China Is Hunting for Foreign Buyers for Its Sovereign Debt
bloombergquint.com
bloombergquint.com
What do they care about the risks?
Plenty. You dont last long in finance if you take outsized risks and lose your clients money.
Various firms and investors have varying risk tolerances, but any finance firm worth anything has a risk team that is daily monitoring these things.
"China’s government bonds were among the world’s best performers in 2018, returning 7.7 percent, while U.S. Treasuries earned 0.8 percent, ICE Bank of America Merrill Lynch data show. That gain is in yuan terms, however, and the yuan dropped 5.4 percent against the U.S. dollar."
So 7.7 - 5.4 = 2.3%
which is almost 3x 0.8% return on US Treasuries.
Seriously? 0.946 * 1.077 = 1.018842
So about 1.9% which is about 2.4x 0.8% return on US Treasuries.
> [These sales] will help finance the deficits without running up a dangerous amount of debt in foreign currency.
That's why they're selling!
The arbitrage, really, is that sales of this nature are very technical and not well understood by consumers. They signal bear market like a yield curve inversion does. But because it's so technical, the average person's confidence isn't impacted the same way that a headline, "China is Hunting for Foreign Buyers of its Empty Apartments" would.
Even though both have similar macroeconomic effects, given enough scale.
How? How is this different from the treasuries the US sells every year?
Probably wouldn't want to put your only billion there, but if you had say 160 billion sitting around, put one there and the other 159 billion in US treasuries you have added 30 basis points of upside to your return at a risk of 29 basis points.
For example, South Koreas economy, in a single persons lifetime, has grown 60x per person, inflation adjusted. An entire nation pulled out of poverty. https://tradingeconomics.com/south-korea/gdp-constant-prices
You can see that trade is a major part of their economy, currently around 80%: https://tradingeconomics.com/south-korea/trade-percent-of-gd...
You can look at their neighbor North Korea for a counter example, that has established hostile relations with most other countries and has a juche philosophy that frowns on trade.
I'm also not entirely sure the ends justify the means when it comes to threatening war. Having the power to write the constitutions of other countries costs the US economy a pretty penny.
There are a bunch of other cases where our involvement has made things decidedly worse, to the point where a policy of non-intervention would probably have had a better net result.
More like 70 years. It was only around WWII that the US kicked the theme of trade-or-death running its foreign policy. The early 20th century has several wars you don't read about in history books where the US basically sends in the marines to topple a government that's antagonizing US commercial interests.
Did you know that USA and allies attempted to keep the Tsars in power against the Soviet Revolution of 1918? I didn't until now...
https://en.wikipedia.org/wiki/United_States_involvement_in_r...
Edit: In fact, the American president was more than pleased that in his request for the US to declare war that, with the "democratic" Karenski government, the war had become Democracy vs Autocratic and it was ok to enter at that point on the side of Democracy.
The United States' entry into WWI had nothing to do with forcing Germany to trade. Literally nothing. I'll let you refresh your own memory regarding events at that time, including Germany's unrestricted submarine attacks on American civilians.
But I definitely agree that it has pretty much nothing to do with the OP's point.
The entire 20th century was a war between globalization and the self-sufficient dream of communism (I don't know why they couldn't find a happy compromise myself, but alas) -- a fight to keep "trade" flowing -- this often manifests in the west extracting resources from less powerful countries (not saying Soviet Russia never extracted resources from poorer countries)
I don't have all the answers but USA is out for itself just the same as everyone else is.
Every international trade has an associated international currency exchange. China’s manipulated its global position through exchanging more of its currency for USD than the market clearing rate for decades. This had the affect of setting their entire economy on “fire sale” prices, also for decades. They only acknowledge the existence of Chinese IP rights owned by Chinese companies. Etc,etc,...There are books on these topics.
During that timeframe the US government has worked unilaterally and internationally to combat the dotCom bust, the S&L crisis of the 80s, and the Great Recession, amongst other things. A good trade actor has many things, including a relatively stable currency and financial system. The US isn’t some paragon of perfection, but they have done some identifiably good international trade measures.
That's an important function of every blue-water navy, but it's hardly their sole purpose.
