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WTF? - Chinese Construction Company Nets $100M New York Subway System Deal

RedlightG20

By RedlightG20
in The Tailgate

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Larry

Larry

Posted
Posted
Here's the thing about contracting work to foreign countries that perhaps many don't realize. These firms are paid in U.S. dollars. Where are they going to spend that currency? Most likely, on U.S. goods. Although the U.S. currency is recognized, trusted and respected in almost every country of the globe and can be exchanged on most international markets, ultimately, all money leads back to the U.S. It doesn't just magically disappear.

Problem with your reasoning (which I have been stating for over two decades) is that by that reasoning it's impossible for the US to run a trade deficit, because the money has to come back here.

(I suspect that the reason for the disparity is that what's happening is that the dollars are going to China, and China is loaning them back to us.)

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sjinhan

sjinhan

Posted
Posted
Anyone know how much money US Firms made on the Three Gorges Dam project in China?

Looks like it was there for the US corporation's taking but of course we decide to shoot ourself in the foot. I am sure US companies made money off this project but we really should have cleaned up.

http://www1.american.edu/TED/3gorges.htm

China, of course, cannot tackle this immense project on its own. Foreign expertise, technology and financing are all critical elements in the Three Gorges project. Over the last several years, a coalition of environmental, developmental and human rights groups around the world (NGO's) have been campaigning against the project, calling attention to its environmental as well as its social impact. As a result of their efforts, the US National Security Council concluded that the federal government should avoid involvement in the project. In May 1996, the US Export - Import Bank announced that it would not support loans to US companies pursuing Three Gorges contract and the US Bureau of Reclamation withdrew its support of the project. Additionally, the World Bank, the leading supporter of hydroelectric projects around the world, has declined to participate and three attempts to secure international financial support have failed since 1994.

Because of the influence of these NGO's, US corporations have lost out on huge Chinese government contracts. Of the 26 massive hydroelectric turbine units to be used in the project, 14 will be supplied by foreign firms. The contract for the first eight turbines, worth $240 million, went to a European and Canadian consortium. By being involved in the first round of contracting, these firms may be at an advantage when it comes to bidding on contracts for elements of the entire power transmission network. Thus the cost, in lost potential business, to US corporations could climb even higher.

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Larry

Larry

Posted
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Maybe I'm dumb but could you explain this a little more? I don't understand how the currency used to pay for this work has bearing on how or where it's ultimately spent. If a company gets paid in US Dollars, which is widely respected and used, couldn't they could just use that same money to purchase foreign-made trucks, tools, and other equipment back in their own country? How is it most likely to be spent on US goods? How does it ultimately get routed back into the States?

His point (OK, my point, which I think is the same as his) is that if I give Joe China a Dollar bill, what he now possesses is a piece of paper which only has value in the US. The only things he can do with that dollar bill are:

1) Buy something in the US with it.

2) Go find somebody else who wants to buy something in the US with it.

3) Stick it in a mattress, and wait a while before choosing option 1 or 2.

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Larry

Larry

Posted
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Anyone know how much money US Firms made on the Three Gorges Dam project in China?

OT, But Disney just announced plans to build a Disney theme park the size (in land area) of Disney World, in Shanghai. Obviously, Disney thinks they're going to make Big Bucks there.

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Ellis

Ellis

Posted
Posted
His point (OK, my point, which I think is the same as his) is that if I give Joe China a Dollar bill, what he now possesses is a piece of paper which only has value in the US. The only things he can do with that dollar bill are:

1) Buy something in the US with it.

2) Go find somebody else who wants to buy something in the US with it.

3) Stick it in a mattress, and wait a while before choosing option 1 or 2.

this would be a fair summary of what I'm saying. International trade, as I'm sure Larry is aware, is much, much more complicated than this. But essentially, this is how it works.

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LaxBuddy21

LaxBuddy21

Posted
Posted
His point (OK, my point, which I think is the same as his) is that if I give Joe China a Dollar bill, what he now possesses is a piece of paper which only has value in the US. The only things he can do with that dollar bill are:

1) Buy something in the US with it.

2) Go find somebody else who wants to buy something in the US with it.

3) Stick it in a mattress, and wait a while before choosing option 1 or 2.

I dont think you are taking into account the value of that dollar changing over time as we wait for that to be pulled out of the mattress and as long as it sits in the mattress and not in the hands of an American employee or company, people over here will suffer for it. Its like saying I loaned my friend $20 and he will pay me back but I dont see it for 5 years so I cant spend it that entire time. Then when I get it back I can only buy $15 worth of goods from 5 years ago so I have lost essentially $5. At least thats my understanding.

