(18) Currencies: Will the dollar rise or fall on a Trump victory? | The Economist

http://www.economist.com/blogs/buttonwood/2016/11/currencies

Will the dollar rise or fall on a Trump victory?

YESTERDAY's decline in the American stockmarket, on news of a narrowing in the poll gap between Hillary Clinton and Donald Trump (under two points according to Real Clear Politics), confirms the argument made in last week's column. A combination of Mr Trump's adverse policy proposals on trade, foreign policy and the Federal Reserve, and uncertainty about how much of this agenda would get through Congress, would hit equities hard were he to be elected.

But what about the dollar? The picture is far from clear. Over the last 24 hours, America's currency has lost ground against the Swiss franc, euro, yen and sterling but gained against emerging market currencies like the Mexican peso and Brazilian real. That makes some sense. A Trump victory would make international investors less confident about the direction of American economic policy. This in turn might lead to the Fed being less willing to tighten rates in December, another reason for the dollar to weaken.

On the other hand, Mr Trump's trade policies—tearing up NAFTA and threatening tariffs—would, if implemented have an adverse impact on many emerging markets. That is why the Mexican peso has been the most sensitive currency to his opinion poll rating. His other hints about downplaying America's military alliances in Asia, and its role in NATO, would also hit EM currencies. Furthermore, one Trump policy—encouraging, or forcing, foreign multinationals to repatriate their overseas earnings—might eventually lead to dollar strength.

It is the "exorbitant privilege" of America that it is the global reserve currency and can benefit from a flight to safety, even when (as during the 2008 subprime crisis), it is the place that has caused the shock. Americans who had invested overseas might bring their money home. So the trade-weighted dollar might not be too badly hit by a Trump win (it is higher than it was six months ago, for example).

But if the dollar falls back against developed world currencies, those nations won't be happy as that will, in effect, be a tightening of their own monetary policy. That might cause the ECB and Bank of Japan to indulge in a further round of monetary easing. The prospect of that merry-go-round continuing may explain why gold is up more than 20% this year.

(17) State spokesman struggles with facts: As the U.S. pivots to Asia, the region turns to China - People's Daily Online

http://en.people.cn/n3/2016/1103/c90000-9136866.html

State spokesman struggles with facts: As the U.S. pivots to Asia, the region turns to China

By Curtis Stone (People's Daily Online)    16:57, November 03, 2016

In November 2011, U.S. President Barack Obama announced his pivot to Asia and declared that the U.S. has been and always will be a Pacific nation. His announcement came at the same time China was becoming increasingly powerful. Roughly five years later, on November 1, 2016, the U.S. Department of State held a Daily Press Briefing, at which Spokesperson John Kirby was asked about China and the rebalance to the Asia-Pacific. Kirby stressed two points. First, he said that the rebalance is not about China. Second, he argued against the idea that countries are turning away from the U.S. and turning to China, saying that the idea "is just not borne out by the facts."

But the rebalance is about China, and the idea that more and more countries are turning away from the U.S. and turning to China is completely borne out by the facts.

First, the rebalance to the Asia-Pacific has been and always will be about an increasingly powerful China in a very important part of the world. In 2010, for example, the same year that the Chinese economy expanded by 10.3%, former Secretary of State Hillary Clinton said that the U.S. will play a leading role in the Asia Pacific and that America will project its leadership in economic growth, regional security, and enduring values. The timing of the rebalance, not to mention its core strategy of building and strengthening strategic U.S. alliances, sends a clear signal. The rebalance was designed to sustain U.S. global leadership.

Second, although the U.S. remains relevant in the region, China is expanding its relevance. In a 2015 Fact Sheet entitled, "Advancing the Rebalance to Asia and the Pacific," the U.S. lists a stronger treaty alliance with the Philippines and a deeper partnership with Malaysia as two important accomplishments. One year later, both countries have moved closer to China. For example, Philippines President Duterte's first non-ASEAN state visit was to China and the two sides have worked hard to warm relations. This does not mean that the U.S. is out, but it does mean China is in. Oh Ei Sun, a senior fellow with the Malaysia Program at the S. Rajaratnam School of International Studies at Nanyang Technological University, told People's Daily Online in October that Duterte is just trying to balance his national interests between two the superpowers. And Malaysian Prime Minster Najib Razak, who believes that China has retaken its place on the world stage as a great power, recently signed numerous agreements with China, including security agreements. The U.S. may still be relevant, but so is China.