> When countries close their ports we have an absolute conniption.
You're still on this? When has this happened? Please give us even one example that's less than 150 years in the past. Forget the conniption part; can you even point to an example of a country "closing their ports" to all trade?
The U.S. (along with every other powerful nation in history) has a long and storied history of military aggression in service of its own economic good, and American military policy has often been plainly captured by corporate interests.
But the assertion you're making here, based on something that happened two centuries ago, is complete nonsense, and makes light of the ills that actually do afflict American foreign policy.
When countries erect barriers to trade with the U.S., our government's reliable response is... wait for it! ...to erect reciprocal barriers in the form of quotas or tariffs, and then relentlessly work toward free trade agreements, preferably under the auspices of an international trade organization. Is that perhaps what you mean by having a conniption?
"There is a Hokkien phrase, 'Gar gee nang.' It means, our own kind of people. And you're not our own kind."
"Because I'm not rich? 'Cause I didn't go to a British boarding school, or I wasn't born into a wealthy family?"
"You're a foreigner. American. And all Americans think about is their own happiness.
"Don't you want Nick to be happy?"
"It's an illusion. We understand how to build things that last. Something you know nothing about."
Funny thing is that I feel like it is indeed rare for cultures-countries to think about building things that last. But the US is actually one of the few countries that does---whereas China can't float this level of debt at attractive rates because it is NOT long term focused. It keeps doing insane, credibility-destroying things. Yet always talks about how it is a long term actor.
Since always. I can't count the number of generalizations I've seen which begin with "in my experience," for which the poster's experience likely includes a sample of one at least, or half a dozen at most.
And to be perfectly fair, it seems to happen a lot when China or Japan come up.
Right, I wonder why.
The short term economic decisions highlight how much they fear a downturn could upend the party's control.
Devaluation is always a risk, in any country. USD can fall too, look at historical USD exchange rates to the world currency basket. Foreign bond investors have to live with that risk; I assume they don't expect a large Yuan devaluation. also see https://www.bloomberg.com/news/articles/2018-11-16/the-world...
That's pretty much the definition of "complexity hides evil".
Index funds are a bit more direct since you're owning pieces of things you may not like instead of owning a contract that could be converted to something you don't like.
It has wide applications too: you can obfuscate everything from financial issues to political events. For example, pretend the article of the Charleston white supremacist mass murderer said the following:
"Roof was involved in the controversy of the events of June 17, 2015. After a flurry of media attention, he became the lead defendant in the trial United States v. Roof (2:15-cr-00472), which was noted for the request for a bench trial..."
The above is entirely correct, and written in a neutral, flat tone, but it completely misrepresents the situation. By noting tiny, irrelevant details like the request for a bench trial and the criminal number, the article both becomes uninteresting and hides the truth. If you read the snippet you wouldn't get the idea that he was a mass murderer.
I read something earlier by James Risen about the CIA covering up a number of horrible things. One quote I found very interesting:
"But after I filed the first story, it sat in the Times computer system for days, then weeks, untouched by editors. I asked several editors about the story’s status, but no one knew.
Finally, the story ran, but it was badly cut and buried deep inside the paper. I wrote another one, and the same thing happened. I tried to write more, but I started to get the message. It seemed to me that the Times didn’t want these stories."
They didn't even have to threaten to not publish it - all they had to do was obfuscate it! Throw in a few complex words and kick it off the front page and behold, nobody will read it, even if it contains explosive information.
really massive ones probably have a pretty good relation with the host country government/politicians and can rely on state political tools for leverage
Who's going to buy a 30 year bond from a government that has about even odds of surviving to maturity?
Even if they do get their money back, it'll be late. Who wants that kind of risk?
> Other countries or regions with a level two advisory include Algeria, Burma, Antarctica, Belgium, France, Germany, Denmark, and the United Kingdom.
Sounds not particularly serious. Also lol at Antarctica
For instance, I wouldnt buy an Argentine bond - they've failed to make bond payments to such an extent they had a warship seized as collateral in a foreign port. Likewise, Greece has had trouble making payments. GDP is poor, and tax evasion rates are high. To boot, because Greece is on the Euro, it cant even devalue its currency to lessen its debt burden.