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Heated exchange: US Senator Chuck Schumer demands renminbi revaluation (above); China worries about manufacturers' wage hikes, including FoxConn which makes Apple devices
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SHANGHAI: As the leaders of G20 assemble in Cannes for their sixth summit, the leader in most demand could be the Chinese president, seen by some as a white knight who can rescue the euro in distress. The US has a more cynical view, and in some circles, China's rising financial clout is viewed as more threat than promise. It may be sheer fluke, but even coincidental reminders of a US decline add to rising temperatures in US-Chinese relations: China’s GDP growth rate for the year’s third quarter was 9.1 percent, the same percentage as the US unemployment rate for July, August and September.
Such coincidences offer confirmation for those who view China’s growth as unfair and responsible for the US decline. The Obama administration openly suggests that China is manipulating the renminbi to boost Beijing’s exports. The US Senate approved the Currency Exchange Rate Oversight Reform Act, which is intended to leverage the exchange rate of Chinese currency with retaliatory tariffs. Although the bill is unlikely to win approval from the House of Representatives or become law, it nevertheless expresses growing American anger. President Barack Obama may have expressed reservations about the bill, but seems to accept the view that China manipulates currency exchange rates for its benefit. Before the 2008 presidential election, while trying to win the labor vote, Obama spoke of China’s manipulation to a US textile trade union.
Yet Obama also understands that even if such manipulation is true, the benefits are not one-sided. Low-priced commodities from China and elsewhere have long kept US inflation low, which helps stabilize the US economy and society. After all, American consumers made the choice to buy low-cost products that contributed to the relocation of manufacturing jobs.
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US consumers made |
The president must also weigh the interests of American investors. With the shifting winds and cost savings of globalization, it is hard to keep all US manufacturing operations at home. Given that China’s present per capita GDP is just 9 percent of that of the US, it is unreasonable to block American investment in China. Overall the US has benefited no less than China has from exchange rates, through economic engagement and cooperation.
True, Chinese prices of commodities have been inexpensive for decades. When China started reform in 1978/1979, its exchange rate was US$1=RMB 1.6 yuans. By the time the RMB started appreciating in 2005, the currency had declined to US$1=RMB 8.26 yuans. Simply put, over 26 years, from 1978/1979 to 2005, Chinese currency had devalued by more than 80 percent against the US dollar, while China’s economic output had increased ten times as much in real terms. It makes sense that China deprecated its currency because of its earlier overvaluing. However, too much drastic devaluing was driven by China’s desire to fuel its exports.
China’s success has followed those of Southeast Asian countries, which embraced foreign investment and stressed an export-orientated trade, lifting the national economy and competitiveness in a short period. Depreciating the RMB could both reflect its true market value and entice foreign investment. Over time the US overseas investment has mostly turned to China, mainly due to the labor cost measured by the US dollars. However, such an approach, including over-depreciation, would be unhelpful to China’s long-term economic prospects.
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Currency appreciation and salary increases in China won’t deliver more jobs to the US. |
At per capita GDP of about $4,400, easily accumulating to China’s aggregated status as the world’s second largest economy, China is facing multiple quandaries: consequences of stressing exports while massively ignoring environmental protections; low salaries that have long curtailed domestic consumption, subjecting China to international opprobrium; and a favorable exchange rate for exports, suppressing China’s ability to import, which is undesirable for global trade and economic rebalancing.
From the mid-2000s, China started an incremental reform of its currency-exchange rates. Since then, the renminbi has appreciated by some 30 percent. With a short break since the global financial crisis of 2008, China has continued its process of currency appreciation, accompanied by the closing of some businesses. Still, China’s exports continue to expand while the government strives to increase imports. Chinese President Hu Jintao has just indicated that the country will significantly boost its imports in the next five years.