It is not just the ASEAN nations that are moving closer to China. America's neighbor to the north, Canada, has been moving closer too. In August 2016, Canada applied to join the Asian Infrastructure Investment Bank, China's version of the World Bank. Other U.S. allies, including Australia and South Korea, are founding members of the China-backed bank.

If the U.S. views itself as a Pacific nation, and if regional peace depends on a strong U.S. security presence and its alliances, as the U.S. argues, then the rebalance has everything to do with China. The argument that the rebalance is not about China does not hold much weight.

Facts are facts. The U.S. should reflect on the true nature of its rebalance to the Asia-Pacific and try to understand the impact it is having on regional peace and security.

Below is part of the transcript of the Daily Press Briefing on November 1, 2016, in Washington, DC

QUESTION: Malaysia and China have signed today a kind of defense pact. What's your take on this? Is it bad news for the rebalance and pivot policy of the U.S. toward the Asia Pacific?

......

MR KIRBY: And this idea that people are turning away from the United States and turning to China I think is just not borne out by the facts. Everywhere we go in the Asia Pacific region it's reiterated time and time and time again how important foreign leaders there view American presence, American economic assistance and participation and trade, as well as American leadership. So we don't view it, again, as a binary sort of equation, and we don't view it as a zero-sum game. The whole idea of the rebalance is to foster the kind of dialogue that you're starting to see happening. And so again, we welcome this.

QUESTION: And I don't want to get too conceptual here, but what do you mean it's not borne out by the facts that countries in greater numbers in Southeast Asia are becoming friendlier with China? I mean, it is completely borne out by the facts.

MR KIRBY: Name 'em.

QUESTION: Well, the Philippines, for one.

MR KIRBY: Okay, there's one.

QUESTION: Well, then you just said that it wasn't true. Thailand, perhaps. Cambodia.

MR KIRBY: Perhaps, perhaps. So – but you got one. You got one so far.

QUESTION: Laos.

MR KIRBY: You got one.

QUESTION: Laos.

MR KIRBY: You got one. Laos?

QUESTION: Laos. Cambodia. Malaysia, as we've just seen.

MR KIRBY: Okay. So we have two or three, four, whatever. There's a lot of nations in the Asia Pacific region. My point is that you're --

QUESTION: There's only 10.

MR KIRBY: This idea that there's some sort of --

QUESTION: There's only 10 in ASEAN.

MR KIRBY: This idea that there's some sort of landslide movement towards China and away from the United States is simply not borne out by the facts, especially in so many of those countries where we too have strong and improving bilateral relationships. So again, this is not – it's not – they don't have to be binary choices. And we don't – we have nothing to fear from the peaceful, productive rise of China, and we have nothing to fear from nations establishing better and warmer and more productive relationships with China.

QUESTION: Okay. But that's – that wasn't the – that wasn't what you were saying was not true, was not borne out by the facts. The facts are that there are a number of countries in Southeast Asia that are developing better, closer ties with China.

MR KIRBY: I don't really – I don't want to get into a debate over semantics.

QUESTION: Anyway, the other – okay. The --

MR KIRBY: The point is – the point I'm trying to make is that the – this idea that by – that there are several nations who are reaching out and to develop warmer relations with China – I'm not disputing that. But the notion behind that, that that is something to be feared, that that is some sort of worrisome trend, that that is something that is not in keeping with the whole idea of the rebalance, that is an inaccurate reading of it.

QUESTION: But wasn't the rebalance though designed to keep the United States relevant in an area with tremendous potential, economic growth, which is, as you say, a huge transit spot or an area where lots of the world's commercial trade goes through?

MR KIRBY: It wasn't – the United States has been and will remain relevant in the Asia Pacific region.

QUESTION: Right. But wasn't the --

MR KIRBY: The rebalance wasn't about trying to shore up relevance. It was about recognizing where the economic future of the globe is going to reside --

QUESTION: Right.

MR KIRBY: -- or where it's going to be deeply affected and to make sure that we were maintaining our focus on that part of the world.

QUESTION: Right. 

(For the latest China news, Please follow People's Daily on Twitter and Facebook)(Web editor: Wu Chengliang, Bianji)

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(16) China’s economic challenges won’t lead to a crisis - Global Times

http://www.globaltimes.cn/content/1015788.shtml

China's economic challenges won't lead to a crisis

Yukon Huang Photo: Courtesy of the Carnegie-Tsinghua Center

Editor's Note

China is one of the fastest growing economies in the world. However, given its debt problem and soaring property prices, many observers abroad have become more negative about China's economy. Global Times reporter Liu Jianxi (GT) talked with Yukon Huang (Huang), a senior associate in the Carnegie Asia Program, a leading economist in Asia and former World Bank country director for China, about these issues.

