China Needs Us To Buy Their Cheap Goods... Not! (Op/Ed)

posted by wecomeinpeace

“ . . the Chi-Coms are letting their economy grow unchecked, and covering up the negative consequences by "cooking the books" and only printing good news in the state controlled media. I'm no economics expert, but I can list a number of China's problems and future problems off the top of my head...

The undervalued Yuan: China is fighting tooth and nail to keep the RMB undervalued. Why? Because if the rest of the world gets pissed off enough and forces them to value it honestly, suddenly Chinese goods ain’t so cheap after all. Suddenly SE Asian suppliers who value their currency honestly become real competitors with China. Suddenly China's already inflated production capacity becomes even more inflated and thousands of shoe and toy factories sit idle.[Edited by Don W]

I have two comments or opinions to express here, Mr. W/C/I/P. First, the one of lesser consequence. It is the Chinese government’s new-found willingness to allow foreign capital into the country that has sparked and now fuels this phenomenal growth. I suppose the Chinese Communist Party - CCP - was having too much trouble keeping the peasants down on the farm and decided to try putting them to work in the cities.

City dwellers are much easier to “herd” that rural folks. Plus, at least for the short haul, productivity of urban dwellers is a couple orders of magnitude ahead of the rural economy on a per yuan invested basis. There is more bang for the buck in the city than in the less densely populated countryside. The unresolved problem is how to spread the wealth more or less equally around the larger rural population. As I’ve written above, I have heard that over the past 2 years, there have been 45,000 incidents of civil unrest in the rural areas, 2 of which required gunfire to control. The 1 billion people “left behind” are restless!

My second point is more a question than a comment. It relates to your statement, “ . . The undervalued Yuan: China is fighting to keep the RMB undervalued. Why? Because if the world forces them to value it honestly, suddenly Chinese goods ain’t so cheap. Suddenly SE Asian suppliers who value their currency honestly become real competitors with China . . “

Why, oh why, does any consumer nation give a hoot in a hollow if a supplier nation wants to “give away” its products? This same complaint was high on our list when the Japanese began importing vehicles into the US in the early 1960s. I, knowing Japan had to import all its raw materials, the US did not, and that the finished products had to be shipped across the Pacific Ocean, the US did not, and then transported from a port of entry to the interior for sale to the consumer, as also ours did from its assembly plants, then how could the Japanese make a better - fewer defects, better fit and finish - than the US cars and still sell the car for less, keeping in mind the 2 ocean voyages involved?

Today, in 2006, we know that plan worked because Toyota is now #2 in US sales and #1 worldwide, first bumping out Ford in the US, and then GM worldwide, who held that record every year from 1926. Sure, the competitors of China do care, but why us, who are consumers and are not competitive in any industry with China I am aware of?

Please explain that peculiar phenomenon if you will. Oh and also, what does “RMB” stand for?



[edit on 12/28/2006 by donwhite]

Since you posted the link I thought I would comment on this.

The bottom line is that yes China needs the American consumer. Its a simple fact. Look at the trade imbalance with just the US

www.census.gov...

In Billions
2006 -232,588.6
2005 -201,544.8
2004 -161,938.0
2003 -124,068.2

etc etc etc.

Where exactly is China going to sell 230+ billion dollars of goods?

Both countries are in a dance and need each other. A recession by any major economic power nowadays has a ripple effect.

The biggest thing that someone else has mentioned is the artificially undervalued yuan. If it were priced like most other currencies, things from China wouldn't be so cheap. I think that the Yuan problem will hit the fan when China starts to really export cars to Europe and N. America. What will the Big Car Companies do when $6,000 -$8,000 full sized cars start hitting the market? Sooner or later the Yuan issue will need to be addressed. China will not do anything to fix the Yuan until other countries say "enough". It really is a quite unfair trade practice if you ask me.

posted by pavil
Both countries are in a dance and need each other. A recession by any major economic power nowadays has a ripple effect. The biggest thing that someone else has mentioned is the artificially undervalued yuan. If it were priced like most other currencies, things from China wouldn't be so cheap. I think that the Yuan problem will hit the fan when China starts to really export cars to Europe and N. America. What will the Big Car Companies do when $6,000 -$8,000 full sized cars start hitting the market? Sooner or later the Yuan issue will need to be addressed. China will not do anything to fix the Yuan until other countries say "enough". It really is a quite unfair trade practice if you ask me.

