uses it outside China. But, with China's economy now the second largest, authorities here are actively encouraging business people to use the yuan. The government is allowing Chinese companies to conduct some international business in yuan. It is allowing yuan trading in Hong Kong and, to a much smaller degree, New York. It is also encouraging companies to issue yuan-denominated - or "dim sum" - bonds.
The yuan's value is still determined by the Chinese government, raising tensions with Beijing's trading partners, including the U.S. Even so, Qu believes China's recent moves will raise the yuan to be among the top three currencies in global trade. "Within five years' time," he said, "one third of China's cross border trade will be settled in yuan rather than dollars."
Chinese President Hu Jintao called the dollar a "product of the past" ahead of his meeting with U.S. President Barack Obama. Will the yuan be the currency of the future?
New York (CNN) – “The ships of job creating investment remain, for the most part, tied to the docks, or worse, choose to sail for foreign ports.”
That's just one of the many analogies used by Dallas Federal Reserve President Richard Fisher, to describe the current U.S. employment picture. Not a particularly pretty one, but Fisher says the U.S. central bank has pretty much done enough:
“The key to correcting the underperformance of the American economy and American job creation does not rest with the Federal Reserve. It is in the hands of those who make fiscal and regulatory policy,” Fisher said.
The Fed’s controversial decision, known as QE2, to inject more cash into the economy through the buying of bonds is moving ahead at a $75 billion clip each month. But Fisher believes "the engines are full but the car isn't moving forward. There is something wrong with the transmission.”
New York (CNN) – What does it take to get a conservative politician, liberal economist and billionaire businessman to agree? A crisis - and that is exactly what David Stockman, Jeffrey Sachs and Mort Zuckerman worry the U.S. will face as a result of the $858 billion tax package just passed by Congress.
"It is a racket what is going on in Washington. Here we had a deficit commission, we discussed these issues for months and all of the sudden the President and the Republicans get together and there’s another trillion dollars given away over 2 years. It’s really shocking stuff actually," says Sachs, a Columbia professor and special adviser to the United Nations.
"These debts essentially are a dagger pointed at the heart of the economy and sooner or later that dagger is going to strike so we now sort of justify this (tax package) in the short run because nobody thinks in the long run," adds real estate magnate Zuckerman.
We invited these three men to Time Warner Center to participate in a year-end discussion on the challenges facing the U.S. economy and, perhaps more importantly, the remedies that should be put in place.
The response of authorities to the latest stage of the crisis, where fears have moved on from individual company balance sheets to country balance sheets, has been very different. The U.S. introduced quantitative easing (QE) and the UK followed suit, while Europe did very little.
While the European Central Bank has purchased European Sovereign bonds, this has been limited in size and, unlike the U.S., the ECB has attempted to sterilise all purchases by taking liquidity out away from banks in other ways.
The EU responded to the peripheral crisis in May by enacting a bailout for Greece and developing a structure that could be used for other sovereigns. However, the EU also recognised the need to address the core of the problem of rising deficits and ballooning Debt/GDP ratios driven by fiscal profligacy in the good times, and not merely slower economic growth. The latter has shown up the unsustainable nature of the former, rather than actually causing it.
Therefore the EU response has been to ensure liquidity is available on condition of fiscal reforms to address the underlying problem. The result is spending cuts in most European countries with, Ireland now on its second austerity budget and among other reforms, long-needed tax reform in Greece and labor reform in Spain. Even the UK has now introduced a big fiscal austerity package.
What is clear is that the European Core - especially Germany - who have run a better balanced economy for years and suffered with slower growth in the boom times, are now re-asserting their own fiscal orthodoxy.
The Maastricht criteria was ignored during the crisis but was a key part of the original Euro creation to help the stability of a currency union that was not backed by political and fiscal union. A return to Maastricht budget deficit of 3 percent is a long way off, but the basic principles are being re-established.
