A new (badly needed) teacher for the US : China

[DAVOUT]

Finger-pointing doesn't help rectify imbalance

2005-04-18 05:56



After the global GDP soared by 5.1 per cent last year, according to the latest International Monetary Fund (IMF) report, it is time to examine what stands in the way of future robust growth of the world economy.

The weekend meetings of the IMF and the World Bank in Washington offered a platform to sort out what we need to do to propel the global economy.

Yet loud voices from some rich countries blaming other countries have undermined the chance to reach a consensus on identifying the challenges, not to mention the odds of taking action on such challenges.

Rocketing oil prices are an obvious cause for concern and the international community is justified in being worried about the impact they have made and will continue to exert upon the world economy.

In a recent forecast about global growth this year, the IMF attributed one-third of the 0.8-percentage-point reduction in global GDP growth to higher oil prices.

However, more expensive oil was rather a consequence of robust global economic growth than a root cause of the difficulties facing the world economy.

The fundamental problem in the global financial system, as more and more people recognize, lies in the huge US trade and budget deficits.

As the world's largest economy, any serious fluctuation in the United States rocks the boat more vehemently than any other country does. If the United States keeps turning a blind eye to its twin deficits or rushes too quickly to fix them, the outcome could be serious.

Last week, fears that the world's biggest economy might be entering a new soft patch sent Wall Street to a new low for the year while pulling down other major stock markets around the world.

Obviously, no one would like to see the US economy stop humming when the world needs to cement growth momentum.

Nevertheless, instead of looking seriously at these problems subject to domestic policies, some US politicians are pointing the finger at other countries, China in particular.

A recent vote by the US Senate to consider imposing a 27.5 per cent tariff on all Chinese imports was telling evidence. It betrayed not only ignorance of the global economy but also a reluctance to tackle thorny domestic problems at the expense of political capital.

Flying in the face of China's trade deficits with much of the rest of the world, the United States insisted that the bilateral trade surplus China registered resulted from the advantage of a manipulated currency.

In fact, the outdated restrictive controls of high-tech US exports to China have contributed significantly to the widening trade gap between the two countries.

More importantly, many foreign companies have moved their manufacturing bases to China with the United States as the target market.

It is the accelerated integration of China into the global production system that helps render the country a major locomotive underpinning the world's solid growth in recent years.

Top Chinese leaders have repeated many times that the country is resolved to introduce more flexibility in exchange rates. Numerous steps have been taken over the last few years to prepare for this.

Mounting foreign exchange reserves also add to a sense of urgency. The country's foreign exchanges reached US$659.1 billion by the end of March this year, up 49.9 per cent on the same period of last year. Such a fast expanding reserve has been a drag on China's monetary policy.

Chinese policy-makers have been weighing carefully the timing and approach to this critical reform in line with both domestic and international economic conditions.

Pressurizing China will be futile, if not even complicating the situation.

Worse, it will distract the United States from attending to the domestic causes of its problems.

Thus, to correct the emerging imbalance in the world economy, it is vital each country shoulders its responsibility given their actual economic positions.


(China Daily 04/18/2005 page6)

I could not find any error in this lesson.

[Dinner]

That author is so full of himself it is unreal. The Chinese do keep their currency artificially low in order to goose exports and attract the foreign investment it needs in order to end crushing poverty in most of the country. No one believes that the trade imbalance will go away if China starts allowing it's currency to flucuate according to market demand but it will increase the cost of Chinese made goods and stop the unfair preditory pricing. The world has put up with China's currency abuses for long enough and the Chinese can easily have their currency float just like everyone elses. They just want to hold out for as long as possible so they can continue undercutting everyone else. The threatened 27% tarrif will never happen but it is a nice club to threaten the Chinese into doing the right thing.

[DaShi]

I want to cash in my RMB!!!

[DAVOUT]

Originally posted by Oerdin
That author is so full of himself it is unreal. The Chinese do keep their currency artificially low in order to goose exports and attract the foreign investment it needs in order to end crushing poverty in most of the country. No one believes that the trade imbalance will go away if China starts allowing it's currency to flucuate according to market demand but it will increase the cost of Chinese made goods and stop the unfair preditory pricing. The world has put up with China's currency abuses for long enough and the Chinese can easily have their currency float just like everyone elses. They just want to hold out for as long as possible so they can continue undercutting everyone else. The threatened 27% tarrif will never happen but it is a nice club to threaten the Chinese into doing the right thing.

According to you, the trade imbalance will not be corrected by a revaluation of the yuan, the refusal of which will not induce the Senate to implement the 27% tarrif. But the real reason for the US to demand the revaluation is for the sake of more justice in the international trade. This does not look very logical, but the best jokes are not based on logic !

[pchang]

Allowing the RMB to float against the dolloar would instantly increase the purchasing power of every wage earner in China by at least 25%. This would spur demand from both domestic sources in China and imports from other nations. However, it would slow the rate of China's exports and the profit levels of current Chinese industrialists (who are all closely aligned with China's political leaders). China's leaders cynically realize that it is hard to miss something you never had. Thus, they feel no pressure to stop screwing over the regular people in favor of themselves and their cronies.