So actually cries for a “floating Yuan” are protectionism? Some way to keep the home folks from facing competition? BUT who is “protected?” Surely not the poor joe who buys 100% of his goods from Wal-Mart? His prices will rise with a higher valued Yuan. Because China has all new factories and all new machinery, are we not more likely to be protecting out of design date factories and old less efficient machinery? How does that inure to our ultimate benefit? Is it not better to bite the bullet today than to wait and have 2 bullets to bite?

It is a “problem” because someone is making it a “problem.” I don’t think that person has come forward yet. I think we are hearing next to nothing in a way of explaining why an undervalued Yuan is BAD for America. Or for Americans. Or why should I worry about Singapore or Jakarta? I have my own worries. What say you Mr P?

More Later.

[edit on 8/8/2007 by donwhite]

Mr P, More on economics.
I am generally unimpressed by two situations that have the greatest effect on our economic well-being but over which we standby as if helpless. 1) The spot market for petroleum. We know the numbers. World oil consumption is given at 84 mbd. Million barrels per day. World production is given at 85 mbd. In times of distress enter the speculator. Justified as being some kind of “free market” which presumably elevates it both from close scrutiny and from any criticism of its effects on the world economy. I admit I don’t know who those fellows are. Probably rogues like Sir Mark Thatcher, if he is now out of jail. I wonder what the British government traded his captors for his release?

I don’t even know “where” the spot market resides. It maybe in cyberspace for all I know. Or on some side street like the London Gold Exchange which in like fashion sets the world price for gold, silver and platinum. Or it may be a deBeers type organization. A constriction bringing producers into contact with a very few selected sellers. In any case, we need to know a lot more about a few people - maybe a dozen or two? - who buy a few mbd for a short time but manage to set the price of the world’s oil for weeks or months? OPEC without a face.

2) Similar to my number 1 above, this is the world currency traders. When the new 100 dollar bill came out, I read there was $400 b. of US currency in print. That 60% was used inside the US of A, and the other 40% served as the world’s currency. Because of suspected Iranian counterfeiting of the old $100 bill - a/k/a a “Cecil” or a “C” note or a Franklin - the first shipments of new 100's were shipped to Moscow for introduction. Like that order of delivery or not, it is a great advantage to Americans to have their currency the world’s standard. Note: With over $160 b. of US currency in circulation outside the US, no other country has the resources to be able to meet that demand. Presently the US currency is not seriously threatened to be replaced by any other. The Euro is not all that well received outside the EU. Since Holland and France rejected the 300 page EU Constitution, it is not all that certain anyway. I feel sure if we were crossing the Gobi Desert we’d get further offering dollars than if we had Euros. Or paddling up the Amazon. Etc. End of Note.

Perhaps a few hundred million dollars are traded against other currencies on a daily basis. If American unemployment goes up and the consumer confidence index goes down the same day, then the price paid for a very few dollars in a far off place by speculators is allowed to SET the price for business transactions completed around the world that day. I don’t like that. Same reasons in No. 1, above.

Bottom line. I am not “free.” Today, people I don’t know and over whom I have no control or even much influence, set prices for oil and money that I am deeply effected by. Some argue they do not want governmental intervention in those “free markets” but I say, I’d rather have someone intervene who at least has to stand for election after 4 years of performance. Currently, there are no elections and no way for me to get outside that box.

[edit on 8/8/2007 by donwhite]

I will bring this issues that seem to be forgotten sometimes.

Who is destroying America to the point to become a Dependant rather than a producer?.

Who has made possible for America to depend on foreign goods rather than keep what once use to be the supremacy as producers and importers.

Who is helping a third world country like China to gain so much power over America.

It seems that the people that that has made possible to turn our nation into a consumer rather than a producer, while our manufacturing jobs goes on decline are the ones that has been planing the down fall of America as a nation of power for a long time.

posted by marg6043
I will bring this issues that seem to be forgotten sometimes. Who is destroying America to the point to become a Dependant rather than a producer? Who has made possible for America to depend on foreign goods rather than keep what once use to be the supremacy as producers and importers. Who is helping a third world country like China to gain so much power over America.