In contrast, the U.S. response seems to have been to do whatever is needed to stimulate growth and jobs and worry about fiscal issues later.
The latest example is QE2 with the Fed effectively printing more money and the dollar responding accordingly. The surprise is that bar a recent move, this strategy has not resulted in higher bond yields as the U.S. Treasuries have continued to benefit from a flight to quality.
While there is general acceptance that QE1 was broadly beneficial in early 2009 for an economy on the brink of depression, there is much more scepticism of the benefits of QE2. One risk identified by numerous commentators is increased levels of tensions with international trade partners. One of the likely effects of QE will be to weaken the dollar and China has already been heavily critical of what it sees as an irresponsible and dangerous monetary policy. Other countries for example in Latin America have imposed capital controls to limit “hot money” flows out of dollars and into their own currencies.
Despite the benefits of QE1, the overall response of the economy in terms of growth and employment was disappointing. The reason was that QE failed to address the problem of lack of demand for credit as borrowers everywhere concentrated on restoring their own balance sheets.
In this environment, artificially lowering bond yield does little to encourage borrowing. At the same lending institutions are reluctant to increase loans. Banks are still generally very cautious on the outlook and are keen to keep liquidity. At the same time the introduction of new capital rules for banks means there is still doubt on future capital requirements with the only certainty being that it will be higher than before. This deadlocked scenario is known as a “liquidity trap,” and QE2 is therefore unlikely to make any bigger impact on these problems than QE1.
In short the crisis was caused by a sustained period of ever-increasing leverage with little attention paid to risk or understanding of the underlying assets.
The European response has been perhaps slower than the U.S., but has generally been characterised by ensuring that there is sufficient liquidity available to ensure that economies function where the markets are unable or unwilling to provide this.
At the same time Europe has addressed the issue of over-leverage by forcing the introduction of fiscal austerity and much need labour and tax reforms.
The U.S. approach has been to address the issue of over-leveraged consumer and corporate balance sheets by massively expanding the Fed balance sheet and continue to issue Treasuries in ever larger amounts to drive growth - leaving concern about the U.S. debt burden to a time when growth is once again strong.
New York City (CNN) – Twenty-three years ago Oliver Stone introduced us to the notion that greed is good. Or at least that is what his villainous character Gordon Gekko famously told a group of shareholders in “Wall Street.” For the sequel it is “banksters” that Stone shines a bright light on.
“What Gekko was doing in the 1980s became legitimate in the 2000s,” he explains. “The banks became Gekko. The Securities and Exchange Commission did nothing, these buccaneers, these pirates – 'banksters' you could call them - were running rampant, selling junk securities to the world. There is a lack of trust between us and the banking class, we’ll never trust them again.”
Known for his thorough research, Stone and his stars once again immersed themselves in the subject. They spent months talking to Wall Street insiders who explained the complex world of derivatives and credit default swaps. Shia LaBeouf, who stars as the young hero of the movie Jake Moore, even passed his Series 7 exam and is a licensed dealer broker.
Though critical of the actions of banks during the crisis, Stone is not completely anti-Wall Street.
“My father was a stock broker for 50 years,” he says. “ think there is a reason for free markets. Markets do define things, they distribute well. At the end of the day we need some version of Wall Street to work… The system has to be reformed.”
I talked to Stone just hours before the film’s New York premiere and it was clear that two decades after the success of the first Wall Street, he is still passionate about finance. “The 2008 crash was like a triple by-pass to capitalism and everything is in question.”
In our interview he talks about the lust for money, the damage this episode has done, leadership in Washington. But the most interesting part for me was our discussion about Shia LaBeouf’s character Jake Moore and whether it is possible to be truly ethical and rise to the top in business.
You can see what Stone says in the video above - but I want know what you think?
Can good guys rise to the top in finance or do you have to be part shark to swim with them? Can the Gordon Gekko’s of the world truly reform?
About Business 360
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