China Versus USA (New World order)

To Hugoestr & Genghis,

Hugo is right.  I am a currently in a MBA program & the Chinese are number two (Japan is number one) in relations to foreigners owning US Treasuries.  Taiwan is number three and S.Korea is number four.  Imagine if there was a war in the Far east between China and US.  I will probably be a naval war.  The Pentagon did a mock battle a year ago (using computers) and they predict it will take about three to six days for the Chinese to sink our fleet.  But I am not a military expert.

If war broke out.  All four countries will sell their US Treasuries.  Even if they don't sell all, they will sell enough to effect our interest rates.  FYI, the price of bonds and bills are a inverse relationship with interest rates.  If the price goes up, the rate goes down and vice versa.  So if war did break out, they (Chinese, Japanese, Taiwanese, Koreans) will sell the US treasuries, thus causing the price to decline & the rate to increase.  This will effectively kill the housing market & make every good you and I take for granted skyrocket.  Your Dell laptop which sells for about $500.00 might go to $800 to $1000.  That is why the democrats was saying we have to pay down our debt.  Nobody listen & one of these days, the foreigners will grow tired of financing our future.

It is not that far away, once the US pushes China to "float" their currency, there will be no need for the four Asian nations to buy US treasuries (they buy US treasuries because they try to keep their currencies at a artifically low level, thus goods make in Japan, China or Korea is cheap for US consumers to purchase) because China will be letting the market decide on the exchange rate of their Yuan.  Some economist have said it is undervalued by 30%. 

I hope I did not bore anybody.

Thanks, jiangweibaoye for your two posts. I have heard bout the inverted yield curve before, but your explanation is the best that I have encountered.

I hope that your prediction about Asian countries leaving the U.S. treasury market is right. At least they will have the economic incentive to do so. Of course, If I were them, I would keep enough to keep it as a bargaining chip.

Also concerning Genghis suggestion that India might be the next China.  That is what everybody is hoping for.  Including China.  But the problem with India is very complicated.  But in short.

They still have an unofficial cast system going on.  A society with such a outdated and unfair system will only go so far economically.

Secondly and more important, their population is slowly suffociating their economic muscle.  By that I mean that tax revenue they get is being funnelled into paying for school, food, & health care, etc...You can say that China has the same problem too, but China has been in the capitalist world later than India, but India seem to progress much slower.  There are many theories for why it is occurring.  My personal view is corruption.

There already is one.

Originally posted by jiangweibaoye Imagine if there was a war in the Far east between China and US.  I will probably be a naval war.  The Pentagon did a mock battle a year ago (using computers) and they predict it will take about three to six days for the Chinese to sink our fleet.

That's pretty laughable, their fleet is a joke, naval experts all across the world say the US navy could defeat most of the rest of the world's navies in a war.

You didn't mean we'd sink their fleet in three to six days did you?

Edited by Genghis

Originally posted by Genghis Originally posted by jiangweibaoye Imagine if there was a war in the Far east between China and US.  I will probably be a naval war.  The Pentagon did a mock battle a year ago (using computers) and they predict it will take about three to six days for the Chinese to sink our fleet. That's pretty laughable, their fleet is a joke, naval experts all across the world say the US navy could defeat most of the rest of the world's navies in a war. You didn't mean we'd sink their fleet in three to six days did you?

We first will swarm you with hundreds these Stealth Catamaran and conventional missile boats armed with long range C-803 ASM



And than attack you with a combined force of the East sea fleet south sea fleet, north sea fleet and the airforce and Naval Aviation.
Our 100 Su-30MKKs/Su-30MK2s, 200 Su-27SKs and 50 J-10s will overwhelm you with long range ASMs. 


If you manage to destroyer our entire fleet(which is highly unlikely) you will have to face the thousands of coastal defence Silkwarm, Saccade, Fei long 2 Ship-skimming and supersonic ASMs. 


If you manage to land, we will attack you with the forces of the local military region and 15th Airborne division.  quickly arriving will be 250,000 mobile rapid reaction units.  If they are eliminated we will order the local militia to fight guerrilla warfare while we counterattack with 2 the two neigbhoring military regions plus the Jinan military region. 



After 2 Years of fighting we will have pushed the American out by force or they will chicken out due to plummeting morale and a unsportive media. 


