BRIC+ News & comments

"... The urban and rural income growths of 31 Chinese provinces exceeded that of the consumer price index (CPI), a main gauge of inflation, and 29 of these exceeded 10 percent {INCOME GROWTH} in the first half of this year, China Economic Net reported Wednesday. Statistics showed that from January to June, the income growth of rural residents outpaced that of urban residents. Rural residents in 17 provinces witnessed {at least} a 20 percent growth in their income, according to the newspaper. {Billy T comment: little wonder that now in the coastal areas there is a sever labor shortage with Foxconn's salaries up 30% YoY and even with that Foxconn relocated two factories to the interior to get the needed workers.

The US will never have it this good - It is sinking into collapse. Not only is the real purchasing power of the typical Chinese rising several times faster than the rate of inflation, but his "out of pocket" medical costs have been cut in half. (Now pays only1/3 of the cost -state pays 2/3 an exact reverse of two years ago) Thus he is buying more and saving less than the traditional 50% of income. CHINA IS RAPIDLY GROWING THE INTERNAL MARKET. China understands, even if Americans do not, that after the dollar collapse, the US will not be able to buy much of it production.}

Hainan topped the ranking with an urban income growth of 19.4 percent and a rural income growth of 31.7 percent in the first six months this year. Provinces in central and western China saw faster income growth than those in eastern China, the newspaper said. ..."

All income data is stated in Yuan and followed by the one year percentage growth in the first half of the years (2011 vs. 2010).
Location...Urban Income .... Rural Income ......CPI
Beijing......16,236 10.1% ..... 8,732 12.4% ..... 5.5%
Tianjin .....12,861 13.6% ..... 7,337 17.0% ..... 4.3%
Shanghai ..18,382 12.4% ..... 9,369 12.0% ..... 5%
Chongqing .10,383 14.3% .... 3,491 24.1% ..... 5.1%
Liaoning ....10,038 15.4% .... 6,866 22.1% ..... 5.2%
Hebei ....... 9,104.3 11.3% ... 4,195 19.9% ..... 5.3%
Shandong.. 11,098 13.3% .... 5,412 19.3% .... 4.7%
Jiangsu .... 13,741 13.8% ..... 6,421 18.3% .... 5.7%
Zhejiang ...16,835 12.8% ..... 8,439 15.4% ..... 5.4%
Fujian ...... 12,980 12.9% ..... 4,315 18.4% ..... 5.3%
Guangdong 13,903 11.9% .... 5,132 20.3% ..... 5.2%
Hainan ...... 9,512 19.4% ..... 4,188 31.7% ..... 6.6%
Heilongjiang 7,531 11.6% ..... 5,917 22.5% ..... 5.8%
Jilin ....................15.2% ..............24.7% ..... 4.9% (Income in Mongolain money?, not given)
Shanxi.......8,653 14.6% ..... 2,835 20.5% ..... 5%
Henan ......9,009 11.5% ..... 3,177 22.2% ..... 5.8%
Hubei .......9,485 13.6% ..... 3,462 21.6% ..... 5.8%
Hunan ......9,513 12.7% ..... 3,514 21.1% ..... 5.8%
Anhui .......9,356 18.2% ..... 3,584 19.9% ..... 5.7%
Jiangxi .....8,536 12.1% ..... 3,067 21.2% ..... 5.1%
Shaanxi ....9,346 15.6% ..... 3,023 25.3% ..... 5.6%
Gansu ......7,329 13.7% ..... 2,049 27.4% ..... 2.8% Rural income up almost ten times more than inflation! but still < 1/3 of urban income
Ningxia......8,084 12.4% ..... 3,070 17.2% ..... 7.2%
Qinghai .....7,032 8.7% ...... No rural data ..... 8.2% Income up only slightly more than inflation.
Xinjiang ............ 15.9% ............. 24.5% ..... 5.7% (In Mongolia?)
Tibet ...... 1,546 15.2% ..... 1,546 15.2% .. No data
Sichuan ... 9,388 14.9% ..... 3,510 20.1% ..... 6.0%
Guizhou ............ 13% ................ 20% ...... 5.0% (In Mongolia? Or just not yet available?)
Yunnan ... 8,048 12.1% ..... 2,020 12.8% ..... 4.0%
Guangxi ... 9,484 8.8% ...... 3,208 23.1% ..... 6.9% ..."

