Yuan as Reserve Currency less important than Economic and Political Reform

Yuan as Reserve Currency less important than Economic and Political Reform

By Chris Harry

In theory, the addition of the RMB as a top-reserve currency would further diversify the world's exchange reserves. It also would draw China further into the world economy, which might also be a positive force for encouraging China to move toward a stable economic model based on greater transparency and not-so-minor adjustments such as the rule of law. On the other hand, Chinese banks would have to sink and park huge sums of money as deposit insurance, which could further weaken its already fragile debt-to-GDP ratio imbalance.

The fact that China is a maverick economic player that relies on artificial growth which is willing to use any and all means to continue the growth bubble for the sake of social stability and the perpetuation of the party-state, also means that China could potentially become a hugely disruptive and destabilising force in the world economy.

Party interests will always remain paramount and unchecked under the current system, so only when China makes a fundamental political and economic shift, can we expect the Yuan to make a positive contribution to global economic stability. China will also need to follow international rules and regulations in order to make a positive contribution to international economic stability. Again, under the current system in place in China, we cannot expect that it is willing to follow international norms, practices and rules. 

The lack of a domestic rule of law clearly indicates China unwillingness to abide by international treaties and conventions. China's approach in the South China Sea shows a total disregard for the sovereignty of its own neighbours and is a breach of the treaties it signed, took part in drafting, and pledged to uphold. 

Xi's administration has been emboldened to further apply the no-rules bully approach toward domestic politics and foreign policy. At the same time, the domestic economy has been tanking ever since Xi took power.

The stock market debacle also shows a total lack of transparency and honesty in dealing with internal domestic issues. In the end, the government relied on a command-driven and heavy-handed approach to force a recovery of the stock market. In the process, billions in individual investors' earnings evaporated, along with one-fourth of its crucial monetary reserves to support China's state retirement funds. 

Beijing took a huge gamble by creating a false bull market in order to orchestrate state-led insider trading, so as to prop up Zombie SOEs that are bleeding out huge losses daily and are kept alive by state-controlled banks that can barely handle the pressure of giving out free money to keep these SOEs afloat.

When China gets its political and economic house in order, then we might expect the RMB to play a positive role in the world economy.

Chinese Speed 中国速度

An interesting and somewhat faded Chinese character (sù - meaning speed, rapid or velocity) clings tenuously to a  

cracking wall. Photo by Christopher Harry. All rights reserved.

 

The Chinese character for "Speed" neatly sums up one of the most defining features of today's China; the speed of its modernisation and development, the rapid rise in wealth and stature of the nation, but also the incredible pace at which it is being pulled simultaneously in all directions, both positively and negatively.

As education levels rise, so too does an increasing gap between rich and poor. The rapidity of environmental degradation, in combination with the explosion in the growth of social media, has also led to an equally speedy rise in the formation of social and political awareness that is quickly supplanting the preeminence of vacuous government propaganda in the hearts and minds of the populace.

At the same time, there has been a tremendous surge in the development, deployment of, and spending on China's air force and navy that is bringing it into more frequent and threatening incidents of sabre rattling with its Asian neighbours. Meanwhile, a meteoric rise in the depth and intensity of political and corruption scandals is accompanied by a wildfire of burgeoning social unrest fanning across the country.

Ironically, the sheer velocity at which all these changes are taking place sits in stark contrast to the leadership's utter lack of action or willingness to push forward any sort of meaningful political, legal or social reform to provide a necessary ballast to ensure the country's long-term sustainability.

It will be no mean feat for China's communist leaders to keep a lid on things and rehabilitate an increasingly damaged, depleted and poisoned land, but let's all hope the leadership will quickly see the light and embrace progress, just as its people have been so willing to do since Deng Xiaoping opened up China to the world over three decades ago.

The Chinese government always likes to brag about how much faster China has accomplished its achievements than the rest of the world. Maybe now it’s time they focused on doing things better.

My first deleted microblog on Sina Weibo!

My first deleted microblog on Sina Weibo!

I uploaded it once again on my weibo account, just to see if and when the net censors might take notice. I'll provide an update to this little experiment should there be any new developments. Here's a picture of my deleted microblog entry:

Although previously deleted, the re-posted blog is still on my weibo account as of April 1st, 2013.