At that point we will have successfully achieved Deng's "People's War under Modern Circumstances."


Edited by JiNanRen

Anukhamar & Genghis,

I did not mean to offend you about the caste statement.  If I have, I am sorry.  That is what I keep seeing repeatly on may business article.  I hope I am wrong, because the caste system is just bad.  As I stated, I think the reason why India has not enjoyed the economic success that China has is because of corrpution.  Maybe you can shed some more indept knowledge on the "caste" system & why India economic development seems slow.  Needless to say, India's economic success will be great for the world economy.

Genghis, on the mock battle, that is what I read from the Wall Street Journal.  Maybe the Pentagon said that to get more money from Congress, maybe they are right.  Who is right?  I really don't know. 

As far as a cap, or price controls is concerned.  The U.S. Financial Goverment institution is a free market instituition.  We in the U.S. enjoys a lower interest & greater liquidity due to the transparency & free entry and exit to the market.  If you were to put a price control or caps, that would cause all foreigners to exit the market.  You are not letting the market decide on the price.  Also, if the foreigners realize that they cannot sell when they want to, that will cause the debt to depreciate in value.  Remember my earlier post, there is a inverse relationship between interest rates & price.  Since foreigners cannot sell their holdings of US debt, that will cause the value of the US debt to go down.  Hence a jump in the interest rates.  You can institute caps and price control, but in the long run, if the foreigners want to sell, they will.  It may not be one day, it could take up to a year.  But in the end, if the cap or floor was it place, US debt value will decrease, interest rates will rise, and the worse part is that foreigners will lose confidence in the US debt market.  That will keep our interest rates permanently higher than if we did not have the cap.  Confidence is easily lost, hard to achieve.

There is only one way for the US to get out of this mess.  We must pay down the debt.  The U.S. Government is borrowing too much money & to add fuel to the fire, American's are not savers (we are net borrowers, meaning we are living beyond our income).  That is why we need foreign money.  We need to spend less, buy less (like expensive homes), raise taxes on the rich, save more.  It is stuff like this that are the genesis of downfalls of great nations.

This is also the reason why we need India and China to get the the economic level of the US.  The world cannot depend on one economy to lift the world economy.  Some countries fear the economic rise of India and China, but in the long run, it is beneficial for the world economy. 

Originally posted by jiangweibaoye Anukhamar & Genghis, I did not mean to offend you about the caste statement.  If I have, I am sorry.  That is what I keep seeing repeatly on may business article.  I hope I am wrong, because the caste system is just bad.  As I stated, I think the reason why India has not enjoyed the economic success that China has is because of corrpution.  Maybe you can shed some more indept knowledge on the "caste" system & why India economic development seems slow.  Needless to say, India's economic success will be great for the world economy. Genghis, on the mock battle, that is what I read from the Wall Street Journal.  Maybe the Pentagon said that to get more money from Congress, maybe they are right.  Who is right?  I really don't know.  As far as a cap, or price controls is concerned.  The U.S. Financial Goverment institution is a free market instituition.  We in the U.S. enjoys a lower interest & greater liquidity due to the transparency & free entry and exit to the market.  If you were to put a price control or caps, that would cause all foreigners to exit the market.  You are not letting the market decide on the price.  Also, if the foreigners realize that they cannot sell when they want to, that will cause the debt to depreciate in value.  Remember my earlier post, there is a inverse relationship between interest rates & price.  Since foreigners cannot sell their holdings of US debt, that will cause the value of the US debt to go down.  Hence a jump in the interest rates.  You can institute caps and price control, but in the long run, if the foreigners want to sell, they will.  It may not be one day, it could take up to a year.  But in the end, if the cap or floor was it place, US debt value will decrease, interest rates will rise, and the worse part is that foreigners will lose confidence in the US debt market.  That will keep our interest rates permanently higher than if we did not have the cap.  Confidence is easily lost, hard to achieve. There is only one way for the US to get out of this mess.  We must pay down the debt.  The U.S. Government is borrowing too much money & to add fuel to the fire, American's are not savers (we are net borrowers, meaning we are living beyond our income).  That is why we need foreign money.  We need to spend less, buy less (like expensive homes), raise taxes on the rich, save more.  It is stuff like this that are the genesis of downfalls of great nations. This is also the reason why we need India and China to get the the economic level of the US.  The world cannot depend on one economy to lift the world economy.  Some countries fear the economic rise of India and China, but in the long run, it is beneficial for the world economy.