Above text (except for blue text) and data from:
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Forbes has just listed the top 100 women in global importance. Brazil’s President is #3, behind Germany’s President, #1 and Hillary Clinton. Surprisingly, the new head of the IMF was only #9, but Brazil has a growing economy and more cash than the IMF.
Some details on China's "Go West" interior development program -& why China is still growing with near double digit GDP, rapidly rising salaries and low unemployment:

"... Chongqing is one municipality covered by the go-west strategy, which also covers six provinces Gansu, Guizhou, Qinghai, Shaanxi, Sichuan and Yunnan; and five autonomous regions, Guangxi, Inner Mongolia, Ningxia, Tibet and Xinjiang. ... The mainly inland and rural west, far from ports and with poor road links, had been badly left behind.

Successes of the go-west campaign are everywhere to be seen. According to official statistics some $325 billion (224 billion euros) has been invested in major infrastructure projects in the regions, including new roads, rail links and airports.

These have included flagship projects such as the 4,000-km West-to-East gas pipeline project, the second of which has recently opened, the near-2,000-km Qinghai to Tibet railway, which was completed in 2006, and the new extension of the Xianyang Airport in Xi'an, Shaanxi province. Last year, the Chinese government announced it was to invest a further $100 billion in 23 new infrastructure projects. Companies relocating also benefit in some areas from lower corporate tax rates of 15 percent instead of the national 25 percent.

Goods can now also be transported by rail to Europe in 15 days through Xinjiang, Kazakhstan, Russia, Poland and Belarus and then into Duisburg in Germany without having to go through customs borders under the new Safe Smart Trade Agreement China has with the European Union. Guo Jian, general manager of the Xiyong park, says this puts Chongqing in a very good position to export goods made in the area. ...{Billy T notes: Part of why China now trades with EU more than the US.}

In Chongqing, major companies such as Hewlett-Packard no longer consider that (distance from ocean ports) a problem. It now produces laptops
in the 37-sq-km Xiyong Micro-electronics Park in Chongqing which are manufactured by Taiwanese companies Foxconn, Quanta and Inventec acting as ODMs (original design manufacturers). ... {Billy T notes: Foxcomm has just accounced it will buy and use a million robots to produce so its worker can move to more challenging electronics design tasks, etc. I.e. soon China will say to US: "We don't need you to buy our products OR DESIGN THEM."}

Last year around a third of the park was designated as a Comprehensive Bonded Zone by the central government, which means companies can bring in components and raw materials free of customs duty and value-added tax and also have a fast export processing service through Chongqing customs.

Some 200 companies are in the park and the number of employees is expected to double from 50,000 to 100,000 by the end of this year. Because of the nature of the work, many are recruited from adjacent universities, where there is a potential talent pool of some 300,000 students. ...

Zheng Xuena, 25, who is single and a graduate from Chongqing University, earns 2,000 yuan a month for a 40-hour week as a test engineering assistant. "The work here matches my major. A lot of my classmates are coming to work for technology companies here. "I think I would have a comparatively harder life in Beijing or Shanghai. I rent a room at the moment but maybe later I will be able to afford a property here which I might not be able to do elsewhere."

Xu Qiang, deputy director of the Chongqing Development and Reform Commission, says it is these types of opportunities that are attracting 500,000 people back to Chongqing every year. "Ten years ago there were few opportunities ..."

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China’s “little mermaid” in Xianglu Bay, has become the landmark in Zhuhai, South China's Guangdong province. (Better looking than the Danish one, I think.)

