Is yuan ready for the big league?

Over the past few months, the Chinese stock market, rather than its real economy, has been making headlines. The index rose almost 50% between March and mid-June before coming back to the March level over the next four weeks, when the authorities took several steps to halt the slump. These moves—like reducing interest rates, restricting margin trading, getting some state-controlled organizations to buy equities or provide margin money, suspension of trading in a number of shares, etc—are standard measures which all policymakers, including those in Anglo-Saxon economies, take when a bubble in asset prices bursts.

Market euphoria and gloom are recurring features of all financial, or asset, markets, and exaggerated when leveraged, or margin, trading is preponderant. To recall a few examples from the supposedly deep and “mature” US financial markets: the October 1987 crash of the stock market; the “rescue” of Long-Term Capital Management, a hedge fund, by the Fed “persuading” several banks to take it over; the bursting of the dotcom bubble in 2000; and the 2007-08 crisis in the mortgage securities market. The US Federal Reserve is famous for writing a “Greenspan put” option in favour of markets.
More important in the long term is the way China has been fostering the internationalization of the yuan. A few years ago, Arvind Subramanian, now India’s chief economic adviser, wrote a book titled Eclipse: Living in the Shadow of China’s Economic Dominance. His argument is that, given the size of China’s economy (the world’s largest in purchasing power parity terms) and trade, and the fact that China is the world’s largest creditor nation while the US is a very large debtor, China is likely to become the dominant financial/economic power in the near future.

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Dalai Lama’s 80th Birthday: Continuing Stalemate On Tibet Issue – Analysis

As the Dalai Lama exiled in India turned 80, the situation regarding the Tibet issue has reached a crucial stage. There seems to be no chance of resumption of talks between Beijing and the representatives of the spiritual leader as deep differences between the two sides persist; the last contact was five years ago. China’s economic and security policies have led to an overall stability in Tibet; its international economic clout has grown leading to a weakening of foreign support to the Dalai Lama’s movement. With these as basis, China may feel confident about its ability to control events in Tibet and despite some internal viewpoints in favor of a soft line towards the Dalai Lama, China may not be in a hurry to reach a rapprochement with the latter. It is quite possible that China would choose to wait for the passing away of 14th Dalai Lama and appoint his successor on its own within the country in which case it can hope for a close to the Tibet issue once for all. Till such time, there may not be an end to the prevailing stalemate with respect to the Tibet issue. The stalemate has negative implications for relations between India and China though the Tibet issue is not a bilateral political problem among them. Any settlement of the issue between Beijing and the Dalai Lama can contribute to creating a right atmosphere for solving the vexed India- China border problem which was once non-existent and arose only after China liberated ’Tibet.

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