Roubini comments about China

From Roubini's RGE Monitor:

Roubini had recently been in China and met officials there. We talked about the bind that the world economic slowdown had created for China’s leadership—not despite but because of its huge trade surpluses and foreign-currency holdings. Many Chinese commentators have blamed American overborrowing and excess for dragging them into a recession. But even they realize that the very excess of American demand has created a market for Chinese exports. Chinese leaders would love to be less dependent on American customers; they hate having so many of their nation’s foreign assets tied up in U.S. dollars and subject to the volatility of American stock exchanges. But for the moment, they’re more worried about keeping Chinese exporters in business. To do that, they want to prevent their currency from rising. And for reasons laid out in detail in a previous article (“The $1.4 Trillion Question,” January/February 2008 Atlantic), the mechanics of finance require them to keep buying U.S. dollars and entrusting their savings to the United States. “I don’t think even the Chinese authorities have fully internalized the contradictions of their position,” Roubini said.

I agree. But I can report that for these past six months, virtually every economic conference I’ve heard of in China and every special supplement in a Chinese business publication has been devoted to the changes the country would have to make in order to reduce its vulnerabilities.

This was released on June 25, 2009 coinciding with what I wrote on how I doubt the export model will change. From what I highlighted, it's obvious the Chinese are just huffing and puffing, even Roubini acknowledges. I think China will be all talk until they actually do something substantial which could involve lifting the currency controls and not buying so much US debt.

Lets see if they will be able to take the tough medicine. If not, I see no reason to change my outlook. All this talk about a new super currency may help, but it all comes back to whether China will continue to grow through pushing exports. Nothing wrong with growing through exports, but keeping output artificially higher by manipulation has consequences.

Furthermore, China has not shown signs of trying to stop securing cheap sources of commodities evidenced by their pursuit of large multi-national commodity suppliers such as Rio Tinto. They must think that they can buy entire value chain and keep all the profits for themselves! I think it's not so easy. This is a good thing because the world needs to help keep China in check from overproducing. The world needs sustainable, healthy growth as opposed to the binge-style of growth over the last few years.