02/25/10 Baltimore, Maryland – The markets were atwitter this morning over Greece. But chances are you already know that. It’s China we have on the brain.
And so does Joe Six-pack. ABC News and The Washington Post just polled 1,000 Americans and found…
- 41% say the 21st century will be the “Chinese Century”
- 40% say it will still be an “American Century”
- A slim majority says the US will play a smaller role in the world economy this century
- But a majority also says that will be either a good thing or, at worst, neutral.
We’re trying to be optimistic and take that last point as a sign that the protectionist monster among the masses is at bay.
In the meantime, there are other concerns…
China has just postponed several military “exchanges” between Beijing and Washington – visits by high-level officials and such. It’s the first real, tangible retaliation for the US sale of $6.4 billion of military gear to Taiwan.
Rumor has it China will buy all 191.3 tons of gold the International Monetary Fund said last week it would put on the open market. So far, only Russian news agencies are reporting this; it’s yet to be confirmed by Western sources.
We take note of these developments with a couple of looming deadlines in mind…
- Next month, the Pentagon issues its annual assessment of China’s military. It usually has alarmist language, and Beijing usually issues angry replies, but most of the time, it’s just theater. This time? We’ll see…
- April opens the official window in which the Treasury Department could label China a “currency manipulator.” We’re hearing buzz from Washington that the Obama administration is keen to boost jobs by boosting exports – which means a weaker dollar in general, and a weaker dollar versus the yuan in particular. We’ll watch this one closely.
All of this weighs on our mind as we evaluate something we encountered on a private message board we belong to from someone who’s lived in China for 12 years. “What people fail to grasp,” this individual writes, “is this place is much more capitalist than the States now:
- No capital gains tax
- No property tax
- No local or state taxes
- A reasonable 35% tax rate for the highest earners
- Corporate tax rates of zero percent for 3 years and 15% per year after that.
“Also, most importantly, it’s not a casino economy like the States. China will sell 30% more vehicles this year than in the US… 93% of those vehicles will be purchased cash upfront.
“For a home loan, you need 30% down. As a private business, to get a loan you have to put up the assets of the company, i.e., plant and equipment. There are no leverage games here.
“It’s a one-party state, but at least it is focused on its own people. We have a two-party system that has sold us down the river. All the Asian Tiger economies needed a strong central government to launch themselves out of poverty. Not a good system for our culture, but it works for them.
“High-speed train systems going on line, 50 new airports in that last five years – you must see this place to believe it.”
We’ll be traveling to China in May. We hope to establish a business in Beijing. But what say you? Is China, for all its flaws, more capitalist than the United States now?
Cheers,
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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being capitalist and a police state is no deal….both the usa and china are police states and both suck….the chinese communists are open about it while the american oligarchs are deceptive about it…
cameras at every intersection? government activated gps on every cellular phone? laptops with cameras watching your every move? no thanks, uncle sam….
the chinese government decrees gdp values – the usa makes them up with statistical fudge….birth / death anyone?
i see no net distinction between china and the usa….both states are governed by the exact same people….did i hear some corks pop or jaws drop?
China is not our friend never has been never will be. If you wish to do business do so at your and our countries peril. Many want to open business in China. That is like putting your own head in the noose for the hang man. Beware.
If Tony is correct there is your answer the same people the same crooks and thugs. Again the crooks and thugs are not our friends.
Starting a biz in China sounds like a great idea to me. There’s an actual market there.
Should be various ways of sheltering some of your hard-won income from the voracious nacent police state we’re all currently supporting here in the U.S.
Good luck!
While China is no liberal’s dream of a paradise on earth, living as an ordinary person is almost no different from living in any of the OECD countries. In fact, in terms of personal security, it might be safer! I realised that too often, people harping on China have never set foot in China. All their judgement is based on their own confirmation bias in the information they seek from the mainstream media.
Given the way the US has been behaving recently, any country could also say that the US “is not our friend never has been never will be.” And for a dose of realism, Lord Palmerston has this to say “We have only permanent interests, and no permanent allies.”
Americans have come to believe in their own exceptionalism for so long, that they have failed to self-reflect that the good they could have done has been turned into so much malfeasance. So stop pointing about the speck and look to the log.
“currency manipulator”
We hear this daily in the U.S. news since China stopped buying most U.S. Treasuries, so it seems like intimidation by the U.S. administration.
Since China owns almost one trillion dollars of U.S. debt, we need to consider the implications to the Chinese if China revalued its yuan by increasing the yuan’s value, relative to the U.S. dollar.
If you lived in China and spent 8,000 Chinese Yuan for an investment of $1,000 U.S. dollars, what would happen to that $1,000USD if suddenly the Chinese yuan traded at par with the US dollar? Suddenly your investment of 8,000 Yuan would be devalued to 1,000 Yuan.
Why should the severe negative impact to China be ignored when people talk about China as a “currency manipulator”?
All this talk from the U.S. administration about China being a “currency manipulator” seems like a planned manipulation by the U.S. to devalue the amount of money it owes to China.
Of course both countries are currency manipulators, aren’t they? Both are big enough to do it too. It’s part of the game they are playing, ho ,hum, what’s new?
Well at least china isn’t bombing foreign countries. Both the us and china have their own peculiarities. To compare them is pointless. To hate the other is just stupidity. Both rely on each other.