"Located at the heart of the Pearl River Delta and in one of China's earliest economic development zones, Zhuhai enjoys superior seaport and land transportation facilities, efficient logistics services …By the end of last year, 11,064 foreign direct investment projects from 70 countries and regions had been approved in Zhuhai, …Almost 40 of the Fortune 500 corporations have invested in 85 projects in Zhuhai, and the city has its eye on even more investment, particularly from Western countries. … The apparatus needed to grease the wheels of commerce is also in place, with more than 50 financial institutions operating in Zhuhai, seven of which are foreign banks, including Morgan Stanley, Bank of East Asia and Standard Chartered. …”

Brazil has [...]more cash than the IMF.
Really? That's kind of funny.
Brazil's reserves now stand at ~$300 billion, but the IMF can, like the US, make money out of thin air within limits of its credit with its member nations.
They do have more (already mined) gold than Brazil does.
About a year ago, Brazil gave the IMF a loan - I.e. they bought some IMF bonds, in part to reduce the dollar holding in their reserves. Brazil also bought some bonds of Italy for the same reason, but that was jumping from the frying pan into the fire. I'd like to see Brazil buy gold with dollars as Indian & China etc. are doing.
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China and Brazil both are rapidly and very significantly elevating the material living standards of the less fortunate in their societies. That means million of people getting refrigerators, motor bikes, etc. for the first time. That internal demand is making strong inflation pressures, with which the governments cope slightly differently. China can and does limit the credit / loans banks can give.* Brazil makes it very costly to buy on credit – basic interest rate is 12.5%, not essentially zero as in the US where the problem is lack of growth, not excessive growth. Here is picture of the slowing Brazilian economy, GDP, quarter by quarter with comparison to one year earlier:

1Q10 GDP = 9.3
2Q10 GDP = 9.2
3Q10 GDP = 8.7
4Q10 GDP = 5.0
1Q11 GDP = 4.2
2Q11 GDP = 3.1 The whole world, even China to a small extent (9.7 to 9.5% in last quarter), is watching their GDP drop. US will soon be officially back in recession many, me included, think with QonQ negative GDP growth.

Here is how 2Q11’s GDP was achieved by sectors (with some Billy T comment following) but compared to 1Q11, to show what is now changing and why:

Imported: 6.1% - The Real is very strong.
Exported: 2.3% - The Real is too strong. Hard for factories to export.
Capital growth: 1.7% - World’s highest real interest rates charged and paid on savings.
Government spending: 1.2%
Family spending: 1.0%
Services provided: o.8%
Industrial production: 0.2%
Agriculture: -0.1% This despite higher prices for crops as weather limited production.

Most of the world’s farmers had weather problems so food and fiber cost are rapidly increasing much faster than salaries, except in China. (See regional breakdown of nearly double digit REAL salary gains in post 441) The fact that so many more now in the BRICs can afford to eat more meat is also diving up food cost as a calorie of animal protein take 3 to 8 calorie of grain to produce. (Chicken and farmed fish near the 3, pork in the middle, and beef near the 8)

* However, that does not work as well as it should as the Chinese have a long history of forming private self loan groups where members lend to each other at several times the interest rates of banks. The default rate is very low as not paying back to the people you often see is very destructive of "face." Bank deposits return less than inflation real interest, so the total of loans made by these self lending groups is very large, but not well known as not recorded anywhere.
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“…The global economy is entering "a danger zone" this autumn and China should hasten the transformation of its economy from being export driven to consumption-led, Robert Zoellick, president of the World Bank, said. … "I think it's a good sign that the 12th Five-Year Plan (2011-2015) has recognized the need to shift the nation's growth model," Zoellick said.

As China is committed to increasing domestic consumption, import growth is expected to outpace exports for the rest of the year, a recent report by UBS said. UBS reduced its 2011 forecast for China's GDP growth to 9 percent from 9.3 per cent, and from 9 percent to 8.3 percent in 2012.

