{"id":87739,"date":"2020-03-20T18:53:00","date_gmt":"2020-03-20T18:53:00","guid":{"rendered":"http:\/\/127.0.0.1:10081\/?p=87739 "},"modified":"2020-03-20T18:53:00","modified_gmt":"2020-03-20T18:53:00","slug":"87739-revision-v1","status":"publish","type":"post","link":"https:\/\/minzhuzhongguo.org\/?p=87739","title":{"rendered":"US needs to stop funding Xi\u2019s global ambitions"},"content":{"rendered":"
Xi Jinping has good reason to declare victory over the Wuhan virus and order citizens back to work. If he doesn\u2019t rev up the economy he will run out of money \u2013 or at least the right kind of money.<\/div>
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Xi can of course print any amount of Chinese yuan \u2013 but nobody much wants it outside of China since it\u2019s not freely convertible.<\/div>
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The dire financial straits of the People\u2019s Republic ought to force the Chinese Communist Party to modify its behavior for the better, but Beijing is getting help from unlikely sources.<\/div>
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First, Western financial firms are rushing to pour money \u2013 other people\u2019s money, at least \u2013 into China. In early 2019, even before the Wuhan virus struck, Morgan Stanley Capital International increased its weighting of Chinese stocks. Tens of billions of dollars\u2019 worth of overseas money \u2013 convertible currency \u2013 flowed into PRC coffers.<\/div>
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The Bloomberg Barclays Global Aggregate Index did something similar for the Chinese bond market, and the PRC got another $100+ billion in convertible currency. This is a lot of money and also \u201creal\u201d money. There is more on the way.<\/div>
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Second, the government sector in the US has piled on. At the national level the Thrift Savings Program has moved savings of retirees (many of them ex-military) into the China market. At the state level, in California, so has CalPERS, the country\u2019s largest public employees\u2019 retirement system.<\/div>
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When US senators and representatives challenge the wisdom (and the morality) of funding the CCP \u2013 an aggressive, capricious dictatorship that seeks to displace if not dominate the United States \u2013 the financial industry responds with the rhetorical equivalent of an extended middle finger.<\/div>
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It\u2019s as if Wall Street and American commercial firms had done business with Hitler\u2019s regime \u2013 helping it develop into a powerful military that planned to attack our allies (and us).\u00a0 Not to mention the immorality of dealing with a regime whose barbarities included sending its citizens to concentration camps.<\/div>
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Unfortunately, Wall Street and US industry did exactly that.\u00a0\u00a0<\/div>
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Is it any less wrong this time when the investment destination is the PRC dictatorship with its rapidly improving military, concentration camps, and a well-documented organ harvesting scheme that matches Josef Mengle\u2019s deeds or even Japan\u2019s Unit 731 in terms of depravity? It isn\u2019t.<\/div>
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Like funding Confederacy<\/span><\/div>
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To take another historical analogy, a what-might-have-been-but-wasn\u2019t, it\u2019s also as if in early 1861 Wall Street and Yankee businessmen went all-in funding the Confederate States of America. Arming for a fight with the United States? No problem. Slavery? No problem.<\/div>
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CSA President Jefferson Davis should have been so lucky. If Davis wanted to buy Enfield rifles and medicines from the British he had to pay in Yankee greenbacks or gold.<\/div>
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Xi Jinping has the same problem Davis had. The shopping lists may be different, but the idea is the same.<\/div>
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In Xi\u2019s case, almost anything China needs from overseas \u2013 food, oil, iron ore and technology \u2013 requires dollars, although convertible euros, yen, and sterling will do.<\/div>
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And that\u2019s only for the necessities.\u00a0 China\u2019s global ambitions also require convertible currency. So to fund Belt and Road projects or buy foreign technology and companies \u2013 or even buy foreign countries (or their leaders) Beijing must pay in currency somebody will accept.\u00a0<\/div>
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The same goes for operating PRC embassies, paying off dollar bonds or covering the debts of overextended tycoons. And Harvard professors with under-the-table contracts with China\u2019s Thousand Talents Program demand payment in dollars \u2013 and certainly not the supposedly convertible \u201coffshore yuan.\u201d<\/div>
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Also costing money is a disinformation campaign to blame the virus on the United States. (Readers will have noted I repeatedly use the term Wuhan virus, a term that Beijing intensely dislikes. I do that in the spirit of tit for tat.)<\/div>
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The Wuhan virus hit Beijing with a double-whammy when it seized up the economy.<\/div>
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The Chinese domestic economy faces the same problems as any economy \u2013 even if some Westerners think China is exempt since the CCP plays the long game and possesses the wisdom of the Orient.<\/div>
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When people aren\u2019t working and shops and factories are shuttered, that spells trouble just as much in China as in the USA.<\/div>
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Chinese authorities can print yuan, reduce bank reserve requirements, offer subsidies, lower interest rates or order repayment moratoriums and the like. But even if Beijing gives money away it still must worry about unemployment, inflation (too much money chasing too few goods) and too much debt at all levels \u2013 from individuals to the central government.<\/div>
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If this gets out of control people lose confidence in the economy \u2013 which translates into loss of confidence in CCP leadership. Lose enough confidence and public unrest becomes likely \u2013 stoked by the brutality, dishonesty, and incompetence of the CCP response to the Wuhan virus outbreak.<\/div>
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That\u2019s all bad enough. But without a convertible currency it is even worse. Beijing can\u2019t just print dollars or euros.\u00a0 It has to earn them. So how does China earn foreign exchange?<\/div>
