Scary Thoughts for Your Weekend on the Chinese Economy

Thanks to Alpha Asian, who posted this article on the topic of whether the Chinese are manipulating their currency.  According to the article, people in the U.S. take it for granted that China is manipulating its currency, while the Chinese think that American politicians are twisting and oversimplifying a complex issue just before elections.

I think it’s hard to refute that China is controlling its currency.  :)  It’s quite clear that that is why they’re buying all those treasuries.  If they let it float, the reminbi would shoot up.

At the same time, I agree with the idea that floating the renminbi wouldn’t necessarily be a boon to our economy either.

Andy Rothman, a strategist with the CSLA brokerage in Shanghai, says Americans need to be careful not to shoot themselves in the foot — or in the pocketbook.

He says a stronger Chinese currency would mean more expensive Chinese goods in the U.S. And those aren’t necessarily goods that can just be made in the U.S. instead.

“When was the last time you saw a factory in the U.S. making a laptop or a DVD player or flat-screen TV?” Rothman says.

If we paid fair market value for our laptops and DVD players and flat-screen TVs, we’d be in worse financial shape than we are right now.  With unemployment soaring, we can’t even afford stuff as it is right now, so why would we want to spend more for items that we don’t have with money that we aren’t making?

I don’t know what the solution is.  If China had more of an appetite for American goods, perhaps there would be a way to level the playing field, but the problem, as one astute commenter under the NPR article seems to imply, is that we don’t make anything that the Chinese need or want .  Our cars are more costly than Chinese cars, we’re prohibited by law from selling them weapons and other high tech devices that could be used for war (such as supercomputers and probably certain aircraft), our raw materials can be found at a better price in Africa, and the Chinese grow their own agriculture.  The only advantage we have is artistic–movies, books, and other intellectual forms of property might be more attractive because of the freer atmosphere in this country.  But there are problems in these areas too–copyright laws are loosely enforced in China, so they usually get these goods for free.  (In addition to floating their currency, I think the Chinese also have to do a better job of enforcing intellectual property rights.  I can understand if some illegal copying gets by, but when there are whole warehouses of bootlegged CDs and DVDs that law enforcement casually ignores, that’s a problem.)

I hate to say it, but those Chinese economists at the end may be somewhat right:

Chinese economists say the way to solve the deficit is not to push China to revalue its currency, but to help lift more Chinese people out of poverty and into the nascent middle class, so they can buy more U.S. products.

I say “somewhat” because they have to do a better job at letting their currency appreciate lest they continue to hammer our economy.  Hey, it’s a team effort–if China wants the U.S. to lift Chinese people out of poverty, then China should do its part to help the U.S. get out of its financial crisis too.  But they’re right in that only when there exists a solid middle class in China with disposable income will we be able to sell them goods and to help to alleviate the deficit.  There are 1.3 billion Chinese people, and it’s going to take a long time for most of them to work their way up to middle class, which means that there could be a long period of time before we recover and can once again become profitable as a country.

15 thoughts on “Scary Thoughts for Your Weekend on the Chinese Economy

  1. NPR is such a mouthpiece. nobody ever gets into the fact it’s the Walden family and the other corporate executives that make the majority of the profits.

    US income distribution is becoming ever more skewed and it’s turning into a plutonomy, with decreased purchasing power – how much consumption of products can the very few engage?

    and the easy mid-term election distraction is of course to blame China.

  2. I’m still confused about how deregulating the chinese currency would help the American economy. We buy a lot of products made in China, so the lower their value, the more we could afford/make a profit. On the other hand, such is the income disparity in China, most people don’t want or can afford American products anyway and those that want and can afford American products (like I-Pods, I-pads etc.) will buy these products regardless of the fact that they need to pay a premium due to their currency.

    In theory, deregulating their dollar means their exports becomes more expensive while ours become more competitive, but the problem is, I really don’t think that there’s much they would want from us, or any particular goods that they will suddenly have a large demand for simply because it becomes cheaper for them to purchase.

    Floating their currency may hurt China’s trading (because they become less competitive), but I fail to see how it would benefit us.

  3. In addition to generally agreeing with “crazy MMer” sentiments, one should note the GREAT popularity of the NBA in China that has seen that the status symbol of Chinese fans is owning multiple authentic $100+USD Kobe Bryant Nike shoes.

    China had initially made smart decisions to purchase American debts resulting from the neverending bad decisions made by our politicians. However, China needs the American economy stronger to maintain value to their investment.

    Interesting to note that China’s “New Middle Class” is the most fastest-growing and most desired consumer group in the world.

    Some articles that document the NBA’s growth in China are listed below

    • Kobe Bryant @ Asia Society – http://usasians-articles2.tripod.com/kobe-bryant.html

    • NBA China’s Tim Chen – http://usasians-articles2.tripod.com/kobe-bryant.html

    • Nike China Interview – http://usasians-articles2.tripod.com/nikechina.html

  4. When you buy American goods in China, many of which are made there, a lot of times you pay much more than Americans pay in America, because China requires the goods to exported first, and then re-imported, adding more taxes as they come back in. Buying a macbook in China is much more expensive than buying it in the states.