In an article released last Thursday, Premier Wen Jiabao said reining in soaring consumer prices was China's top priority, as it had been for most of this year, … The consumer price index, a major gauge of inflation, hit a three-year high in July of 6.5 percent on higher pork prices. The UBS report predicted it would be moderate in August and fall further in the autumn. "Premier Wen mentioned it is a primary concern, I think it can be dealt with," Zoellick said.

Billy T comment: UBS, World Bank, etc. are all now confirming what I predicted years ago: The US and EU are broke and can only buy China’s exports if China lends them the money (buys Treasury bonds) Furthermore, US and EU’s economies are in accelerating decline, probably both will be back in technically defined recession by mid 2012.

I.e. China had no choice but to switch to a larger domestic demand* economy, with every increasing percent of its still large exports going to other prosperous Asian nations and less to US and EU. China wants to reduce, not increase, the dollar fraction of its reserves, so when it can keep high GDP growth without exporting to US (and EU) China will tell the US to:

Go to Hell. Your green paper is worthless to us. We don't need to sell to you and we will no longer finance your debts.

* The CCP did not want to give a better life to the masses. The CCP was happy with them working long hours in sweat-shop conditions for meals in the export company’s cafeteria and a bunk in the company dorm. The CCP understands well that eventually it is politically dangerous to the CCP for the masses to prosper as after they have a motor bike, housing, full bellies, (a little pork every day, etc. instead of only rice and greens) and the internet telling them about democratic ideas, speaking your mind, even being critical of the government, etc. they will want political changes too.

But, as I said, with US and EU going down the economic tubes, the old export to the West model was dying too. – No choice but to grow the domestic market and have the CCP claim credit for the improving prosperity of the masses (and hope that will stem their desired for political change too, at least for a few decades.)
This is what EU's "knight on a white horse" looks like:

"... Stocks rallied hard into the close {9/13/11}, as traders were looking for a “white knight” move from a major player to alleviate the constantly worrisome financial turmoil in Europe. Well, that report turned out to be slightly erroneous, as China plans to purchase Italian industrial assets, not bonds. While this was a disappointment to markets, the bulls had no problem pushing things higher after it was finally confirmed that German Chancellor Merkel, Greek PM Papandreou and French President Sarkozy would hold a conference call Wednesday.

The market would get one more piece of “white knight” news before the close, which led major indices to rally in the late afternoon back up near session highs - About an hour before the close it was announced that the BRICS nations would meet in Washington next week to discuss potential action to aid the euro zone, and that nations were already in “preliminary talks.” ..." From:
Recently Brazil cut the nominal interest rate from 12.5 to12% but more importantly here is the real (inflation adjusted) rate:


One result of this rapid reduction in real rates (now less than 6%) is that funds are leaving Brazil so it takes more Real to buy the dollars (for sending out) now. Currently 1.72 instead of 1.54 R$/$ only a month ago when Real was excessively strong.

This is good for Brazil in two ways:
(1) Brazilian exporters can sell their products to the world better with the now weaker Real.
(2) The US's low rates (actually negative in real terms) were flooding the Brazilian (and other) economies in a "carry trade."- US has been "exporting inflation" to most of the world for a few years now, and now will do less of that.

Thus inflation rates in Brazil and China, etc. are coming down. This may permit Brazil to cut the basic interest rate below 12% soon without stimulating inflation.

A quote from same source as the graph:
"Latin American stock markets and currencies are likely to do better than those in the United States and developed economies. Basically the world is growing on two tracks: The old world order, including the U.S., versus the newly emerging markets, which are growing twice as fast.

Investors shouldn't view Latin America merely as an exporter of goods, agricultural commodities and raw materials to the developed industrial world. The region's rapidly expanding middle classes are spurring huge gains in internal consumption of an array of home-grown products and services. ..." From: Email I got today from:

In a few years neither Brazil nor China will need the USA to buy it goods. Brazil already trades more with China than with the US. That too is good as the US is going broke and will not be able to buy much from either. Will even find it hard to import the oil it needs.
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'...The WSJ is reporting that Brazilian Finance Minister Guido Mantega said that Europe needs to save itself before it can count on support from emerging market countries.