GT: Some economists suggest  China may face a financial crisis. What is your take?

Huang: Over the last 10 years, China's debt to GDP ratio has increased from about 150 percent to 250 percent. The debt ratio is not unusual given China's stage of development. The level is not a worry. The worry is that if you compare China with other countries whose debt ratios have increased by the same amount in a short period, almost all have experienced a financial crisis. So why not China?

First, in China, borrowers are often State-owned enterprises or local governments, and lenders are State-owned banks. In other countries, lenders and borrowers are usually private. If the borrower and lender are both State-owned, any financial problem eventually becomes a budget issue, and the outcome depends on the financial strength of the government.

Second, land prices have increased on average from 400 percent to 800 percent over the last decade which is unusual. So a lot of debt in China is actually financing the costs of land and the transfer of property, although many observers haven't realized it.

Property prices went from essentially zero when State-owned to something which is quite high and comparable to global market values. I don't think China has a debt problem, because property is valuable and the increase in debt is the result of financial markets recognizing its value. I do not see a crisis coming but there will be increased volatility that needs to be managed.

GT: You've mentioned that incompatibility between China's fiscal system and the needs of an emerging market economy is a fundamental problem. Where should the reform be focused on?

Huang: For China's local governments, the budget system is weak, households don't pay much income tax and there is no property tax. In the US, local government budgets are large and dependent on property taxes. When localities want to build a road, they don't borrow from banks. In China, local governments often borrow for infrastructure and other activities. China needs to  move to a financial system which is less bank-dependent, and this means improving the  budget system.

Another aspect is that localities in China own land. They sell land to developers and get money to finance schools or roads. But sometimes they go too far. They build too many malls and houses which then become vacant. Sometimes they drive up prices because they want to develop more to generate more revenues but this can lead to overbuilding and excess unsold properties. With a stronger fiscal system, there is less incentive to overbuild. To me, China's debt problem is not a banking issue, it is a budget problem. 

GT: While China's investment as a percent of its GDP is quite high, consumption is very low. Why is such an imbalance a symbol of successful growth?

Huang: First of all, people are concerned about whether their salaries are going up and whether they can find a good job. So why do we need to worry about whether growth is unbalanced?

Second, few analysts realize that unbalanced growth is a consequence of urbanization When these workers move, consumption per person increases and so does savings per person. Everyone is better-off, but since the workers are moving from rural, labor intensive jobs to more capital intensive jobs in the cities, the growth process becomes more unbalanced. Thus the imbalance is a consequence of a successful growth process and not something bad. 

GT: What is your prediction on the future development of China's real estate market?

Huang: First, prices have increased in Shenzhen, Beijing and Shanghai much more than in second- and third-tier cities. This is because of the excess supply of unsold housing in the smaller cities relative to the largest cities. The government is telling everyone: please move to smaller cities.  Thus local authorities have been building more in the small- and medium-sized cities. But people are not coming. Even though property prices are lower, people are more focused on getting a better job, and the higher paying jobs are usually in the bigger cities.

Government policies are also distorting the housing market. A property bubble usually occurs when government policies attempt to promote more sales and construction than market conditions warrant. Zoning and building regulations distort prices and often make prices too high in major cities. Restrictions on migration distort demand. People should be allowed to move to where they can find good jobs. In addition, China's major cities are not as densely developed in its core as cities in other countries and thus development is pushed out to the suburbs. This make centrally located property too expensive. The tendency to tighten and then ease guidelines for buying homes also encourages bubbles. 

GT: Many economists especially in the West hold negative views on China's economy. What is your response to them?

Huang: Many economists are too negative about China's debt problem especially in the major financial centers around the world. There are risks and challenges, and there have been some inappropriate policies. But there is not going to be a major crisis or collapse. There are, however, issues that if not properly addressed would perpetuate the current growth slow down.

There is some doubt now about whether enough attention has been given to these economic issues, and part of reason is that there's more focus today in China on foreign policy and political issues. Former Chinese president Deng Xiaopeng reminded everybody that the top priority is on China's development, and this is still good advice. Today China is more market-oriented and globalized. The government cannot deal with all the economic issues as easily as it did in the past because it doesn't control everything and there are more risks in the world economy today.

GT: Foreign enterprises argue that it is increasingly hard to do businesses in China because of restrictions. What is your take on this?

Huang: Some people will say: don't let foreigners in, they'll take over the market. My response is: Is this actually going to happen? There are now so many competent Chinese firms that realistically foreign companies cannot monopolize the situation.