It seems that the people that has made [it] possible to turn our nation into a consumer rather than a producer, while our manufacturing jobs goes on decline are the ones that has been planing the down fall of America as a nation of power for a long time.

I agree, Marg. First, the labor unions made the American Middle Class dream come true. I like to recount the story of the tough African American who worked at American Standard and Sanitary Company, AmStan, in my hometown, Louisville. His job was to remove cast iron bath tubs from the furnace where enamel became porcelain-ized . The tubs were on an overhead trolley or conveyor system but were moved about by real men. It was a hot and hard job! But he was paid more than a policeman, fireman or school teacher. Thanks ONLY to his union. He sent his two children to college. It was a way UP and out of the lower class. Not for him, but for his children.

Since 1975, America has lost 30 million good paying blue collar jobs. Not all were unionized, but due to unions, many of those jobs paid good wages for hard work.

The undocumented worker does TWO things TO Americans.
1) It keeps down wages and
2) it stymies unions. Workers who are illegal are afraid to insist on their legal rights. The US ICE - Immigration and Customs Enforcement - is ready to enforce the employers exploitation of workers. Just recall the raids on Swift & Co. OSHA and Wage and Hour people go to heck! Somewhat reminds me of Hitler’s Slave Labor in War 2?

NOTE: We should hold no ill will towards the illegal immigrant. Many of them have heard from their fore-fathers that once most of the Southwest US was Mexico until the US took it from them in 1848. That is not all that long ago.

Next, the undocumented worker who comes here is a brave and courageous person. He comes here to work. Not to lollygag about. He or she is usually supporting a family south of the border. They put up with working conditions that are often illegal and which 99% of American would not put up with.

Let me remind you it is not the POOR who hire undocumented workers. It is the R&Fs, the rich and famous, who hire nanny’s and workers. As in bribery, this is a rich mans crime. That is why you never see a prosecution of the employer, only jail time for the employee. In all my life, and I would guess in yours too, I have never hired an illegal worker, nor have I ever bribed a public official. Gee! God Bless America. Land of the Free and Home of the Brave!

[edit on 8/8/2007 by donwhite]

how can china be all powerful ?

their nation is being devastated by their own pollutive industrial activitys,

how can they farm food for their billion residents, when massive floods or drouts or diseases are ravaging their countryside on a daily basis?

all i am saying is that we the industrial nations, are destroying ourselves so quickly we prolly wont even get a chance to have a war anyways

i see USA and china as self destructive entitys
and if theres gonna be a war, they better do it Soon
otherwise neither of us will have the financial capability to withstand the protracted war

just based on the pure fact we are destroying earth quickly, and Earth will kick both our butts Soon enough...

I want to know if any of those pessimistic about the American economy have ever been to China or even spoken with a Chinese person.

I've spoken with many Chinese people and to those who have spent extended periods of time in the non-touristy areas of China. There's always a common theme:

"China is not a rich country"

Where most of the paranoia originates from is that the Chinese government has launched a massively deceptive and successful propaganda disinfo campaign that makes their economy look so much stronger than it really is. Don't believe everything you read.

taiwansecurity.org...

Originally posted by donwhite
So actually cries for a “floating Yuan” are protectionism? Some way to keep the home folks from facing competition?

Not Protectionism, but Fair Trade in the Free market. I watched a special on PBS about Walmart and China a year ago. China was dumping Big screen TVs screens on the US Market for LESS than they actually cost to produce, even in China. Tell me that is fair. The Last US manufacturer of the same product could not compete on such an unfair price even though he had state of the art facilities and high productivity. The undervalued Yuan gives China an unfair edge when it comes to fair competition. Here is the link to the TV dumping.

www.pbs.org...

It is a “problem” because someone is making it a “problem.” I don’t think that person has come forward yet. I think we are hearing next to nothing in a way of explaining why an undervalued Yuan is BAD for America. Or for Americans. Or why should I worry about Singapore or Jakarta? I have my own worries. What say you Mr P?