Lately China has faced a wave of wage increases nationwide. Rising inflation, a labor shortage, as well as heightened expectations have all contributed to this trend. However, the combination of such currency appreciation and salary increases in China won’t deliver more jobs to America. The soft strike in Foxconn in Shenzhen – a major manufacturer of Apple and other electronic products – last year raised the average monthly salary there to nearly $200, a 50 percent increase. Yet manufacturing of iPhones and iPads would at most shift from China’s coast to its hinterlands or other Asian economies – not to the United States, as the increased salary is still less than 10 percent of that in the States. Consequently, Apple would continue to outsource to areas with low-cost labor, as Americans and Europeans are attached to low-cost manufactured goods.
Whether China manipulates currency or not, the reality is there is little chance the US could have prevented its jobs flowing to emerging markets. This is a natural trend of economic globalization that the US started and benefited from, and cannot stop. A proper currency exchange rate is certainly fair, and even more important is balanced international trade, with fair distribution of wealth and opportunities among Americans. On this last point, the Occupy Wall Street movement suggests that internal US dissatisfaction has little to do with China.
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The Occupy Wall Street movement suggests that US discontent has little to do with China. |
Unchecked appreciation of China’s currency would potentially lead to Chinese jobs flowing to even lower-cost countries, not the US, and the US Congress needs to understand the limits of congressional pressure.
Fundamentally, the US should focus on balanced trade rather than meddling with a particular exchange-rate tool. The US is China’s leading trade partner, with China’s exports topping $2830 billion in 2010, according to the Chinese foreign ministry, and China already imports about $102 billion worth of goods and services annually from the US, according to Chinese government data. China has both the potential and obligation to boost its US imports, to protect a healthy bilateral trade relationship.
Appreciating currency is a medium- term objective, already underway, while in the short term, China needs to speed up its purchases especially as the US heads for the next presidential election.
Comments on this Article
Dr.A.Jagadeesh Nellore(AP),India
E-mail: anumakonda.jagadeesh@gmail.com
Common themes (addressed in Chronological Order)
1. White Knight versus Financial Clout threatening
(as if either true or options, delimiting the frontier of perspectives of perspectives for readers as an either/ or; rather than neither/nor, either/or, or something different not postulated/considered/considerable/possible)
2. US Decline
Long-Term and reoccurring meme, useful to juxtapose to lend validity to what will follow
3. Coupling Image of Growth, against Employment, reinforcing notion of Decline
No discussion of composition of Growth, discussion as to how GDP is constructed in China, the Financial Repression Mechanism
4. Establishing China’s Growth In GDP versus Decline
The unsophisticated reader would say yes, why punish something that is “successful”, those who are doing the “right” thing. Appeal to notions of “fairness”, little discussion of the factors that have lent to “growth”; from potential currency manipulation through structure of the banking system to influence of quasi-public/private “market-based” organizations/corporations (many who are traded on Nasdaq), and other factors
5. Obama suggests that China is manipulating the Remnibi
As has several previous administrations. (Following sentences continue to Single Out Obama as the person who responsible for the calls against state-directed Chinese Mercantilism, in support of its true NME status, and Currency Manipulation) Ending with links to Unions, as this meme supports some unsophisticated readers views on why America is declining, a popular meme among some who read with a view, rather than objectively as is the case for those committed to learning.
6. Low-Cost Mitigates inflation in US;
The “China Price”, the former popular meme to counter previous calls for the reversal of currency manipulation policies. What passes as unknown is this is what follows in the next paragraph, that Chinese products, are not rather products, but now commodities (like raw materials, I wonder why Wall Street hasn’t created an option for this yet). Hmmmm……..commodities = products; Perhaps, that is more interesting than anything else written in the article.
7. Consumer made the choice to buy low products; which is why manufacturing left the US. Which came first the chicken or the egg?
8. Shifting Winds of Globalization and Cost Savings……can’t keep Manufacturing at Home, Blocking US investment
This is stated in support of your case that the currency hasn’t been manipulated?
This, again, linked to US has benefited from exchange rates.
