Sunday, August 29, 2010

What's wrong with China? *edit*

edit: 08/30

I earlier alluded to Chinese currency manipulation and I guess I'm sharing why I feel so ambivalent about China.

But, by far, the  most troubling, worrisome, and, downright outrageous aspect seems to be how as the rest of the world is recovering from a great recession, China has turned to gloating over how it is now "China's turn" to lead the world rather than seeing how the absorption of the country's products and merchandise had and has lifted millions of her people out of absolute poverty or subsistence living standards . Rather than returning this assistance in kind -- and showing the rest of the world, what a rich and prosperous China is capable of, the Chinese government seems intent to shy away from helping these very same countries recover from a recession or even trading with these countries on fair terms. 
China earlier in the year agreed -- as the rest of the world was facing a slump in demand China's economy continued to be in double digits as  its "reserves" passed $2 trillion -- to slowly change the value of the Chinese Yuan. Well, if you think about it, this is by far the most egregious act that has China has committed. How can a country that is now the second largest economy and poised to be the largest exporter justify unfair trade advantages, especially with $2 trillion in "reserves." This is outrageous.

The yuan has seen increased volatility in the trading days since the PBOC's [People's Bank of China] June 19 pledge to increase exchange rate flexibility. The yuan has risen by 0.37% since that pledge was made.
I'm not quite sure how old the author of this article is, but for someone, who is still in his twenties, I've aged more than 0.37% over the past four months.

Anyways, the reason that I write about this is that, well, every article I read as of late has much to do with the ails of the economy, and there seems to be much in the realm of U.S. domestic politics and China that really, well, vexes me. 

There seems to be so many people out of the work force and for such a long period of time that it looks like it has become observable. I mean this is pretty alarming stuff. Consider that there are so many people out there that have gotten laid off or lost their jobs over the past couple of years and have not been able to find work for such a prolonged period that people can observe this as something beyond the anecdotal. and it may have brought about long term structural changes to the US economy (and along with it a lower potential economic prosperity for a long run -- maybe not the long run.)

But, what's more disconcerting is that there seems to be a strangely timed, but definitely newly found apprehension towards U.S. budget deficits in the far flung future. (One of the few sectors that seems to have added jobs as of late is the health care industry.) This newly found apprehension looks as if it will lead to a paralyzed federal government that will lack the ability to engage in any new policy initiative. I strongly believe there needs to be working majorities in both senses of the word, "working majorities" for something to be done, yet it seems the U.S. public has no appetite for this.

I guess a good example that captures my concerns is this entire mosque building issue. Why is this issue capturing so much attention in the press over what little attention and patience  a disappointed and  apathetic U.S. electorate has left. The issue seems to have crossed over from being a traditional debate over the role of the government and into one that is now being manipulated as a regular wedge issue. Furthermore, the Federal Reserve seems to have run out of its conventional tools to stimulate the economy and is looking a bit reluctant to use its more unconventional tools to stimulate the economy.

If the U.S. is facing problems at home, then it would be quite natural to look over and see what if her friends could help, say in the manner that U.S. leadership helped bring about export-led recoveries in East Asia in the aftermath of financial crisis in 1997-98 over there. Currently, with Europe being well Europe, I mean this in a way as in pretty undependable, and aside from super loyal Japan, there pretty much is only one large economy remaining -- booming China. By the way, India doesn't really count yet. But, this remarkable contrast between a booming China with $2 trillion in "reserves" refusing to abandon its currency manipulation techniques is just unacceptable. I mean something needs to be done. 

Now, I'd think it might be a bit disrespectful to not credit Chinese people for continuing to develop their country, but for some time now, the U.S. and the West wholeheartedly embraced China that made much of what China has achieved possible. China has about $2 trillion in "reserves" for lack of a better word, I guess. So, this is where I'm coming from when I earlier said the "most troubling, worrisome, and, downright outrageous" development in China is its refusal to take on any responsibility even to the point of abandoning an unfair trade advantage as its economy is booming. 

Now, I'm a believer in that countries don't treat each other in the manner that people have come to treat each other and it is within this sense that I think China is doing something that is simply against her interests. Economic benefits notwithstanding, I think China's single-minded quest to be a superpower at all costs is creating enemies. For example, returns on investment from government spending on defense seems to be added insecurity for not only the country --a la czarist Russia or the Soviet Union-- but also for the rest of the world. China seems to think good will  only comes from soft power, which comes from investing in English-language 24 hour cable news networks, but I beg to differ.

Lydia Wang, a 28-year-old marketing manager in Shanghai, gripes that the shoes and clothing she normally buys are at least 50 percent pricier than in 2009. Wu Sengyun, a 54-year-old retiree living in the coastal city of Ningbo, Zhejiang, says prices of fruit and fish are both up more than 20 percent. Willy Lin has cut back on serving free drumsticks in the canteen of his Jiangxi clothing factory as meat and vegetable prices climb. "The workers suffer," he says. "Everybody is crying."

Officially, China's consumer price inflation topped out at 3.3 percent in July from the year before—a 21-month high. The government says the spike is a one-off caused by crop damage in recent flooding. Other costs, they say, such as cars, mobile-phone bills, and clothing, are actually falling, and price increases should slow as the economy cools. At an Aug. 12 press conference, Pan Jiancheng, a deputy director in the statistics bureau, announced that the inflationary threat was "overhyped."

Many consumers, investors, analysts, and academics disagree.

Why does China need super cheap money right now? Exporting inflation would make China very popular, I bet, though I think it's just doing what it should have started on a long, long time ago.

Anyways, $2 trillion in "reserve" with 10% growth rates and still the need to engage in mercantile practices, it's quite vexing...

Note: I know today is the 100 year "anniversary" of Japanese annexation of Korea, but hey, this is what's on my mind right now.

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