The article notes that Mantega’s views were similar to those recently expressed by Chinese officials. The argument is that there is more that Europe can do for itself before it seeks outside assistance. ..."

There had been some discussion of Brazil lending the IMF 10 Million dollars so it could help out.
Paris Hilton, was promoter for local Brazilian beer (Schins..”)– and greatly boosted sales, but went a little too far (even for Brazilians) in her “displays” so was legally blocked from doing more. Now “AB InBev will also promote Budweiser through sponsorship of music events including concerts by singer Rihanna, and will work with so-called “Buddies,” well-known Brazilians, to help raise awareness of the brands.” Here is photo of Rihanna performing:

Unlike post 452, that's no bull.
'.... French President Nicolas Sarkozy told President Barack Obama that the yuan should be included in the International Monetary Fund’s Special Drawing Rights system, a French presidential official said.

Moving toward including the yuan in the SDR basket has been a goal of Sarkozy’s this year as France seeks to shape the international financial system during its one-year leadership of the Group of 20 major world economies.

Including the yuan in the SDR, a unit of account derived from the value of the dollar, yen, pound and euro, would further integrate the Chinese currency into world markets. ..."
China has cut the export part of it GDP by 25%:

"... the Chinese economy is less dependent on exports for growth now than it was in the last global economic crisis. In 2008, the year of the Lehman Brothers bankruptcy, exports made up 35% of China’s GDP, according to the World Bank. By 2009, the last year for which the World Bank posts data, the percentage was down to 27%. ..." From:

Billy T comment:Exports to other Asian nations (and suppliers of energy& raw materials, like Brazil, Canada) are a growing fraction of all exports. Also the domestic economy is now more of GDP than exports (but still mostly investments). So, yes, as I have long forecast, the day is coming when China will tell the US to: "Go to hell.
We don't need you to buy our exports and we will no longer finance your deficits.
China has cut the export part of it GDP by 25%:

Well, of course - their main export markets have been hit by a recession, and they've made up the gap with a massive, unsustainable boost in investment. Raises some questions about what the composition will be in a few years - if exports aren't driving growth, and you can't boost investment any further, and consumption is still being suppressed, then... where is the growth supposed to come from?

So, yes, as I have long forecast, the day is coming when China will tell the US to: "Go to hell.
We don't need you to buy our exports and we will no longer finance your deficits.

This mantra is oblivious to the fact that the USA won't need China to finance deficits once China develops to the point of not needing to rely on the USA for export-driven growth. I.e., such an outcome is exactly what was expected and planned all along, by both parties. So why do you persist in presenting it as a negative for the USA and a boon for China?

You should take a gander at this article:,0

"According to most political commentators, there are two main privileges accruing to the United States as a function of the dollar's reserve status. First, it allows the United States to consume and borrow beyond its means as foreigners acquire U.S. dollars. Second, because foreign governments must buy U.S. government bonds to hold as reserves, this additional source of demand for Treasury bonds lowers U.S. interest rates.

Both claims are muddled. Take the first. It may be correct to say that the role of the dollar allows Americans to consume beyond their means, but it is just as correct, and probably more so, to say that foreign accumulations of dollars force Americans to consume beyond their means.

Can foreign governments really do this? It is easy to dismiss the argument with a snappish "No one puts a gun to the American consumer's head and forces him to consume!" This is, indeed, the standard rejoinder. But this absurd argument only indicates how confused most people, even economists, are about balance-of -payments constraints.

The external account is not simply a residual of domestic activity, even for a large economy like that of the United States. It is determined partly by domestic policies and conditions, but also by foreign policies and conditions, which in the latter case directly affects the relationship between domestic American consumption and savings.

How so? When foreigner central banks intervene in their currencies -- and otherwise repress their domestic financial systems -- they automatically increase their savings rate by forcing down household consumption. As their savings rise, the excess must be exported, often in the form of central bank purchases of U.S. government bonds.

