Saturday, October 30, 2004
More rule of page 21, China and Procktoberfest
"If you want to understand what's going to be important, look to page 21." If it's on page one, it's old news."
So I wrote a while ago.
I first wrote about China's new economic interests and then followed up here and here.
Well, there's more to worry about than China's foray into Canadian resource companies.
THERE is no mistaking the emergence of China as a global economic superpower. Beijing's manufacturing revolution is gobbling up 29% of world steel production, 26% of global copper and it is now the world's second-largest consumer of oil at 6.7m barrels a day, ahead of eighbouring Japan.
But despite its place at the high table of international economics - it attended the last Group of Seven meeting in Washington -decision- making is as obscure as ever.
As a result the country's action in raising its key interest rate by just over a quarter-point to 5.58% had analysts confused. China stated earlier this year that it would consider raising rates if inflation exceeded 5%. But it has been above that level for some time so the jump came as a shock.
It could be seen as more of the same as the Chinese have been tightening policy since September 2003 through a series of moves including an increase in bank reserve requirements -a policy instrument abandoned in the West some years ago.
But the markets saw Beijing's action as a turning point. The dollar climbed against the yen and the euro and US Treasury bonds rose strongly.
The markets believe that the rate rise may be a prelude to the long postponed revaluation of the Chinese currency, the renminbi, against the American dollar.
If this were the case it is assumed that China would not have to support the dollar by buying US Treasuries as at present.
All of this remains speculation. Despite its openness to Western capitalism China prefers to keep its thoughts to itself, which is not helpful when it is so pivotal to global growth and stability.
Sooner or later, we're going to have to deal with the economic reality that is China.
Finally, Procktoberfest is coming to an end. I know I posted about this earlier, but it was just to good to let fade away. Really, you can't make this stuff up.