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  • Walter's Blog.
  • Home
  • Introduction
  • About Walter
    • 1980 Joining Up - Grafton Street >
      • Arrival and First Impressions
      • First Week
      • Training
      • Passing Out
    • Yaumati Cowboy >
      • Getting on the Streets
      • Tempo of the City
      • Jumpers, pill poppers and the indoor BBQ
      • Into a Minefield.
    • Why Tango in Paris, when you can Foxtrot in Kowloon? >
      • Baptism By Fire
      • Kai Tak with Mrs Thatcher.
      • Home; The Boy Returns
  • 1984 - 1986
    • PTU Instructor & Getting Hitched
    • Having a go: SDU
    • Starting a Chernobyl family
    • EOD - Don't touch anything
    • Semen Stains and the rules
  • 1987 to 1992 - Should I Stay or Go?
    • Blue Lights, Sirens & Grenades
    • Drugs, Broken Kids & A Plane Crash
    • 600 Happy Meals Please!
    • Hong Kong's Best Insurance
  • Crime in Hong Kong
    • Falling Crime Rates - Why?
    • Triads
  • History of Hong Kong Policing
    • History 1841 to 1941
    • History 1945 to 1967
    • Anatomy of the 50 cent Riot - 1966
    • The Fall of a Commissioner.
    • History 1967 to 1980
    • Three Wise Men from the West
    • The Blue Berets.
    • The African Korps and other tribes.
    • Getting About - Transport.
    • A Pub in every station
    • Bullshit Bingo & Meetings
  • Top 20 Films
    • 2001 - A Space Odyssey.
    • The Godfather.
    • Blade Runner
    • Kes
    • Star Wars
    • Aliens
    • Ferris Bueller's Day Off
    • The Life of Brian
    • Dr Strangelove.
    • Infernal Affairs
    • Bridge on the River Kwai.
    • This Is Spinal Tap.
    • Chung King Express
    • An Officer and a Gentleman
    • PTU
    • Contact
    • Saving Private Ryan
    • Family Guy Star Wars
    • Zulu
    • Hard Day's Night
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Walter's Blog

Reflections on recent events, plus the occasional fact
free rant unfiltered by rational argument.
 
"If you want to read a blog to get a sense of what is going on in Hong Kong these days or a blog that would tell you what life was like living in colonial Hong Kong, this blog, WALTER'S BLOG, fits the bill."  Hong Kong Blog Review
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27/4/2020 Comments

Tied Together

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Cutting through the political rhetoric, China holds only 5 per cent of US debt.
The Frog and Scorpion fable teaches us that vicious people cannot resist hurting others, even if it is not in their interests. This lesson seems to be playing out again today as Covid-19 enters into Cold War II between the US and China.

Meanwhile, Trump is busy distracting to cover-up his inadequate response that killed thousands of US citizens. Along the way, he is stoking fear of Beijing’s economic clout. It could come back to bite him.

With the US economy in a shambles, Trump’s best chance of winning reelection in November is to run against China. Thus, I suspect, he will exploit distrust of China, xenophobia and nationalism at every opportunity. He's got little else on which to hang his election chances. But it's a strategy that is risky.

I doubt he will be talking much about how state-owned Chinese banks funded his projects. One loan for $200M from the Bank of China matures in 2022. Neither will he highlight the Chinese construction companies building his latest projects in the UAE and Indonesia.

Whether Trump received other loans from Chinese banks and investors is unknown, because he refuses to disclose his financial records. 


Walter Shaub, former Director of the Office of Government Ethics, which sets standards for conduct in the Executive Branch, wrote "So, who knows who else he owes money? I'll tell you: The lenders who have him in their grip." 

Depending on how you do the calculations, either the US or China is the world's largest economy. Using the IMF's 'purchasing power parity' method, China took the lead in 2018, with the EU second and the US third.

These three combined generate 50 per cent of the world GDP. In unadjusted numbers - nominal GDP - the US remains the largest economy. Besides granting bragging rights, the top position is mostly academic. 


And, of course, Covid-19 is taking its toll. For example, the US took ten years to create 20 million new jobs. In the last month, 26 million Americans applied for unemployment benefit.

The 2020 US budget deficit will increase after four response bills pile more than $2 trillion onto the national debt. These numbers tell a story that shapes the interaction between the US and Chinese economies. And this brings in the issue of debt and politics.


As of 17th March 2020, the total amount of debt owed by the US federal, state and local governments stood at $23.4 trillion. Of that amount, China holds claim on $1.1 trillion. But, China is second to Japan with $1.2 trillion owed. Strange that US politicians rarely fret about Japanese influence on the economy.

Further, since 2011, China has sought to reduce its level of US debt from a height of $1.3 trillion.


Don't forget that the trade war dampened China's ability to invest in US debt, a situation that will exist for some years to come.

Yet, no matter how you cut it, the two economies come tied together. Should the US Scorpion plunge its stinger into the Chinese frog, both may drown. The Chinese yuan is linked to the US dollar, an arrangement that pivots the economic relationship between the two.

If confidence in the US dollar falls, China also suffers. So be careful those US pensioners who are demanding punishment of China, because that could see your retirement funds drop off.


Cutting through the political rhetoric, China holds only 5 per cent of US debt. That’s not insignificant, but it does not offer the leverage that some think. Why?
Well, because China relies on American markets to sell its goods. With the profits made, China bought up US Treasury stocks. 

In turn, this helps inflate the US dollar, making Chinese good cheap to buy with the American consumer benefiting. At the end of this cycle, the average American is better off. In short, China is providing affordable services and only taking pieces of paper in return. 
​

Selling off those pieces of paper would push the dollar down; hurting China's competitiveness by raising the value of the yuan relative to the US dollar. It’s assessed that if China opted to sell, willing buyers would snap up the stocks; thus blunting any punitive impact on the US.

Further, the US-China economic relationship delivers more benefits to the US than is commonly recognised. Recent data shows that US exports to China support around 1.8 million jobs in sectors such as services, agriculture, and capital goods. Although, that relationship does mean jobs transferred from the US to China. It's swings and roundabouts. 

As human we find simple ideas very attractive. Politicians like Trump recognises this trait, then exploits its power. Thus, its China's fault that the US economy is doing poorly or that US jobs are going overseas. Unfortunately, matters are far from that simple.

​A multitude of linkages including economic, political, treaties and even geography are at play. Understanding this reality can be a time consuming and complex process. Trump's over-simplistic finger-pointing distracts from that more complicated truth. 


In reality, the US-China economies rely on each other. A decrease in China's growth can hurt the world economy and slow down global economic growth. The effects would hit the US.

​Thus, people who call for a reckoning with China must understand the consequential blowback. No amount of political posturing or rallying cries will change that. 
​
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    Walter De Havilland was one of the last of the colonial coppers. He served 35 years in the Royal Hong Kong Police and Hong Kong Police Force. He's long retired. 

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