If there is no change in the total amount of global investment, and since savings must always equal investment, by exporting their savings to the rest of the world, the savings rate of the rest of the world (i.e. their trading partners) must decline, whether or not they like it. The only way their trading partners can prevent this is by themselves intervening.

This is why when commentators insist that only an internally generated increase in the U.S. savings rate can reduce the trade deficit (and thus it is useless to look abroad for solutions), it is because they do not understand the global balance-of-payments mechanism. But U.S. savings -- like that of any open economy -- must automatically respond to changes in the global balance of savings and investment.

This may seem counterintuitive, but it automatically follows from the way the global balance of payments works. If foreign governments intervene in their currencies and accumulate U.S. dollars, they push down the value of their currency and will run current-account surpluses exactly equal to their net purchases. Purchasing excess amounts of dollars is a policy, in other words, aimed at generating trade surpluses and higher domestic employment.

The reverse is true as well: Because its trade partners are accumulating dollars, the United States must run the corresponding current-account deficit, which means that total demand must exceed total production. In this case, it is a tautology that Americans are consuming beyond their means. "

The article above merely discusses the mechanics of the currency account. What it neglects to mention is that in the process of consuming beyond their means, the American manufactuering base has been decimated with companies moving abroad.

By the time China does not have to export to the US, the US will be left with nothing more then a big pile of useless dollars.

If the world reserve currency is no longer the USD, and is replaced by another (say the yuan), how in the world is the US going to find enough yuan to buy its oil? The US then will only be able to rely on it agricultural and natural resource exports (coal, etc.)

It will take a LONG time before US manufacturing can catch up again b/c:
1. US factories and expertise need to be built from ground zero in many industries.
2. Technology transfers to China have jump started many Chinese industries (see solar, high speed rail, etc.)
Well, of course - their main export markets have been hit by a recession, and they've made up the gap with a massive, unsustainable boost in investment. Raises some questions about what the composition will be in a few years - if exports aren't driving growth, and you can't boost investment any further, and consumption is still being suppressed, then... where is the growth supposed to come from?
Well we completely agree that:
(1) exports to the west are declining (in large part due to declining economies of the West and also very importantly due to the "deleveraging" of debt by western populations - saving instead of borrowing to buy Chinese products)
(2a) conversely exports to other Asian nations, who now supply China with the low value added components, which cost too much to make in China with its rapidly growing real wages, for incorporated into China's high value added products are rapidly growing. (For example, the fan of the HAC system in a new Chinese car was probably imported for Vietnam, etc. so now Vietnam earns and can buy Chinese exports, like digital cameras, without needing loans from China as the US does to buy Chinese products.)
(2b) Exports to non-Asian nations like Brazil and Canada are also growing as they too do not need Chinese loans to buy but earn the purchase money from their exports to China of needed food stocks, energy & raw materials. For example China supplies Brazil with more imported cars now than the US does yet three years ago sent none to Brazil.
(3) China's huge investment in infrastructure, (new cities, high speed rail, power plants, green energy systems, etc.) is unsustainable for more than about a decade more. It must be replaced by expanded domestic consumption. Why China is developing retirement and pension systems. (To reduce the population's traditional ~50% saving rate). Why China has cut the out of pocket cost of heath services 50%. Why China's salaries are growing in real purchasing power ~ 10% annually. Why China is now allowing millions of tiny farm plots to be leased to corporations with tractors etc. to make only a small part of population work as farmers (and the big commercial farms are much more productive. - Has world's highest wheat yield / per acre). Etc.

