What I learned about China this weekend

Spent a bit of time learning about China this weekend. I've been fascinated about China since attending a series of meetings in Manchester in the early 1990s about the emerging Asian economies, prompting me to visit Beijing in 1995. So through a few hours reading on the China area of The Economist website, followed by a telephone conversation with my very good friend Dave, this is what I've ascertained. BTW the following points may not be all consistent, but my priority is merely to record key points at this stage:

• China's economy is three times the size of India's. And Sino-Indian collaboration has been over-estimated.
• There has been a recent re-evaluation (downwards) of China's GDP, by applying what the World Bank and IMF call "purchasting-power parity" i.e. factoring in the price differences between the two countries. China is generally happy to be considered "poorer" as it provides a negotiating tool with US over exchange values etc. This revision downwards doesn't change the fact that China's growth has been nothing short of phenomenal.
• 8% of China's exports are to the US. This compares with Singapore, Malaysia and Hong Kong (20% apiece), Brazil (just under 20%) and perhaps surprisingly India (only 2%).
• Although Asian markets have not "decoupled" from the US economy as predicted, they nevertheless have acquired a degree of insularity that will stand them in good stead in the coming period as world markets react to America's woes. This is true even though this recession is more severe than the last, and Asian economies are more integrated into world markets.
• Domestic demand will remain strong in Asian economies and Governments now have more flexibility.
• US has been applying pressure for the Chinese yuan to be devalued. And indeed the Yuan has been climbing against the dollar since October, but this may not be a direct result of US pressure. Chinese policymakers now believe that the benefits of a stronger currency outweigh the risks. To date, a weak currency has benefited China, helping to grow exports further. But a stronger currency will reduce the costs of imports, especially food and raw materials, and curb the build-up of foreign exchange reserves. And the costs of holding the Yuan down are rising. China has to date held the Yuan down by purchasing foreign currencies very cheaply. And as a result a lot of people have a lot of dollars with very restricted options as to what to do with them. The resulting liquidity in the economy has been absorbed to an extent by selling Government bonds.
• If China were to let their currency inflate more, they could afford more imports which would in turn improve their international standing. Every time they increase their currency, though, their exports have suffered and their own internal economy isn't sufficiently broad and robust for them to stand on their own two feet at the moment. Compare this to US at the end of WW2 - with a huge powerful internal economy, they were in a position to assume global hegemony, which China certainly isn't at this point in time.
• China has had a dilemma regarding what to do with their considerable foreign exchange reserves. These have tended to be invested in Western banks, which has been welcomed as Western banks need capital right now to shore up their positions e.g. UBS which lost so much money on sub-primes.
• Is the Chinese phenomenal economic growth dependent on exports? Some commentators are saying this might not be the case, and that in fact, the growth is more dependent on investment.
• Asian markets recently went down as a result of the US crisis mainly because of the general fear of a global recession. China's companies are small, public-owned and therefore quite unstable. Plus, if we say that a big part of the global crisis is down to over-complex financial instruments which spread risk right across the market, then we can say that China is a part of this - it's part of the same markets so those same over-complex instruments also find their way there.
• Is there a case for saying that China is being over-hyped? Is the discourse slightly reminiscent of the way the Japanese economy was being discussed around 20 years ago?