9. Balance to much devaluation…no discussion of the 1994 devluation to assist in the reform of banking sector, on the road to reform of SOE’s, and the privatization of SOE’s. Which hasn’t occurred as planned, where subsidiaries of SOE’s were created, these have yet don’t seem to be
The fundamental problem with this article, is it supports the cost saving thesis. Where that thesis is predicated, wrongly, upon a belief that the savings function is due to the cost of Chinese labor, rather than the cost of capital. The unsophisticated reader would believe it to be differentials in labor costs that is responsible for the “China Price”, rather than the financial repression mechanism, the funneling of Chinese savings to the “private” arms of SOE’s, which are capital, rather than labor intensive. Thus diverting attention from the nature and present, if not longer term use of Currency manipulation. Simply look to the rapid accumulation of Forex, the Rapid monetary growth in China, the patterns of lending, saving, then the range of supports from export subsidies, tax rebates, etc….
Anyway, I will stop here, but could dissect the piece more, but the idea that China’s model is either successful or replicable, rather than a tool than siphons off a more stable global development model is not only suspect, but detrimental in the present era. What is needed at present, and globally, is more commitment to demand, rather than seeking to grow supply. The level of the Chinese economy devoted to consumption is seriously deficient and has regressed during the present era. Initially, China and the US, went in the right direction, while everyone hoped to grow, in a singular fashion out of the 2008 crisis. Again, pointing to the primacy of demand, rather than supply in the present crisis. More maturity need be found in these discussions, and more commitment to global solutions need be found, or, regardless as to who resides in the next Oval office, likely inability to work collectively, will see serious threats to that which had supported global growth in the previous era. Further, those who continue to misunderstand the US as the primary vehicle, or only passenger, that led to the recent crisis, serious misunderstands the nature and functioning of the global economy at present. More honest dialogues are requested of the esteemed author, or whomever wrote the piece. Especially as the discussion was on Denying Imbalances and Averting Chaos in the Global System.
As to the Occupy Wall Street Movement, other movements more broadly….understand what you are saying. Some of us might need to carefully remove the remote controls from our buttoxes. Simply, these issues are far more complicated then the simple memes you are recycling from your sheer lack of commitment to understand the complexity of the issues at hand. Read wide and braodly. Not simply the perspectives of the news that you agree with, if you sincerely want a balanced perspective in these.
Aurea Medicritas….all truth is found in the middle.
Interesting, yet thin, and rather to construct toward touching on many of the more common themes commonly addressed, yet it does try to work toward a balanced perspective, however, ineffectively, I would add. Overall, the piece is balanced, seemingly non-confrontational, and causal, almost strategically so.
Common themes (addressed in Chronological Order)
1. White Knight versus Financial Clout threatening
(as if either true or options, delimiting the frontier of perspectives of perspectives for readers as an either/ or; rather than neither/nor, either/or, or something different not postulated/considered/considerable/possible)
2. US Decline
Long-Term and reoccurring meme, useful to juxtapose to lend validity to what will follow
3. Coupling Image of Growth, against Employment, reinforcing notion of Decline
No discussion of composition of Growth, discussion as to how GDP is constructed in China, the Financial Repression Mechanism
4. Establishing China’s Growth In GDP versus Decline
The unsophisticated reader would say yes, why punish something that is “successful”, those who are doing the “right” thing. Appeal to notions of “fairness”, little discussion of the factors that have lent to “growth”; from potential currency manipulation through structure of the banking system to influence of quasi-public/private “market-based” organizations/corporations (many who are traded on Nasdaq), and other factors
5. Obama suggests that China is manipulating the Remnibi
As has several previous administrations. (Following sentences continue to Single Out Obama as the person who responsible for the calls against state-directed Chinese Mercantilism, in support of its true NME status, and Currency Manipulation) Ending with links to Unions, as this meme supports some unsophisticated readers views on why America is declining, a popular meme among some who read with a view, rather than objectively as is the case for those committed to learning.
6. Low-Cost Mitigates inflation in US;
The “China Price”, the former popular meme to counter previous calls for the reversal of currency manipulation policies. What passes as unknown is this is what follows in the next paragraph, that Chinese products, are not rather products, but now commodities (like raw materials, I wonder why Wall Street hasn’t created an option for this yet). Hmmmm……..commodities = products; Perhaps, that is more interesting than anything else written in the article.
