Tuesday, November 11, 2008

Is China graduated from "Original Sin"

Some more quick thoughts about the sizable Chinese stimulus package:

Is China graduated from the class of emerging markets, which are often characterized by inability to borrow in the local currency - the original sin, and countercyclical fiscal policy? Many people in the west are in shock of the size of stimulus that was announced. Although the true figure is hard to verify - I have no idea how they arrive at that figure - China is acting more like a matured economy on that front.

Upon further investigation of the detail though, China is unique in many aspects. Perhaps it should not be in the EM class at the first place.

  • Most of the announced stimulus is directive to state-owned companies to invest and expand. The U.S. has been urging its banks to lend more also, but I bet China would have more success in cajoling its companies.
  • China enjoys high saving rate. Although many argue the approach has been mercantilism, the high reserve comes in handy in a time of crisis like the current one.
  • The mere size of a diversified economy. Countries like Chile and Brazil, and possibly Russia who relies a lot on oil revenue, are more likely to be subject to a turn-of-trade shock from their commodity exports. Although China's external component of GDP is about 70%, which is alarmingly high, China also enjoys the advantage of sheer size and a more diversified economy.

This reminds me of a New Yorker critics piece:

If the invention of derivatives was the financial world’s modernist dawn, the current crisis is unsettlingly like the birth of postmodernism. For anyone who studied literature in college in the past few decades, there is a weird familiarity about the current crisis: value, in the realm of finance capital, evokes the elusive nature of meaning in deconstructionism. According to Jacques Derrida, the doyen of the school, meaning can never be precisely located; instead, it is always “deferred,” moved elsewhere, located in other meanings, which refer and defer to other meanings—a snake permanently and necessarily eating its own tail. This process is fluid and constant, but at moments the perpetual process of deferral stalls and collapses in on itself. Derrida called this moment an “aporia,” from a Greek term meaning “impasse.” There is something both amusing and appalling about seeing his theories acted out in the world markets to such cataclysmic effect. Anyone invited to attend a meeting of the G-8 financial ministers would be well advised not to draw their attention to this.

He could be talking about market characterization terminology. Developing, underdeveloped, emerging, BRIC, what else?

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