    America makes (or at least American companies) make lots of things that Chinese people want. But aside from super-high tech B2B and government-bought goods, the things that America wants to sell to China have no inherent value at all. It’s just branding, which is a form of value-transference. If the Chinese fall for the branding scam, then it is possible that the trade imbalance will correct itself. But if Chinese people use their brains and come to the logical conclusion that American marketing practices don’t add any real value to a product, then America is screwed.

    Slowly adjusting the currency rate part of the economic development plan of China.

  5. i don’t think i was clear enough and you folks are still not getting it:

    Like Byron wrote above: except for the US government business contracts and US military technology, most everything is manufactured in China and other SE countries with cheap labor. iPads and Nike shoes are also manufactured in China, with most of the profits going to their US corporate executives and shareholders.

    (China imposes a tariff on these items because it wants to wrangle with their own markets and promote consumption of domestic brands which they have total control of. it is a sort of protectionism.)

    however, the main idea i’m trying to get across is that it’s not about the value of the RMB as much it is the US is turning into a plutonomy.

    i don’t know the exact numbers, but you can definitely find something like 80%+ of the profits are going into the ultra-rich in the US like the Walton family, with Chinese businesses taking a very small portion of the profits.

    therefore, the US politicians are playing the blame game on China right before elections because they’re hiding the fact they are financed by US corporations to keep the current system of the ultra-rich getting richer and turning the US into a plutonomy.

    you ever wonder where all the “bailout” money went? it certainly didn’t go to China. it’s the ultra-rich of the US that are gaming the system to make the average middle-class paying for it. and the easiest scapegoat is to blame China and Chinese.

    but the real villains here are the ultra-rich oligarchs who are running the show and controlling the media – including NPR.

    of course, everybody is too naive and obsessed with “dancing with the stars” to think about and research the issues for themselves.

  6. Agree with Crazy Mmer.

    It has been widely written and discussed, as noted at places such as http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×6694962

    As stated above, with the ongoing demise of America’s “Middle Class” fueling the dilemma, China’s “New Middle Class” is the most desired consumer group.

    China Bashing always occur prior to each election, it is the politicians’ way (as previously noted) to deflect the attention of the ongoing failures of U.S.’s politicians and the “Ultra Rich” people/companies

  7. I think China is becoming the whipping boy for our economic malaise. I have to say that I’m somewhat disappointed that more hasn’t been done on the green energy front. I think the White House SHOULD look into whether China illegally subsidized their green initiatives, but they should also look into how we can (legally) push such initiatives ourselves.

  8. A few contrarian perspectives that you won’t see in mainstream America’s “free press” about this issue as well as American dollar hegemony:

    America’s China Bashing: A Compendium of Junk Economics
    http://michael-hudson.com/2010/09/america%e2%80%99s-china-bashing-a-compendium-of-junk-economics/

    “There’s a currency war!”
    http://www.youtube.com/watch?v=NBuiX-UAD3E&feature=player_embedded

    “America: Host or Parasite?”
    http://www.kpfa.org/archive/id/39989

  9. @Larry: excuse my skepticism, but those links seem more fringe economics than “keeping it real”

    Last time I checked, it was American “mainstream economics” (i.e. the Washington Consensus and the “Chicago School”) that is ultimately responsible for the Wall Street financial implosion of 2008. And, as a result of this global crisis, this US brand of economics has increasingly been discredited–at least outside the world of lies that is the USA.

    Anyway, Michael Hudson (who is cited above) has written for the _Financial Times_, and you don’t get more mainstream than that in terms of the business media.

    @ Azn of Reason

    Lol. That video is classic American “yellow peril” propaganda. No doubt it was created by some Right Wing political action committee.

    Like most American propaganda, it stands reality on its head, portraying the innocent USA as a victim of some nefarious “foreign threat”–even as it’s the American Empire that is economically looting the world. The US victimizer becomes the victim in this unreality.

    Simply explained, so-called American “debt” is largely an Orwellian euphemism for an essential reason: the USA has no intention of repaying this money back, ever.

    The money that other nations like China, Japan, etc. “loan” to the USA would be more honestly called a type of imperial tribute or tax paid to America.

    Because the US Dollar is the world’s sole reserve currency, America has effectively been able to extort an economic free ride from the world *for decades.”

    That is a critical aspect of American dollar hegemony or dollar imperialism, which is central to the world financial system in general.

    American dollar hegemony is a parasitic system that the USA benefit from. Thus, it’s an explosive issue many people would rather not even admit the reality of.

    But not for much longer.

    Super Imperialism: The Origin and Fundamentals of U.S. World Dominance
    http://michael-hudson.com/books/super-imperialism/

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