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The main ways: It exports products and gets paid in convertible currency. Or it attracts foreign direct investment as foreigners pour money (convertible currency) into the country to invest or to set up businesses. Beijing also pretends that it\u2019s still a developing country and thus eligible for preferential treatment and the equivalent of financial aid from other countries and international organizations.<\/div>
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Other methods include buying foreign companies or setting up businesses overseas \u2013 and getting paid in convertible currency. These seem like win-wins but many Chinese businessmen earning dollars overseas are keen to keep their money out of China and out of the hands of the CCP.<\/div>
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So one sees Xi\u2019s problem:\u00a0<\/div>
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If China isn\u2019t exporting, it\u2019s not earning dollars (or other real money). And if the PRC looks chaotic, vindictive or prone to future biological disasters foreign businesses will move out \u2013 fully or partially.\u00a0 Or they will avoid future investment in China. All this adds up \u2013 and Beijing is left without enough foreign exchange to buy what it needs \u2013 or to do what it wants.<\/div>
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Too little FX<\/span><\/div>
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But doesn\u2019t the PRC have plenty of foreign exchange?<\/div>
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No it doesn\u2019t. Beijing\u2019s $3 trillion in foreign exchange holdings isn\u2019t much. It used to have $4 trillion. But it blew through a trillion overnight in 2015 when the Chinese stock markets \u2013 using the term markets loosely \u2013 crashed.\u00a0 Recovering from the Wuhan virus will cost much more.<\/div>
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There have always been telltale signs of Beijing having too little FX.<\/div>
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For example, Chinese citizens can only export the equivalent of US$50,000 a year.\u00a0 Exchange limits aren\u2019t surprising given that moving one\u2019s wealth out of the country \u2013 by hook or by crook \u2013 has been a national sport for the last 30 years. Remove exchange controls and China\u2019s foreign exchange vault will soon empty out.<\/div>
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Even the ruling elite is in on it. Indeed, it might help if the top 100 Party leaders sold their overseas real estate and emptied their bank accounts and brought it all home.\u00a0<\/div>
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And a notable feature of the PRC\u2019s Belt and Road Initiative and the Asian Infrastructure Investment Bank is Beijing\u2019s efforts to have other countries fund them \u2013 not exactly what a country flush with foreign exchange does.<\/div>
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Even more, foreign companies in the PRC cannot exchange their earnings into dollars without permission from the Chinese government: a point routinely overlooked by people who should know better.<\/div>
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As an American businessman with four decades in the China market noted, \u201cChina does not have nearly the pool of FX available to make good if 50% of the foreign investment community wanted to cash in their investments in 2020. As long as China\u2019s currency is a controlled currency and not freely convertible, investing in China is contributing to a Ponzi scheme.\u201d<\/div>
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In theory, Beijing should have to make some tough choices: The CCP can have the world\u2019s largest navy and rocket force or a string of bases around the world, or it can have Belt and Road projects, or it can have a world-class health care system \u2013 and flush toilets for the 500 million citizens currently lacking them.<\/div>
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\u201cBeijing pretends to be richer than it is,\u201d a long-time China analyst commented. \u201cThey\u2019ve been taking the fake-it-\u2018til-you-make-it path. China\u2019s GDP simply doesn\u2019t support the totality of the enormous projects they\u2019ve committed themselves to.<\/div>
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\u00a0\u201cThey can\u2019t afford it all at once,\u201d the analyst explained, \u201cand that\u2019s what they tried to do on the theory that it would all work itself out once they commanded the world. They are on a thin string, and Wuhan virus is wickedly expensive.\u201d<\/div>
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Indeed, give 1.4 billion Chinese multiple shots of expensive medicine bought overseas and the Party\u2019s $3 trillion reserve won\u2019t last long. So best to just announce the Wuhan virus has kowtowed to the might of the Party \u2013 and let a chunk of the older (and unproductive) population die off.<\/div>
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In view of Xi\u2019s designs against the United States and its East and Southeast Asian allies, not to mention the Europeans, US authorities will have to force the issue with America\u2019s financial elite. It only takes a few laws and executive orders.<\/div>
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The financial class will howl, but the carnage caused to the United States and the free world by the Wuhan virus just might be motivation enough for Congress and the White House. And most American citizens will be fine with that.\u00a0<\/div>","protected":false},"excerpt":{"rendered":"

<span style="color: #111111; font-family: Roboto, sans-serif; font-size: 20px; background-color: #f5f5f5;">Let him deal with Beijing's real, virus-exacerbated money problem<\/span><\/p>\n","protected":false},"author":24,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[14],"tags":[],"class_list":["post-87739","post","type-post","status-publish","format-standard","hentry","category-ChinaHumanRights","et-doesnt-have-format-content","et_post_format-et-post-format-standard"],"_links":{"self":[{"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=\/wp\/v2\/posts\/87739","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=\/wp\/v2\/users\/24"}],"replies":[{"embeddable":true,"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=87739"}],"version-history":[{"count":0,"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=\/wp\/v2\/posts\/87739\/revisions"}],"wp:attachment":[{"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=87739"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=87739"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/minzhuzhongguo.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=87739"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}