beyondfantasy3 113M
1989 posts
2/7/2016 7:54 am
The rapid pace of currency reserve depletion is simply unsustainable


China’s massive foreign exchange reserves shrank to the lowest levels since May 2012. The People’s Bank of China reported today that during January, reserves dropped by $99.5 billion (£68.6 billion) to $3.23 trillion, slightly more than the $3.2 trillion markets expected in their poll Reuters said after the data was released. And according to Rajiv Biswas, Asia-Pacific Chief Economist for IHS Global Insight, "the mathematics around this rapid pace of depletion of FX reserves in recent months is simply unsustainable for any length of time." Biswas pointed out in an emailed statement to Business Insider that: "In such a downside risk scenario where the PBOC capitulates due to further rapid erosion ...

"In such a downside risk scenario where the PBOC capitulates due to further rapid erosion of FX reserves and there is significant further yuan devaluation, this could also cause shocks in China’s corporate debt markets, as Chinese non-bank borrowers hold a large amount of USD debt, estimated at USD 1.2 trillion in mid-2015.

"The combination of moderating Chinese growth, excess capacity in key industries, rising USD yields and a potential further yuan slide against the USD all create risks of further stress for some Chinese corporate borrowers, which could trigger an increasing number of corporate debt defaults in 2016."
(from news)

beyondfantasy3 113M
4740 posts
2/8/2016 4:50 am

I wrote long ago about the many many cost that are associated with massive growth. Everything built requires maintenance and then there is the matter of the people. With ever expanding pressure to have some form of security net for the aging population, among other expense, it is a big matter that is very costly.
It was no way the world around China would continue to suffer while China claimed 9-10% growth on a yearly basis. As I said before, by the time China feels the 6-7% range that it would face challenges.
It however has not found a way to turn 1 billion people into consumer of all that it produces, maybe 300-400 million earn living wage and of that maybe 20% earn very well, but that changes in the dynamics too - because the more people earn, the better standard of living they want, which only comes along with taking on debt, based on the ratio of income to debt load one can carry at a given time.
It's hard to be big time saver when living standards continue to increase and people continue to try and meet the measure. It has an impact on saving potential.
The cost of a billion people is great, the cost of the many outreach programs that China has engaged is very costly both in productive and non productive ventures.
40+ yrs is a short time to have done so much, and with a billion people a couple of Trillion dollars can find the drain daunting, at the clip of 100 million a pop!!!!
The there is the potential of ripple effect as people try to shield their money often in "offshore" pursuits.

China may have done well had it not pursued so quickly to try and make its currency a "reserve currency", there are far too many forces out there which is not ready to support or make allowance for that to have happened back in October as planned. Then it is factual to consider that the forces will not relent in their pressure to stand against this advance.
Not when there is a billion people standing in and living in impoverished conditions and the many many many other challenges that are real in the nation as a whole. Big building, Bridges and massive projects does not make a nation stable to become a reserve currency nation, there has to be value that is very difficult to erode at the core, and this is where China may have served itself well to not try for such a big game play so quickly.
quickly means, not in a mere two generations of wealth, it takes many more generations to create the stability factor's to not only be a reserve currency, but it takes far greater outreach in humanitarian expenditures which is a vast number, which China is far from reaching that level of being a giver in the world of many disasters which require massive humanitarian contributions to these events and challenges.
None of this is to put China down, but it is to put things in perspective.
We as individuals may not grasp what is a "Billion People", because the fact of such requires a vastly huge resource investment in countless ways. the burden can't as China tried to give its population coercing to care for their elderly, but many can't because they are trying to stabilize and reach the higher standard of living themselves.
The massive communities built that remain "empty" is a big issue, because without life in those units, things deteriorate rapidly. Those who invested but do not live there, hoping for a landslide profit, forgot to realize that the struggle to elevate enough people economically to afford such, was and is with a vast challenge. So these developments remain under-utilized.
The world knows China does not disclose exact figures on anything to the general public nor the world, therefore, the fact of a level of exaggeration as to status and standing is factored, then there is the huge cost of military which does not decrease, but continues to increase.
At some point China will have to deal with N. Korea, it can't keep pumping money to try and avert illegal immigration in mass numbers from N. Korea, at some point it will have to curb the giving to N. Korea, and that means N. Korea will have to curb its military spending or the people will have the head of its leader on a stick, because there is nothing more deadly than a starving population with no view of hope.
It's a big picture game with many moving parts.