All of which brings me to the answer of your question:
"Where is the growth supposed to come from?" (after infrastructure building greatly slows)

From the most rapid and largest expansion of a middle class in human history. At least 500 million former farmers will move to cities during the next decade. With the land rent lease money and their city jobs, their purchasing power will then exceed that of all Americans. (And not just because the US & EU will be in deep depression then.) Controlling the inflations their demand for goods and service makes will be the main problem, not the lack of domestic consumption demand you seem worried about. The first sector where this growing demand is striking / inflating / is food. Living on greens and rice is no longer acceptable to the Chinese masses. The price of pork is doubling every year and half! China has more pigs now than the rest of the world does, but it is not enough. China needs twice as many pigs as the rest of the world’s total! China’s imports of gains to feed them will also grow proportionally. Etc. China is the “engine of economic growth” for all the world by 2020.
This mantra is oblivious to the fact that the USA won't need China to finance deficits once China develops to the point of not needing to rely on the USA for export-driven growth. …
So you expect the US’s revenue will equal it expenses? You must believe in the tooth fairy giving the US money too. – I think there will less revenue and much greater deficits due to:
(1) The growing cost of the shrinking middle class (I.e. less taxes paid and more on food stamps, more foreclosures, higher unemployment, more bank failures or bailouts, etc.) and
(2) FED’s “twist” will fail to reduce these growing problems, as it did the last time it was tried. Thus QE3 etc is coming and the dollar's status as the “safe haven” will end. I.e. fewer fools will be buying 10 year Treasury paper for yield of 1.8% with inflation making that a negative real yield. Interest rate will rapidly rise, dramatically. Even just doubling will greatly add to the deficit as US owes trillions it pays interest on.
"According to most political commentators, there are two main privileges accruing to the United States as a function of the dollar's reserve status. First, it allows the United States to consume and borrow beyond its means as foreigners acquire U.S. dollars. Second, because foreign governments must buy U.S. government bonds to hold as reserves, this additional source of demand for Treasury bonds lowers U.S. interest rates.
That WAS true, but is not a "God given” law of economics. President of France recently proposed the RMB (yuan) be part of the IMF’s SDRs. China is taking more steps every year to make the RMB a potential currency for governments to hold in their reserves. (About 20 governments have already made currency swap arrangements with China to avoid settling trade imbalances in dollars; Brazil is one of many.)

China is world’s largest producer of gold (and a major international buyer, but selling none). I have noted that already they could back the RMB with gold for central banks (only) if they chose to. (Few central banks would trade in interest paying RMB bonds for gold, as is the case now. They hold interest paying Treasury bonds even with their value declining most years. WRT to the dollar the RMB is up about 10% in last few years.) Read more on this at: and also note there that China is spending dollars from reserves to buy global companies, especially if they have high technology China wants, like "fracking" to get NG from shale deposits, etc.

SUMMARY: As I have noted in many posts, China is not yet ready to see the dollar collapse. (US go to hell.) Needs to grow less dependent upon exports to the US (and EU) and become more of a domestic driven economy (with exports to those that do not need loans to buy). AND, spend down more dollars from its reserves in long term delivery contracts for energy (oil, coal, and NG), food supplies, and raw materials (and high tech companies)*. Even if half the value of dollars in reserves were totally lost, That is a ONE TIME loss, rapidly made up by the EVERY YEAR saving on the cost of it imports (oil, etc.) with the US and EU in deep depression and buying little in competition. There simply is not enough oil production to supply China’s rapidly growing needs in ten years if the US & EU are buying for their current needs. The price of oil will be so high that only China has the funds to buy its needs – US & EU will need less when in depression to keep that price from being > $500/ barrel for China (of course then it will not be priced in dollars any more.)

I don’t disagree with most of the rest of your post, except to note that what has been need not be the case in the future.

* For example, Hitachi, maker of 45% of the world's Rare Earth magnets, recently announced that it was considering moving its production (and its world leading technology) to China. That will lower its labor costs and give Hitachi assured access to the Rare Earths it needs. What is very likely IMHO to happen is that once again China will destroy the West ability to produce Rare Earths.

This time instead of selling the REs more cheaply than the west can, they will sell Chinese made RE magnets etc. cheaper than the west can make them. China is very skilled at "economic hardball." Why a couple of weeks ago, when I first read in Forbes of Hitachi's plans, I told all in a post not to invest in MolyCorp despite many financial advisers telling it was a good buy. - There will be no buyers for their REs when there are no western makers of RE magnets, etc.
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"Where is the growth supposed to come from?" (after infrastructure building greatly slows)
From the most rapid and largest expansion of a middle class in human history. At least 500 million former farmers will move to cities during the next decade.

