Google "Screwed" by China

"The sin of Facebook is it makes you touch the people you want to touch. The sin of Twitter is it makes you say what you want to say. The sin of Google is it makes you know what you want to know. The sin of YouTube is it proves the truth you want to prove. So they have all been killed."

China's Balance of Trade with America

China’s Balance of Trade with America
(How the dynamics might change)
China’s exponential growth in exports over the last two decades has been the fancy of every nation. To keep it exports competitive it pegged it currency to the dollar which also help it link its domestic inflation to its biggest trading partner. Going forward I am not too bullish on China’s exponential growth, rather I foresee moderation of China’s story which will come from a slowdown in exports (as its economy is export fed, as compared to India which is domestic consumption based). Factors that may moderate China’s export led growth:

1. High Transportation Cost – Fuel is at USD 80 a barrel and by end of this fiscal I expect it to cross USD 90 and spike further thereafter depending upon the economic recovery on rich nations. This is the single biggest factor coupled with currency appreciation (discussed next) that I feel will hurt China’s exports.

2. Currency Appreciation – China has recently shifted from a fixed peg to a crawling peg with the Dollar. The currency has appreciated only marginally and China’s inability or reluctance to gobble up any more Dollar reserves will give its currency a little more float. Any appreciation in excess of 10-15 % will hurt its exports competitiveness.

3. Anti Dumping and Countervailing Duties – It is fashionable and profitable for a trade body to lobby for sanction or duties on Chinese goods. Chinese Tyres, toys and some other goods are facing stiff anti dumping duties in US and EU.

China I feel is caught napping with its trillion Dollar Reserves and has got its monetary policy completely wrong. Its reserves dwindle if dollar falls and if China protects Yuan it has to buy still more dollars with a fear that Dollar may depreciate in the future. Developed country central banks would not mind being in China’s shoes. It’s a better position to have dwindling reserves having no reserves at all.

Sum's Predictions for the Next Decade (2010-2020) - Macro Economic Level

Emergence of a New World Order - America is a USD 12 trillion economy and China a USD 5 trillion (at 200 prices adjusted for Purchasing Power Parity) and it is believed China would catch up with America by the end of this decade. America is scared over sharing its dominance with its biggest creditor and China is acting with increased confidence and authority at the world level much to the discomfort of America and its allies. I am bullish on India, bearish on America and would buy a put on China.

Currency Realignments – Weaker western currencies (Dollar, Pound and Euro). Stronger Yen and Yuan; pressure on Euro over financial health of some of Euro Zone member countries. Emergence of Yen and Yuan as alternate currencies for reserves and oil payments. Bullish on Gold and Oil.

"Nearshoring" – Oil spike and Yuan appreciation will make China loose its cost leadership in manufacturing. Americans might do "Nearshoring" by set up manufacturing base in Mexico. "Mexico could be the next China".

GDP Growth Rates – China to moderate to a growth rate of around 7-8 % (appreciating currency, falling exports, anti dumping duties, more competition in manufacturing from other emerging markets). India will accelerate its growth by 100-200 basis points (provided successful implementation of GST, Direct tax code and disinvestment policy. GST itself is expected to add around 75 basis points to annual GDP growth). India will emerge as a high quality manufacturing hub. America will be like Japan of 90 s and face stagflation at home.

Outperforming Equity Markets (Emerging Economies) – Indonesia, Mexico and Chile Equity Markets will outperform other emerging economies due to low base effect and high commodity prices. Indian and Chinese equity markets will have a sustained growth due to high GDP growth rates. Hedge Fund and Private Equity will dominate M & A activity in BRIC economies.

"Things To Do" list for Union Finance Minister (2010)

Here it goes:
1. Give the economy a booster dose of "Viagra" by fast tracking Disinvestment, GST Implementation, Deregulating Oil Pricing, New Direct Tax Code implementation, returning to Fiscal Prudence Measures.

2. Set up an annual target of USD 50 billion for FDI. Coordinate with states to develop a single window clearance system for foreign investment and identifying areas in which FDI is required. A committee of state FMs chaired by the Union FM to be formed to focus on achieving the target. (Current status - USD 17 Billion of FDI from April -December 2009).

3. Increase the scope of social sector schemes like SSA and NREGA. Widen SSA in scope by concentrating on universal enrollment and retention with focus on development of technical skills. Develop R & D capabilities and provide incentives and tax breaks for R & D expense to the industry. Focus on R & D in agriculture and pharma. NREGA to be made a model for implementation of an employment guarantee program for urban poor.

4. Judicial, Police and Administrative reforms.

5. Set up a Centre - State Relation Coordination Forum with participation of Union and State Cabinet Ministers. Matters concerning state centre relations to be resolved through this forum.

6. Capital and Money Market reforms - Widen the scope and functioning of Corporate Bond Market and Derivatives Market. Define a Bankruptcy Code for companies.