The fool's game: US, China misfire on rights and reserves

PUBLISHED : Sunday, 06 May, 2012, 12:00am
UPDATED : Sunday, 06 May, 2012, 12:00am

Clinton, who co-chaired the opening of annual bilateral talks in Beijing yesterday, urged China to protect human rights ...

SCMP, May 4

Earlier this year, a missile fired by a CIA-operated drone killed a Yemeni doctor who had devised medical procedures that could be used to surgically plant explosive devices in humans, several US officials said.

SCMP, May 3

Not being a medical man, I am not sure quite how big a medical breakthrough was required for this implant procedure. I imagine it was not much. Implants are a well-established technology, and in this case there would be no great emphasis on keeping the patient alive for long.

As I also understand it, this Yemeni doctor did not actually implant bombs in humans but came up with a procedure that could be used both ways - for either benign or sinister purposes.

Leaving aside whether it is a crime to devise such a procedure, we are assuming here that this doctor actually did it, which we must take on the word of a spy agency that has a professional interest in keeping people worried about their safety and the word of a government that spun us a line of prize-winning whoppers for starting a war in Iraq.

Yet without charge, without judge or jury and without a chance for the accused to state his own case, an assassin master in Washington took it upon himself to have this doctor murdered - outside US legal jurisdiction and for an offence that is not on any statue book.

He gave his orders to a group of Nintendo warriors sitting in air-conditioned comfort inside an air force base somewhere in the prairies, they tweaked their joysticks, pressed the red button and the drone did its work. 'Another bad guy pasted, sir. Pass me a coke.'

And Hillary Clinton has the gall to lecture China on human rights.

China, the No1 holder of US debts, has defended its overseas investments ... claiming it made money from its outbound assets every year over the past eight years.

SCMP, May 1

The exact profit figure last year was reportedly US$128 billion, implying a more than 4 per cent return on an average of US$3.15 trillion in foreign reserves. That's not bad at all.

But I have a few caveats. This 4 per cent could not have come from dividends and bond yields alone. No-one was offering that much. My guess is that it includes unrealised capital gains on the bond portfolio.

The figure also doesn't take account of the carrying costs of the yuan debt raised to acquire gargantuan reserves. These interest costs were suppressed by edict, of course, but note that short-term yuan interbank rates now stand at well over 5 per cent.

There you have the real cost of yuan funding even if the People's Bank of China made others pay it. I say the real net yield on these foreign reserves is actually negative, not positive.

And if we are to include unrealised capital gains, what about unrealised capital losses? The top line on the chart shows you what the PBOC claims as the yuan value of its foreign exchange holdings. The bottom line shows you the value of foreign reserves after converting the official US dollar figure to yuan at prevailing exchange rates.

What has happened here, of course, is that the steady strengthening of the yuan against the US dollar has eaten away at the yuan value of the reserves - without changing the yuan costs of acquiring them.

The PBOC is thus carrying on its books an unrealised foreign exchange loss of about 2.6 trillion yuan (HK$3.2 trillion), or about 120 times its own capital.

Made money every year for the past eight years, you see.