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twa

twa

Posted
Posted
I dont think you are taking into account the value of that dollar changing over time as we wait for that to be pulled out of the mattress and as long as it sits in the mattress and not in the hands of an American employee or company, people over here will suffer for it. Its like saying I loaned my friend $20 and he will pay me back but I dont see it for 5 years so I cant spend it that entire time. Then when I get it back I can only buy $15 worth of goods from 5 years ago so I have lost essentially $5. At least thats my understanding.

Aren't you overlooking the massive buying of US bonds China does?

Of course they also benefit when the dollar gets stronger

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Larry

Larry

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Yeah, the theory that I've come up with to reconcile Larry's Theory That it's Impossible To Run A Trade Deficit Long Term with the fact that we have supposedly been doing it for decades is that what's happening is that we're sending dollar bills to China, and China, rather than spending that money in the US, is loaning it back to us.

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mjah

mjah

Posted
Posted
Yeah, the theory that I've come up with to reconcile Larry's Theory That it's Impossible To Run A Trade Deficit Long Term with the fact that we have supposedly been doing it for decades is that what's happening is that we're sending dollar bills to China, and China, rather than spending that money in the US, is loaning it back to us.

Additionally, it seems to me that "Long Term" is open to definition -- so "for decades" might not actually be long term at all, as trade deficits between stable nations go.

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Ellis

Ellis

Posted
Posted
Yeah, the theory that I've come up with to reconcile Larry's Theory That it's Impossible To Run A Trade Deficit Long Term with the fact that we have supposedly been doing it for decades is that what's happening is that we're sending dollar bills to China, and China, rather than spending that money in the US, is loaning it back to us.

It's not really loaning though... If China isn't interested in buying anything at the moment, why spend it "just because"? Instead, they're "parking" the money in Treasury Bonds to at least earn interest. In the future, when they're ready to purchase goods from America, the money can just be pulled from there. I don't see a problem with that. I see parking the money having a larger negative impact on China though b/c they should be making that money work for themselves. It should be invested in goods that could develop their infrastructure and continue to expand their middle class.

I'm sure my recollection of the fine details are off a bit, but it's my understanding that China just enacted a $500billion stimulus plan for themselves. Of course, it was in their currency, not U.S. dollars. They could have easily cashed in $500billion worth of U.S. Treasury bonds and in return the U.S. could have invested in Chinese Treasury bonds (if they exist). UNFORTUNATELY for China, their continued manipulation of their currency has made it untrustworthy. If they would just come into the global economy and conduct business fairly and allow their currency to react with and against other currencies, who knows how the economy would look today.

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Hubbs

Hubbs

Posted
Posted
It's not really loaning though... If China isn't interested in buying anything at the moment, why spend it "just because"? Instead, they're "parking" the money in Treasury Bonds to at least earn interest. In the future, when they're ready to purchase goods from America, the money can just be pulled from there. I don't see a problem with that. I see parking the money having a larger negative impact on China though b/c they should be making that money work for themselves. It should be invested in goods that could develop their infrastructure and continue to expand their middle class.

You're correct about the "parking" description, but you're leaving out what Larry mentioned - the interest. Well, not leaving out, you mentioned it, but you didn't factor it in. We'll be paying over $700 billion in interest alone on our debt in a few years. Interest gets us absolutely nothing. Now, you can say that the interest is still paid in dollars, thus they'll eventually come back here, too, but that's not entirely accurate. They can also use the interest to buy more bonds. At more interest. Which sounds like a lovely, stable cycle until you get to the "pulling out" part. (Insert Chinese population joke here.) They can't actually use a lot of those dollars at once. It would collapse the system - dollar goes down, yuan goes up, China implodes. It has to be slow. As slow as the buildup has been. We're talking a couple decades. So what we're left with is a situation in which we're paying more and more in interest, at a rate that's increasing faster than the rate of inflation thanks to uber-deficits, getting nothing for it, and the Chinese can't actually send those dollars back in a jiffy. Well, I shouldn't say "can't" - like you've said, dollars will always buy something in America, even if their value drops dramatically. I'll say "won't," because it would create global economic upheaval, possibly resulting in outright revolt in China as the migrating unemployed worker force suddenly doubles. They're boxed in. So are their dollars. And the only way out that maintains stability is for us to slow the growth of interest payments down significantly while China starts dictating more and more of what happens in the US economy by putting their dollars to use.

I think I'll stick with the American company.

I'm sure my recollection of the fine details are off a bit, but it's my understanding that China just enacted a $500billion stimulus plan for themselves. Of course, it was in their currency, not U.S. dollars. They could have easily cashed in $500billion worth of U.S. Treasury bonds and in return the U.S. could have invested in Chinese Treasury bonds (if they exist). UNFORTUNATELY for China, their continued manipulation of their currency has made it untrustworthy. If they would just come into the global economy and conduct business fairly and allow their currency to react with and against other currencies, who knows how the economy would look today.

