By Pooky, this blog economics journalist
China has in June slowed putting its money into the US government bond, right at a time trade friction between the two was about to explode, and subsequently, Obama backed down saying a trade war would hurt the global recovery.
The Chinese are killers of making goods at cheap price and so apart from being loaded from trade, it also draws in large scale investments funds-both direct and portfolio. So it is rich and needs a place to put those richness. For a long time, the US was the place since it helped finance the Americans buying of Chinese goods.
All was well, but got a little complicated with the US economic crisis that looks like it will hit the US for a few more years, that is requiring massive US government bailouts. That off course makes the dollar weak. So in combination, the US attractiveness as a market has fallen, weak dollar and trade war threats-have all combined to cause the Chinese to cut back buying US bonds for the first time in a long time.
China Eyes Commodities:
In the mean time, the Chinese decided that with US looking less attractive, it may as well go for the second best, and thus it start to invest in commodities. In Wharton latest analysts, the cutting edge school raised the question if this Chinese investment in commodities was the end of the US as a global super power. Commodities under Chinese control poses further study in that will this lead to a more secure resources for the Chinese and make Chinese goods even more competitive-and where will these commodities investments lead China into.
G20 Wants New Game:
Then just a today, the G20 have called on the globe to fix-the imbalances, namely for Asia to start buying foreign goods, like from the US, as a way to fix the problem. Then said that if not doing so will hurt global growth rate. Obviously, the G20 is dominated by the US and Japan, where exports are now very important as local consumption is very weak.
Then many economist say China can not live without the US consumers, but the fact is that as the US looses its luster, China may well send a second wave of products into the blue ocean markets of newer regions, as in Latin America, where many there now prefer trade with China.
Tactical or Strategic?
But is all of this a tactical move or is it strategic. If it is tactical, negotiation will be easy with the Chinese to get the Chinese money back, but if it is strategic, there are some important implications.
That implication is that the sky will no longer be the limit for money to be available to the US to borrow and the US will thus have to start a savings drive-and here again are some significant implications. But also if this Chinese move is long term, it could also mean a less important China for the US. And the US may turn then to protecting its market and get much more serious about China’s keeping its currency cheap to spur exports.
The implication to Thailand is multi-fold, because all of this will impact global fund and trade flows. How to best capitalize on the movement of these two factors and not be caught on the risky end of the game, are questions Thai policy must address.
Thailand, as the center of what goes on much in ASEAN, is faced with both opportunity expand outward and also receive inward interest. A suitable monetary, fiscal and government policies in the micro level can aid much in capitalizing on this shift in global trade and capital flow, if it is a strategic shift.
China and Thailand Go Blue Ocean?
As the Chinese Latin America example indicates, China may well be pushing into the same markets that Thailand have pinned a great deal of hope on. Already, the Chinese have cornered a great deal of Africa.
What ever the case maybe, between tactical or strategic, Thailand must also start to think in these terms as well-as many Thai leading economist have warned, Thailand currently lack both strategic plans, and what ever is in its place, Thailand also lacks the correct tactical moves. And as far as implementation is concerned, it is also as in-effective.