[DAVOUT]

Originally posted by pchang
Allowing the RMB to float against the dolloar would instantly increase the purchasing power of every wage earner in China by at least 25%. This would spur demand from both domestic sources in China and imports from other nations. However, it would slow the rate of China's exports and the profit levels of current Chinese industrialists (who are all closely aligned with China's political leaders). China's leaders cynically realize that it is hard to miss something you never had. Thus, they feel no pressure to stop screwing over the regular people in favor of themselves and their cronies.

The purchasing power of every wage earner would be increased only on imported goods which represent a very small part of the cost of living of a Chinese worker.

[pchang]

It represents a very small part of their purchases now. This is because of the peg. But, the Chinese consumer has great pent up demand. Foreign made stuff (mostly Japanese and American) is all they every ask for when people go back there on visits. We are not talking about basic necessities here, but discretionary spending of disposable income. Remember the concept of luxury spending to get more happy people?

[DeathByTheSword]

Remember the concept of luxury spending to get more happy people?

i played a game ones that had that too....hmz let me see if i can remember the name....civ....civiy....civilisati or something

[Ted Striker]

Originally posted by pchang
Allowing the RMB to float against the dolloar would instantly increase the purchasing power of every wage earner in China by at least 25%. This would spur demand from both domestic sources in China and imports from other nations. However, it would slow the rate of China's exports and the profit levels of current Chinese industrialists (who are all closely aligned with China's political leaders). China's leaders cynically realize that it is hard to miss something you never had. Thus, they feel no pressure to stop screwing over the regular people in favor of themselves and their cronies.

They sound like US oil companies!

[pchang]

The US and China are more alike than either would like to admit. But if in the US it is only the Oil companies, then in China it is for ALL companies.

[Dinner]

Originally posted by DAVOUT
According to you, the trade imbalance will not be corrected by a revaluation of the yuan, the refusal of which will not induce the Senate to implement the 27% tarrif. But the real reason for the US to demand the revaluation is for the sake of more justice in the international trade. This does not look very logical, but the best jokes are not based on logic !

If that is your take then I'm sorry my friend but you are not following very well. Just because making the Chinese float their currency isn't a silver bullet which solves all problems doesn't mean it isn't a good idea and more fair to China's trading partners. It will provide massive relief for manufacturers located outside of China as Chinese made goods would no longer benifet from an unfair 50% devalued currency plus it will make foreign made goods Cheaper for China's consumers. That means fewer Chinese exports and more imports (and that's why the Chinese are cheating on their currency's value to begin with).

Does this one single move completely balance everything by itself? No, of course not only a fool would say that and the author of the original article seemed to be constructing such a strawman. It will be a very large step in the right direction and although Chinese laborers will still be cheaper then just about everyone else they will no longer have the unfair benifet of a purposefully devalued currency on their side. China's trade partners need to band together and demand fair trade policies or else China should be hit with a massive tarrif. The Chinese know they are being dirty underhanded cheats and that is why they will cave when pressure is brought to bare.

[DAVOUT]

Oerdin,

The author of the original article has not invented anything; he is just repeating the Chinese policy which has been regularly explained since the question of the revaluation of the yuan was regularly raised by the US Senate and Admin.

I agree that the Chinese are arrogant in claiming that it is not the USA business to organise its currency, and I understand that, for the US, it is not pleasant to discover a new competitor in the arrogance contest. But if I can give a friendly advice, you should not expect the Chinese arrogance to decrease significantly in the future.

[Urban Ranger]

Originally posted by Oerdin
Just because making the Chinese float their currency isn't a silver bullet which solves all problems doesn't mean it isn't a good idea and more fair to China's trading partners.

The US also had (probably still has) a large trade deficit with Japan. Thus, this does not appear to be a cause of trade deficits.

Originally posted by Oerdin
It will provide massive relief for manufacturers located outside of China as Chinese made goods would no longer benifet from an unfair 50% devalued currency plus it will make foreign made goods Cheaper for China's consumers.

Many international companies are moving manufacturing plants into the PRC. Even if the RMB were revaluated it wouldn't mean the plants would move back to the US. It just would mean they'd go to Bangladesh or something. This is a result of globalisation.

Another thing you may wish to consider are the massive inflations something like the RMB revaluation is going to cause. Imagine all Chinese imports in the US jump by 50% (I don't know where you got the number from, but anyway).

Originally posted by Oerdin
China's trade partners need to band together and demand fair trade policies or else China should be hit with a massive tarrif.

I don't see anything unfair about the trade policies.

Originally posted by Oerdin
The Chinese know they are being dirty underhanded cheats and that is why they will cave when pressure is brought to bare.

How much is the Chinese trade deficit account for the US current deficit?

[Bosh]

I don't see anything unfair about the trade policies.

You're cute UR.

[Dinner]

Originally posted by DAVOUT
I agree that the Chinese are arrogant in claiming that it is not the USA business to organise its currency, and I understand that, for the US, it is not pleasant to discover a new competitor in the arrogance contest. But if I can give a friendly advice, you should not expect the Chinese arrogance to decrease significantly in the future.

That's fine. We demand their currecy be allowed to float or else we will slap a 27% tarrif on all Chinese made goods. They can either comply or not comply.