With experience, Chinese companies are now quick to adjust to changing market conditions. China should encourage a local presence, but China would also benefit from more competition that would drive local enterprises to develop even further. 

(15) Najib’s visit reveals feeble US rebalance - Global Times

http://www.globaltimes.cn/content/1015787.shtml

Najib's visit reveals feeble US rebalance

Malaysia has agreed to buy four Chinese naval vessels that operate close to shore, after the country's Prime Minister Najib Razak met with Chinese Premier Li Keqiang early this week. Malaysia usually purchased military equipment from the US and the latest move marks its first significant defense deal with China. Some have called it a "new milestone." The two sides signed 14 agreements worth 231.8 billion yuan ($34.28 billion) on Wednesday, and Najib called it a "historic achievement."

Commentaries speculating that Najib is becoming the "second Duterte" in Southeast Asia and that Malaysia is "another Asian domino falling toward Beijing" have run wild in mainstream Western media. The New York Times contended that "American efforts to contain Chinese ambitions in the South China Sea depend on a ring of allies, but the region's united front may be crumbling."

Najib said in a Chinese media outlet recently that former colonial powers should not "lecture countries they once exploited on how to conduct their own internal affairs today." The tensions between Malaysia and the US brewed by Washington's interference in Malaysia's internal affairs are similar to those between the US and the Philippines caused by the former's accusation against Duterte's human rights abuses during its anti-drug campaign.

The US' sense of superiority in politics and morality often makes it point its fingers at developing countries. In 1993, it forcefully inspected a Chinese freighter suspected by its intelligence service of carrying weapons and ended up finding nothing. It launched attacks on Iraq over its alleged ownership of weapons of mass destruction, but faced the same fate.

Chinese people don't think that Kuala Lumpur is leaning toward Beijing. China and Malaysia are developing their ties steadily. China has been Malaysia's biggest trading partner and replaced the US to become its largest investor in 2015. The two have minor territorial disputes but have managed them well. China's relations with neighboring countries ought to be like this.

Friendly ties between China and Malaysia do not exclude a third party. Defense cooperation, which displays a higher level of strategic mutual trust, should not be labeled as "a turning point for the region."

The fears of US and Western opinion reveals that the US rebalance to the Asia-Pacific is eyeing unrealistic goals, which are to form an alliance system in the West Pacific that includes most countries so as to contain China. The West views China as an expansionist imperial state like Japan used to be in the past, and requires regional countries to be "loyal" to Washington.

The rebalancing strategy does not hold water. China has never thought of military expansion as Japan did. It cherishes peace and stability like all regional stakeholders. China is sincere in tackling territorial disputes through peaceful negotiations. A "nightmare" in the South China Sea is nothing but an illusion created by the US and Japan.

Washington should reflect upon itself. It is an external country and its presence in the region should contribute to peace and stability. It will not stay long if it keeps driving a wedge between regional countries.           

(14) Xi vows to cement all-round strategic partnership with Malaysia - Global Times

http://www.globaltimes.cn/content/1015866.shtml

Xi vows to cement all-round strategic partnership with Malaysia

Chinese President Xi Jinping met with Malaysian Prime Minister Najib Razak in Beijing on Thursday, pledging to boost cooperation with the country in diverse areas and cement their all-round strategic partnership.

Xi hailed the progress of relations since diplomatic ties were established 42 years ago, citing mutual respect, trust, win-win cooperation and close communications.

He urged both countries to maintain frequent high-level exchanges, deepen political trust, keep to the right direction of bilateral relations and continue to support each other on issues related to each other's major concerns.

Xi called on the two sides to combine their development strategies, and to lay a solid foundation for stronger trade cooperation.

China welcomes Malaysia's participation in the Belt and Road Initiative, and is ready to work with the country to increase cooperation in areas such as infrastructure, energy, technology, agriculture and finance, he said.

Xi also urged stronger bilateral cooperation in education, culture, health, media, and in fighting terrorism and cross-border crime.

Najib congratulated the successful convening of the sixth plenary session of the 18th Communist Party of China Central Committee last week, and praised China's economic and social development.

It is proven in practice that socialism with Chinese characteristics is a correct choice for China, he said.

Calling the two countries friendly neighbors and trustworthy friends, he said Malaysia-China ties are currently at their highest level.

Malaysia is glad to see China's Belt and Road Initiative get a warm response, he said, vowing to facilitate the cooperation in trade, transportation, and port construction, with China under the Belt and Road framework.

Malaysia is committed to boosting ASEAN-China relations, he added.

Najib is on an official visit to China from Oct. 31 to Nov. 5.