So this week, much to everyone’s surprise, Beijing blinked.
For months, China has been under growing pressure to let the value of its currency, the yuan, rise to reflect China’s growing might and to meet America’s need for a weak currency export competitiveness boost to get it over this indigestion it’s still experiencing.
For months, China has resisted, while continuing to lap up US Treasury bonds, the next tranche of which was signalled this week by US Federal Reserve chair Ben Bernanke.
Already known already as “QE2”, or the second round of quantitative easing – the polite rich world way of saying “printing money” – there would appear to be a truck-load more American debt coming to market to keep things moving in the world’s biggest economy as the fiscal expansionism recedes.
Everywhere in the First World, governments are spending less than they were to keep the ship afloat during the financial crisis. Now, it seems, monetary policy will pick up some of the slack, leaving global interest rates low for the foreseeable future.
What a pity everyone’s too gun-shy to bolt for equities at times like this.
However, this week, the Chinese authorities signalled what everyone has suspected – their economy is growing far too fast, inflation is a risk, and it’s time to cool it. Data due for public release today should confirm this.
So, Chinese official interest rates went up, in the first serious response to Western pressure to recognise the inevitable: that China is getting rich fast, and that rich countries’ currencies get stronger.
Just one problem: unlike the West, there’s no market-driven link between official interest rates and the exchange rate. So, from a US perspective, the yuan is as undervalued as ever, since higher interest rates have had no impact on the currency.
Still, just to show they’re sometimes willing to play fair, China has changed one thing. Instead of raising its official interest rate by, say, 23 or 27 basis points, it has this time gone for 25 basis points.
To those who watch these things closely, that in itself is significant. The obtusity of picking interest rates that resembled but weren’t the same as the West’s was a long-standing part of Chinese Communist Party repartee.
The use of a 25 basis points move is seen as a finger-wave in the direction of falling into line with Rich World standard financial practice.
Meanwhile, in China itself, Fonterra has just announced it’s spending $42 million on another Chinese dairy farm, to be stocked with cows from New Zealand.
Not a huge purchase, but obviously important enough for Fonterra to drag a bunch of New Zealand journalists to Beijing to see the deal inked, among them our own Jonathan Underhill.
Intriguingly, given the debate at home on foreign ownership of farmland, the Fonterra deal is underpinned by a long-term lease, private ownership of land being impossible in the People’s Republic.
And the deal coincides, whether by design or accident, with an impassioned proposal from a Beijing resident Kiwi business leader for New Zealand to adopt a leasehold model to deal with New Zealanders’ fears about foreign farmland sales.
David Mahon is no dummy. He’s one of the most respected sources of advice for New Zealanders looking to trade in China and head of New Zealand Trade and Enterprise’s Beach Head Programme there.
By converting all farmland to leasehold, Mahon says New Zealand could more easily deal fairly and rationally with Chinese or any other foreign investor.
To do otherwise – especially to ban foreign farm ownership – would be an “irrational, retrograde and racist act,” Mahon says.
“New Zealand must not even suggest a return to those paranoid years.”
Could Mahon be onto something? The Save the Farms campaign has enough money to gain traction, and the festering national debate on foreign, especially Asian, farmland ownership continues. Could a leasehold approach lance the boil?
Think about it: the apparently unachievable demand by Federated Farmers chairman Don Nicolson for “reciprocity” of investment rules between nations that buy our farms would be achieved with Chinese investors if they could only buy long-term leases, not the land itself.
“The question before New Zealand is not how to block foreign investment in the agricultural sector, but rather how to prevent the purchase of agricultural land by interests that will not develop it to its full potential,” says Mahon.
“As long as land can be purchased without the obligation to use it for the common good of all New Zealanders, the country’s economic future, which depends so much upon agriculture, is in doubt.”
Of course, there are a few snags. Leasehold land is less valuable than freehold, so anyone looking to sell or concerned about the value of their land is not going to like it.
But hey. Just today, an anti-union protest in Wellington involving the groovily grungy film production community way out-numbered an earlier protest march marking a national day of trade union action and solidarity.
These are topsy-turvy times. Anything could