Oh don't worry man, you didn't offend me at all, on the contrary, it's a pleasure discussing this with you as you are obviously very smart. 

As for the Wall Street Journal thing, maybe they're talking about a specific fleet without any reinforcements, that can be my only guess.

Other than interest rates, couldn't the US buy up excess dollars or threaten to do something equally bad to China if they did the dollar thing? 

And would confidence really be lost if we moved away from free market institutions during a major war with China.  How would that change the context?  Would it perhaps result in more capital coming into the United States as aggregate demand would skyrocket during a war?

I would like to comment:

First, I think that the economic illustrations made by Hugo and Jiang are interesting.  I learned alot from reading their accounts.   I appreciate the details that Hugo and Jiang posted in their comments to dissect and illustrate the pros and cons of war between the U.S. and China to both sides, especially economically. 

Genghis: I would like to add a few of my ideas to your topic with no bias to either side.

From a traditional point of view, the U.S. would be more useful to China as an ally than as a foe, and vice versa.  In my opinion, China's two greatest foes in the coming years will be: 1. Japan 2. Russia.  I also believe that, although the Cold War is over, Russia still stands as a potential threat militarily to the U.S.  It would be prepostreous for the U.S. to worry about the People's Liberation Army of China, because the PLA is even much less capable than the Russian or Ukranian military.  During the Cold War, the Pentagon had plans to use China as a buffer against the Soviet Union.  In case Russia rises economically, the U.S. can always use China as a chip to buffer Russian advancements.  If the United States and China go to war, which is unlikely and detrimental to both sides, Russia will benefit (so will Japan).

Now, let's follow with this unlikely hypothetical situation in which the United States and China do go to war.  China does not have the ability to invade the United States, and at the current rate, never will.  We can thus rule that out.  The United States has the ability to invade China, but at what cost?  I support the idea that millions of troops would be needed to fully occupy a nation that comprises 1/6 of the world's population.  Thus, we can also rule out the possibility of the United States ever invading China.  We can also rule out the use of nuclear arms on either side, because the possession of nuclear warheads by both sides means that neither side would risk using them.  In any case, we safely can rule out the possibility of a full scale war between the U.S. and China.  Genghis, what you proposed about splitting China into warlord factions is both ingenius (good thinking) and preposterous, very preposterous (you have neglected the presence of nationalism, strongly centralized government, and 95% Han ethnic majority in China)

What we have left is the possibility of a small scale regional conflict.  In that scenario, the technological, military, and intelligence advantages will fall heavily on the United States and the Pentagon.   The Chinese military is approximately equivalent of the U.S. military in the 1980s, with almost nothing to rival U.S. forces in terms of air force and navy.  In a traditional military confrontation, the United States will undoubtly possess enough superior technology and intelligence to gain the upper hand.  With the exception of one on one hand to hand combat (no army in the world can defeat the PLA in a hand to hand combat on land), the United States military will certainly destroy the Chinese military.

To be more specific, the United States will probably fully control the intelligence, as well as both air and sea.  China's navy will not stand a chance against its U.S. counterpart.  With full control of air and sea, the U.S. would be able to cripple the rest of the Chinese forces and easily win.

Now, what can China do to counter this seemingly one sided conflict?  In 1999, two colonels from the PLA published an essay on the potential use of asymetrical warfare.   Let us get to asymetrical warfare with an analogy.  The elephant is la arge and powerful animal, it can stamp out virtually any smaller animals in its path.  Nothing can stop it, right?  Yes and no.  No conventional animal that meets face to face with the elephant can stand up to the elephant.  How about a mouse?  A mouse, though not able to stand up conventionally to an elephant, simply needs to climb up the elephant's nose and choke it to death.  The only way for less powerful nations to defeat the United States military in war nowdays is through asymetrical and unconventional warfare, a type of war in which the strong cannot exert its strengths.  I will stop at this junction, because I am not qualified and knowledgeable enough to say more (for more information, do research).

In conclusion, what comes to the end is a battle of minds.

Poirot, do you really think it is proposterous to break China up when China has historically had many periods of disunity, the most recent being during the Twentieth Century?