7. Consumer made the choice to buy low products; which is why manufacturing left the US. Which came first the chicken or the egg?
8. Shifting Winds of Globalization and Cost Savings……can’t keep Manufacturing at Home, Blocking US investment
This is stated in support of your case that the currency hasn’t been manipulated?
This, again, linked to US has benefited from exchange rates.
9. Balance to much devaluation…no discussion of the 1994 devluation to assist in the reform of banking sector, on the road to reform of SOE’s, and the privatization of SOE’s. Which hasn’t occurred as planned, where subsidiaries of SOE’s were created, these have yet don’t seem to be
The fundamental problem with this article, is it supports the cost saving thesis. Where that thesis is predicated, wrongly, upon a belief that the savings function is due to the cost of Chinese labor, rather than the cost of capital. The unsophisticated reader would believe it to be differentials in labor costs that is responsible for the “China Price”, rather than the financial repression mechanism, the funneling of Chinese savings to the “private” arms of SOE’s, which are capital, rather than labor intensive. Thus diverting attention from the nature and present, if not longer term use of Currency manipulation. Simply look to the rapid accumulation of Forex, the Rapid monetary growth in China, the patterns of lending, saving, then the range of supports from export subsidies, tax rebates, etc….
Anyway, I will stop here, but could dissect the piece more, but the idea that China’s model is either successful or replicable, rather than a tool than siphons off a more stable global development model is not only suspect, but detrimental in the present era. What is needed at present, and globally, is more commitment to demand, rather than seeking to grow supply. The level of the Chinese economy devoted to consumption is seriously deficient and has regressed during the present era. Initially, China and the US, went in the right direction, while everyone hoped to grow, in a singular fashion out of the 2008 crisis. Again, pointing to the primacy of demand, rather than supply in the present crisis. More maturity need be found in these discussions, and more commitment to global solutions need be found, or, regardless as to who resides in the next Oval office, likely inability to work collectively, will see serious threats to that which had supported global growth in the previous era. Further, those who continue to misunderstand the US as the primary vehicle, or only passenger, that led to the recent crisis, serious misunderstands the nature and functioning of the global economy at present. More honest dialogues are requested of the esteemed author, or whomever wrote the piece. Especially as the discussion was on Denying Imbalances and Averting Chaos in the Global System.
As to the Occupy Wall Street Movement, other movements more broadly….understand what you are saying. Some of us might need to carefully remove the remote controls from our buttoxes. Simply, these issues are far more complicated then the simple memes you are recycling from your sheer lack of commitment to understand the complexity of the issues at hand. Read wide and braodly. Not simply the perspectives of the news that you agree with, if you sincerely want a balanced perspective in these.
Aurea Medicritas….all truth is found in the middle.
Common themes (addressed in Chronological Order)
1. White Knight versus Financial Clout threatening
(as if either true or options, delimiting the frontier of perspectives of perspectives for readers as an either/ or; rather than neither/nor, either/or, or something different not postulated/considered/considerable/possible)
2. US Decline
Long-Term and reoccurring meme, useful to juxtapose to lend validity to what will follow
3. Coupling Image of Growth, against Employment, reinforcing notion of Decline
No discussion of composition of Growth, discussion as to how GDP is constructed in China, the Financial Repression Mechanism
4. Establishing China’s Growth In GDP versus Decline
The unsophisticated reader would say yes, why punish something that is “successful”, those who are doing the “right” thing. Appeal to notions of “fairness”, little discussion of the factors that have lent to “growth”; from potential currency manipulation through structure of the banking system to influence of quasi-public/private “market-based” organizations/corporations (many who are traded on Nasdaq), and other factors
5. Obama suggests that China is manipulating the Remnibi
As has several previous administrations. (Following sentences continue to Single Out Obama as the person who responsible for the calls against state-directed Chinese Mercantilism, in support of its true NME status, and Currency Manipulation) Ending with links to Unions, as this meme supports some unsophisticated readers views on why America is declining, a popular meme among some who read with a view, rather than objectively as is the case for those committed to learning.