Let me use Brazil to numerically illustrate what lifting peasants into the middle class can do for domestic demand; but first note Brazil’s population is only 190 million and China’s is about 1.38 trillion or ~7 times greater.

About 12 years ago, Brazil began the “Bolsa Familia" program which gave modest (to urbanites) monthly cash grant (on the order of $100 now but less originally) to the rural poor IF they kept their kids in school until age 18. Prior to Bolsa Family most boys and nearly 100% of girls dropped out of school when they could barely read to work at home or in the fields with their father. Bolsa Family has more than paid for itself due to these formerly “outside the cash economy” farmers now buying in their village when the multiplier effect of these purchases shows up in greater taxes from many merchants. The 2nd requirement to collect was that all had to get their free vaccinations. – The saving in state’s medical costs (preventive medicine in a free public medical system) has also paid for the Bolsa Family expenses. Here is the economic result 12 years later:

“…In the next decade demand for energy is expected to increase by around 60 percent in Brazil, fuelled by millions of people spending more on consumer goods for their homes and cars, economic growth continuing to outstrip that seen in developed nations …

A consumer spending boom is expected to see the average number of televisions per home rise from 1.37 to 1.71, the proportion of homes with washing machines increase from 64 to 74 percent and the proportion with air conditioning to rise seven percentage points to 27 percent. …

Production of steel in Brazil could double in the next decade with cement and aluminium also likely to rise almost two-fold. The industrial and transport sectors will account for two thirds of the country's total energy demand in 2020. …

The principal new hydropower project is the 11,233-MW Belo Monte dam to be built on the River Xingu in the state of Pará in the Amazon, which is due to start generating power in January 2015 with its full potential online by January 2019. It will be capable of supplying enough power to serve 18 million homes housing 60 million people,…

Renewable sources, such as biomass, small-scale hydropower and, principally, wind will see the 9 GW they accounted for last year triple to 27 GW in 2020. This will take their contribution to the country's electricity supply from eight to 16 percent, keeping the overall contribution of renewables to electricity at 83 percent. …
Quotes from:

Billy T explains “keeping” Although hydro power is rapidly expanding other renewables are expanding even faster so hydro will be only ~75% in 2020 of the 60% greater generation! By some measures, Brazil’s 30 year old hydro plant is still the world’s largest (China’s five year old hydro plant was designed to be slightly bigger by several measures – concrete used etc. But Brazil’s new Belo Monte plant will be third largest in the world with # 4 far behind.)
SUMMARY, wrt China: Brazil lifted 40% (76 million people) of its population out of their rural “cashless poverty” (Not real poverty as they raised all their needs, from tobacco to pig lard for cooking on their wood stove.) China is just starting to do the same for its “cashless” rural masses but proceeding even more vigorously. As 7x76 = 532, in less than a decade there will be at least 500 million more Chinese living in new cities and for the first time part of cash economy. As I noted in my prior post not only will they have the salaries from their city jobs but also the land lease rent from the corporation using their former farms to spend.

As this math and historic example from Brazil shows, Quad’s concern that when China slows its infrastructure spending (as it must by end of this decade) that it will not be compensated by increase in domestic demand is silly beyond words. The real purchasing power of Chinese salaries is increasing by ~10% annually*, their medical out of pocket cost have already been cut in half and new pension and retirement plans are being introduced. Thus, no longer will Chinese save 50% of their income for old age costs. They may not spend 110% of their income like Americans did until a few years ago, but they will spend – more than all Americans do or can now that they are “deleveraging” to pay for old sins of excessive spending.

* That of course is average for the 1380 - 500 million in families who already have at least one salaried job per family. The increase for the 500 million former “outside the cash economy” farmers is of course, infinite!
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