Considering the source - this is a quite sobering warning to America of what the Chinese are thinking. Nothing surprising as we have seen China up their stake in gold, sign bilateral currency agreements with other countries to avoid the dollar, purchasing hard assets to redeploy out of dollars, move their bond purchases to near term maturities and the like, but you can see in their words both a dismay at what we have done, and what they are slowly planning for in the long term. [Feb 13, 2009: FT.com - China to US: We Hate You Guys] [May 21, 2009: China Becoming More Picky About Debt]
Of course, as we have said many times - for now they are stuck with us, because any move to detach from the States or our bond market would destabilize both countries.
Also interesting to note the comments about bubbles in real estate [Aug 13, 2009: WSJ - In China, Land Prices Fan Bubble Fears] and stock market in China. [Jun 29, 2009: China Business News - $170B of Bank Loans Funneled into Stock Market] And unlike CNBC bulls, he reiterates all the world cannot rely on China to save them.
Via UK Telegraph
- The US Federal Reserve's Policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.
- Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to credit easing. We hope there will be a change in monetary policy as soon as they have positive growth again, he said.
- If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies, he said.
- Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets, he added. The comments suggest that China has become the driving force in the gold market and can be counted on to
buy whenever there is a price dip, putting a floor under any correction.
- Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise. Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down.
- Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets. This is where Greenspan went wrong from 2000 to 2004, he said. He thought everything was alright because inflation was low, but assets absorbed the liquidity.
- Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery. [Dec 7, 2008: WSJ - China Fears Restive Migrants as Jobs Disappear in Cities] [Jan 26, 2009: NYT - College Educated Chinese Feel Job Pinch]
- China's task is to switch from export dependency to internal consumption, but that requires a change in the ideology of the Chinese people to discourage excess saving. This is very difficult. Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China. [Jan 8, 2009: NYT - As Trade Slows, China Rethinks Its Growth Strategy] [Dec 7, 2008: NYT - China's Economy, In Need of Jump Start, Waits for Citizens to Loosen Fists]
Great quote... great quote...
- The US spends tomorrow's money today, he said. We Chinese spend today's money tomorrow. That's why we have this financial crisis.
- Yet the consequences are not symmetric. He who goes borrowing, goes sorrowing, said Mr Cheng. It was a quote from US founding father Benjamin Franklin.
Excellent use of putting founding fathers language in a context that Americans can only scoff at today. [remember, founding fathers are only to be quoted when it conveniently fits your dogma]
What Mr. Cheng is saying is the American ethos (I call it kick the can nation), put in simpler terms:
I'll gladly pay you Tuesday for a hamburger today.