If they did that, the world would implode instantly.

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Hunter44

Hunter44

Posted
Posted
In the end, the profits of this project are going overseas, benefiting a foreign-owned company. Right now, I would feel much better with spending more money and keeping it in the country. I think the benefits of giving our business to American companies and American employees will far outweigh the benefits of saving a few million dollars on a contract with a foreign company.

Isn't this free market capitalism at work?? Or is better to give no bid contracts to all of our buddies like we did in Iraq?? :silly:

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Ellis

Ellis

Posted
Posted
Isn't this free market capitalism at work?? Or is better to give no bid contracts to all of our buddies like we did in Iraq?? :silly:

;)

I was waiting for someone to mention this. Terrible example though.

The benefit of gaining contracts from foreign firms is that in theory, they can't spend the money anywhere other than the U.S. Again, it's only "in theory". Our country has been a dominant super power for so long that our currency is available and accepted pretty much worldwide. So foreign firms can spend their profits anywhere.

When a U.S. firm gains a contract, the money doesn't filter through our economy in quite the same way. In addition, it does not affect any other country.

Neither example is negative, they simply perform different. I think it's better to have a global economy though rather than just a domestic economy.

Another benefit of engaging in international trade such as this is that it is a great way to have peace between nations. I know there are examples where war still happened between nations in these trade situations. I see the relationship as a conflict deterrent. Both nations end up with a vested interest in keeping the peace between each other b/c there is financial gain to be had by both.

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Larry

Larry

Posted
Posted
What's so terrible about it?? ^^^ :)

I wonder if the Chinese ****ed and moan when Wal-Mart moved in, or McDonalds put up shop, or Coca Cola, or....:silly:

1) As long as we're doing non-PC humor, I had been contemplating that heck, the Chinese built half the railroads in the US. :)

2) But I'm also thinking of some counter-examples.

I mentioned the recent announcement that Disney was building Disney Shanghai. But one thing I noticed in that announcement was that Disney is only going to own 30% of that park. The rest will be owned by the Chinese government.

I wonder how common this is. Are American companies opening new markets for American companies in China? Or are the Chinese permitting the US to franchise some Chinese businesses. Is, say Wal-Mart going to collect a franchise fee from a few stores which are Chinese owned, in exchange for Wal-Mart training a few hundred Chinese in how to build their own Wal-Marts?

3) As to the "loaning the money back to us", my main problem with that is that borrowing money isn't just about money. It also gives the creditor power over the debtor. One thing that really bothers me about our debt is that we've given China (and several other countries) the power to utterly destroy our economy whenever they chose.

Yeah, I've heard all of the reassurances about Mutual Assured Economic Destruction, but

a) I have trouble believing that such an action would hurt them
as badly
as it would hurt us.

B)

I'm not at all certain that the Chinese government is as concerned with the financial well-being of their citizens as we are.

c) And, frankly, I really prefer a world where
nobody
has the power to single-handedly put the US into the next Great Depression

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Hubbs

Hubbs

Posted
Posted
Yeah, I've heard all of the reassurances about Mutual Assured Economic Destruction, but

a) I have trouble believing that such an action would hurt them
as badly
as it would hurt us.

B)

I'm not at all certain that the Chinese government is as concerned with the financial well-being of their citizens as we are.

c) And, frankly, I really prefer a world where
nobody
has the power to single-handedly put the US into the next Great Depression

If it makes you feel any better, there's a very good chance that it would be the end of the People's Republic of China, while I tend to think that the US would slog out this kind of economic disaster like we did during the Great Depression. There would instantly be an extra hundred million unemployed Chinese workers, and Beijing spends enough time worrying about the millions upon millions of unemployed migrant workers that already exist.

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jnhay

jnhay

Posted
Posted
Like a heart attack...why do you think we have such unfair trade policies?? You think it's by accident?? US corps exploiting over seas cheap labor, near zero enviromental laws, etc...

Why wouldn't firms exploit these things? Doesn't it result in cheaper products for us anyway?

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Hunter44

Hunter44

Posted
Posted
Why wouldn't firms exploit these things? Doesn't it result in cheaper products for us anyway?

Absolutely, it's about the bottom line and that line is to capitalize in anyway you can. Including buying political favor, exploiting other countries lax regulations etc...

But the fact is it isn't a "free market", it never can be, but it sucks when the people you elect create corporate friendly laws which ultimately screw the workers...:mad:

EDIT: I'm not anti regulation...somethings gotta keep those ****s in check...:doh:

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