A Snow Boat to China

U.S. Treasury Secretary John Snow has been dispatched to China, soon to be joined by Fed Chairman Alan Greenspan, for meetings of the U.S.-China Joint Economic Commission to talk about currency policy and trade relations between the two economic powers. The trip comes during a time of rising American trade deficits and continued calls for China to move beyond the 2% currency adjustment announced in July.

While Mr. Greenspan continued to hammer on the "flexibility" theme while commenting today in Washington D.C., Mr. Snow has already begun his busy schedule:

Wednesday, October 12 - Shanghai
- Site Visit to Shanghai Stock Exchange
Thursday, October 13 - Sichuan and Chengdu
- Meet with Cessna Officials at Civil Aviation Flight University of China
- Tour of Mulan Market, Xindu District
- Site Visit to Chengdu Rural Credit Union, Xindu District
- Formal Greeting Ceremony, Jin Jang Hotel
Sunday, October 16 - Beijing
- Post G-20 Press Conference, Zheng'An Palace Hotel
- U.S.- China Joint Economic Commission, Opening Remarks, Zheng'An Palace Hotel
Monday, October 17 - Beijing
- U.S.-China Joint Economic Commission, Closing Session, Diaoyutai Guest House
Tuesday, October 18 - Beijing
- Securities Industry Association Remarks, Grand Hyatt Hotel

It looks like the boys might have some free time on Friday and Saturday - what kind of trouble might they get into?

Some other notable news from the area includes these items:

China's Communists Approve Economic Plan
China's Economy Continues to Boom

US expresses concern to China over village incident
US Report Hits China on Rights, Religion

China astronauts blast off into space at ease
China's Space Ambitions Potential Threat to US: Analysts

Pamela Anderson on China Anti-Fur Ads

Lots of building tension in addition to the currency and trade issues to be sure - economic growth consistently in the ten percent range overseen by a Communist government, human rights and religious freedom concerns, another manned space flight, and new Pamela Anderson ads.

If the boys get bored and lonely on Friday and Saturday, they can always wander around town searching for Pamela's familiar face on bus stop advertisements and the latest phone cards.

Much more intriguing than any of the mainstream press accounts about U.S. - China relations is this article which appeared in the China Daily a few days ago. Mr. Lau Nai-keung, a Hong Kong delegate to the Chinese People's Political Consultative Conference, has some very strong opinions about current U.S. - China relations:

I think it is time that we should take a serious look at the possibility that the US is going to take us down towards a worldwide recession in one or two year's time.

It is well known that the US is the world's biggest economy, taking up about 30 per cent of global GDP, but it is now also the world's biggest debtor country.
...
Put it simply, the Americans have been living way beyond their means for much too long. On top of this, the Bush Administration is cutting tax at least three times while fighting an expensive war in Iraq, which has already cost the country US$700 billion, and currently progressing at US$5.6 billion per month. Now the US economy is dependent on the central banks of Japan, China and other nations to invest in US Treasuries and keep American interest rates down. The low rates keep American consumers snapping up imported goods.

Any economist worth his salt knows that this situation is unsustainable. This includes the country's economic guru driver Alan Greenspan, who recently warned his countrymen that the federal budget deficit would hamper the nation's ability to absorb possible shocks from the soaring trade deficit and the housing boom. Now he may have to add two more worries: soaring oil prices and cyclones.

The US is now clearly in huge trouble, economically, socially, politically, and internationally. The Bush Administration bungled big in cyclone Katrina's aftermath in New Orleans, and then a minor rerun from Rita in Houston, and this will trigger the general outburst of people's dissatisfaction with the government, leading to great internal turmoil lasting for many years. In all likelihood, long-term interest rates are going to rise, and the greatest property bubble the world has witnessed is going to burst in the next one to two years.

The countdown is in progress, and there is no way that anybody can do anything to reverse it either by short-term measures such as fiscal and monetary policy, or through long-term reform of tax policy, entitlement programmes and even the entire federal budget. This is as inevitable as gravity, and it will take place under a new and inexperienced chairman of the Federal Reserve Board. I do not want to sound alarmist, but I see very bad omens.
...
To us, the good news is that when the country is in deep trouble, the US will not have the energy to pick on China. Even when it is necessary to start another war to divert people's attention, it would pick one much smaller in size and weaker in strength, like Iran. This will provide a much more amicable environment for China to make good use of its "period of strategic opportunity" till 2020 for the country to pass through a turbulent zone between per capita income of US$1,000-3,000.
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One thing is for sure, some time in the not too distant future, every central bank and institutional investor is going to dump US dollar and US Treasury bonds... The cheapened dollar will cause a sudden jump in the US inflation, which forces the Fed to jack up interest rates. A giant leap in inflation will cause a severe recession, or perhaps a depression, in the US. These countries' exports to America will dry up, which in turn will spread the global economic downturn like wildfire.

After the stampede, everybody is going to get hurt, not least the central bank of China, and the Hong Kong Monetary Authority, which are major US creditors and with the US as their number one export market. The recent currency reform of the RMB is most timely, and it is about time we should do something about the Hong Kong dollar. At the same time, China should make extra efforts to rekindle internal consumption, and diversify its market really fast before the great US bubble bursts.

Aside from the question of what exactly an "economic guru driver" is and war costs which seem a bit higher than estimates heard in this part of the world, it is difficult to find fault with this assessment of the current relationship between the two countries.

More and more articles like this appear in the Chinese media these days.

What does the rest of the Chinese government think?

Will they be impressed with the economic team that we have sent?

Will anyone do anything substantive to try to avert the catastrophes postulated above, or will it be continued "baby steps" in currency reforms over there, and more "baby steps" in reigning in borrowing and spending over here?

As Mr. Greenspan once not-so-famously said, "If there's a crisis, we'll all get together and solve it - or hopefully solve it".