6. Low-Cost Mitigates inflation in US;
The “China Price”, the former popular meme to counter previous calls for the reversal of currency manipulation policies. What passes as unknown is this is what follows in the next paragraph, that Chinese products, are not rather products, but now commodities (like raw materials, I wonder why Wall Street hasn’t created an option for this yet). Hmmmm……..commodities = products; Perhaps, that is more interesting than anything else written in the article.
7. Consumer made the choice to buy low products; which is why manufacturing left the US. Which came first the chicken or the egg?
8. Shifting Winds of Globalization and Cost Savings……can’t keep Manufacturing at Home, Blocking US investment
This is stated in support of your case that the currency hasn’t been manipulated?
This, again, linked to US has benefited from exchange rates.
9. Balance to much devaluation…no discussion of the 1994 devluation to assist in the reform of banking sector, on the road to reform of SOE’s, and the privatization of SOE’s. Which hasn’t occurred as planned, where subsidiaries of SOE’s were created, these have yet don’t seem to be
The fundamental problem with this article, is it supports the cost saving thesis. Where that thesis is predicated, wrongly, upon a belief that the savings function is due to the cost of Chinese labor, rather than the cost of capital. The unsophisticated reader would believe it to be differentials in labor costs that is responsible for the “China Price”, rather than the financial repression mechanism, the funneling of Chinese savings to the “private” arms of SOE’s, which are capital, rather than labor intensive. Thus diverting attention from the nature and present, if not longer term use of Currency manipulation. Simply look to the rapid accumulation of Forex, the Rapid monetary growth in China, the patterns of lending, saving, then the range of supports from export subsidies, tax rebates, etc….
Anyway, I will stop here, but could dissect the piece more, but the idea that China’s model is either successful or replicable, rather than a tool than siphons off a more stable global development model is not only suspect, but detrimental in the present era. What is needed at present, and globally, is more commitment to demand, rather than seeking to grow supply. The level of the Chinese economy devoted to consumption is seriously deficient and has regressed during the present era. Initially, China and the US, went in the right direction, while everyone hoped to grow, in a singular fashion out of the 2008 crisis. Again, pointing to the primacy of demand, rather than supply in the present crisis. More maturity need be found in these discussions, and more commitment to global solutions need be found, or, regardless as to who resides in the next Oval office, likely inability to work collectively, will see serious threats to that which had supported global growth in the previous era. Further, those who continue to misunderstand the US as the primary vehicle, or only passenger, that led to the recent crisis, serious misunderstands the nature and functioning of the global economy at present. More honest dialogues are requested of the esteemed author, or whomever wrote the piece. Especially as the discussion was on Denying Imbalances and Averting Chaos in the Global System.
As to the Occupy Wall Street Movement, other movements more broadly….understand what you are saying. Some of us might need to carefully remove the remote controls from our buttoxes. Simply, these issues are far more complicated then the simple memes you are recycling from your sheer lack of commitment to understand the complexity of the issues at hand. Read wide and braodly. Not simply the perspectives of the news that you agree with, if you sincerely want a balanced perspective in these.
Aurea Medicritas….all truth is found in the middle.
Interesting, yet thin, and rather to construct toward touching on many of the more common themes commonly addressed, yet it does try to work toward a balanced perspective, however, ineffectively, I would add. Overall, the piece is balanced, seemingly non-confrontational, and causal, almost strategically so.
Common themes (addressed in Chronological Order)
1. White Knight versus Financial Clout threatening
(as if either true or options, delimiting the frontier of perspectives of perspectives for readers as an either/ or; rather than neither/nor, either/or, or something different not postulated/considered/considerable/possible)
2. US Decline
Long-Term and reoccurring meme, useful to juxtapose to lend validity to what will follow
3. Coupling Image of Growth, against Employment, reinforcing notion of Decline
No discussion of composition of Growth, discussion as to how GDP is constructed in China, the Financial Repression Mechanism
4. Establishing China’s Growth In GDP versus Decline
The unsophisticated reader would say yes, why punish something that is “successful”, those who are doing the “right” thing. Appeal to notions of “fairness”, little discussion of the factors that have lent to “growth”; from potential currency manipulation through structure of the banking system to influence of quasi-public/private “market-based” organizations/corporations (many who are traded on Nasdaq), and other factors
5. Obama suggests that China is manipulating the Remnibi
As has several previous administrations. (Following sentences continue to Single Out Obama as the person who responsible for the calls against state-directed Chinese Mercantilism, in support of its true NME status, and Currency Manipulation) Ending with links to Unions, as this meme supports some unsophisticated readers views on why America is declining, a popular meme among some who read with a view, rather than objectively as is the case for those committed to learning.
6. Low-Cost Mitigates inflation in US;
The “China Price”, the former popular meme to counter previous calls for the reversal of currency manipulation policies. What passes as unknown is this is what follows in the next paragraph, that Chinese products, are not rather products, but now commodities (like raw materials, I wonder why Wall Street hasn’t created an option for this yet). Hmmmm……..commodities = products; Perhaps, that is more interesting than anything else written in the article.
7. Consumer made the choice to buy low products; which is why manufacturing left the US. Which came first the chicken or the egg?
8. Shifting Winds of Globalization and Cost Savings……can’t keep Manufacturing at Home, Blocking US investment
This is stated in support of your case that the currency hasn’t been manipulated?
This, again, linked to US has benefited from exchange rates.
9. Balance to much devaluation…no discussion of the 1994 devluation to assist in the reform of banking sector, on the road to reform of SOE’s, and the privatization of SOE’s. Which hasn’t occurred as planned, where subsidiaries of SOE’s were created, these have yet don’t seem to be
The fundamental problem with this article, is it supports the cost saving thesis. Where that thesis is predicated, wrongly, upon a belief that the savings function is due to the cost of Chinese labor, rather than the cost of capital. The unsophisticated reader would believe it to be differentials in labor costs that is responsible for the “China Price”, rather than the financial repression mechanism, the funneling of Chinese savings to the “private” arms of SOE’s, which are capital, rather than labor intensive. Thus diverting attention from the nature and present, if not longer term use of Currency manipulation. Simply look to the rapid accumulation of Forex, the Rapid monetary growth in China, the patterns of lending, saving, then the range of supports from export subsidies, tax rebates, etc….
Anyway, I will stop here, but could dissect the piece more, but the idea that China’s model is either successful or replicable, rather than a tool than siphons off a more stable global development model is not only suspect, but detrimental in the present era. What is needed at present, and globally, is more commitment to demand, rather than seeking to grow supply. The level of the Chinese economy devoted to consumption is seriously deficient and has regressed during the present era. Initially, China and the US, went in the right direction, while everyone hoped to grow, in a singular fashion out of the 2008 crisis. Again, pointing to the primacy of demand, rather than supply in the present crisis. More maturity need be found in these discussions, and more commitment to global solutions need be found, or, regardless as to who resides in the next Oval office, likely inability to work collectively, will see serious threats to that which had supported global growth in the previous era. Further, those who continue to misunderstand the US as the primary vehicle, or only passenger, that led to the recent crisis, serious misunderstands the nature and functioning of the global economy at present. More honest dialogues are requested of the esteemed author, or whomever wrote the piece. Especially as the discussion was on Denying Imbalances and Averting Chaos in the Global System.
As to the Occupy Wall Street Movement, other movements more broadly….understand what you are saying. Some of us might need to carefully remove the remote controls from our buttoxes. Simply, these issues are far more complicated then the simple memes you are recycling from your sheer lack of commitment to understand the complexity of the issues at hand. Read wide and braodly. Not simply the perspectives of the news that you agree with, if you sincerely want a balanced perspective in these.
Aurea Medicritas….all truth is found in the middle.
Most Americans had it good all these decades and should get used to idea of saving and learning to live within means. These should be the first steps.
Rao
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