An ARTIFICIALLY undervalued Yuan does make goods cheaper for the American consumer, no doubt. However given China's already great lead in labor wages, the ARTIFICIALLY undervalued Yuan bascially makes them able to out price anyone to the point of making it impossible to compete even with the best technology available. I just showed you an example above. An ARTIFICIALLY undervalued Yuan is bad for most of the industrialized world as it makes it next to impossible to fairly compete. If you and I are selling identical hamburgers and you charge $1.00 and I can charge .60 just because my currency isn't fairly pegged on the world currency exchange the same way yours is, is that fair? I am not talking about China's labor advantage but when you produce things for less than the actual real cost of the raw materials due to the price of your currency, something is wrong, wouldn't you agree.


You don't have to worry about Singapore or Jakarta as their currencies are pegged correctly in the world market. Theirs is a labor edge but at least it is sorta fair that way.

Is having the US auto industry dissappear because China puts out automobiles for 40% less than they actually cost due to and ARTIFICIALLY undervalued Yuan, is that fair. That's why you should be concerned about it.

BUT who is “protected?” Surely not the poor joe who buys 100% of his goods from Wal-Mart?

Maybe poor Joe is poor due to his job being lost to a company in China who can produce things for 40% less, not even factoring in the Labor advantage? We ourselves in a way enable the loss of jobs to other countries when we allow unfair trade to happen like the Yuan imbalance. Who is to blame?

[edit on 8-8-2007 by pavil]

[edit on 8-8-2007 by pavil]

I thought the American auto industry was hurting from JAPANESE competition.

But that's not the main point.

The main point is that while currency manipulation might move your exports in the short term, in the long run it is not a recipe for economic success.

In fact, quite the opposite.

www.iie.com...

[edit on 8-8-2007 by uberarcanist]

Originally posted by uberarcanist
I thought the American auto industry was hurting from JAPANESE competition.

And for a time Japan was dumping cars here for less than their actual worth. The Yen was not artificially pegged low by the Japanese either. But the US auto industry has it's own problems self inflicted as well. Japan currently puts out a better product, heck most of their stuff is not that much cheaper nowadays unless it is made in a low wage country. A Lexus isn't a cheap import. But as you said that is besides the point.


Don't get me wrong America has other issues in regards to world economics but the artificial undervalued Yuan is choking fair competition. Who wouldn't want to make or sell things for cheaper than your competition. For the consumer, it's great till it affects your job.



www.iie.com...


Great link. I suggest everyone read it.

I think the important thing to realize, Pavil, is that a devalued RMB is not just bad for the U.S. or even the world, it's bad for CHINA...in the short run some gains may be made by selling your currency short but in the long run it's no way to run your economy.

[edit on 8-8-2007 by uberarcanist]

Originally posted by uberarcanist
I think the important thing to realize, Pavil, is that a devalued RMB is not just bad for the U.S. or even the world, it's bad for CHINA...in the short run some gains may be made by selling your currency short but in the long run it's no way to run your economy.

I agree with your point, Overall it is not best long term growth policy. Sooner or later one leg of the bar stool will give out and the whole stool will fall. We are all interelated now.

China is weird. A communist country where 1/3 of the people are doing well and 2/3 are still mired in the poverty, just getting by cycle. I would have expected a more "share the wealth" approach from a communist country.

Pavil, you must realize that what we're dealing with is "Communism with Chinese Characteristics" which translates into capitalism with heavy market manipulation to boost exports...a really quirky system that I don't think will work in the long run.

Originally posted by uberarcanist
Pavil, you must realize that what we're dealing with is "Communism with Chinese Characteristics" which translates into capitalism with heavy market manipulation to boost exports...a really quirky system that I don't think will work in the long run.

I fully realize that, what would be ironic is that the "masses" might rise up against the "Communists" because of an inequality of the distribution of wealth.

To me that is very ironic. Mao must be turning over in his glass mausoleum.

Thanks Donwhite for the nice history into what used to be the middle class hard working American once upon a time. . .

As everything corruption and greed have played a big role on the disintegration of was once the great America.

People do not understand that the same industries that were the hart and soul of our nation, the ones that made US prosper and made the middle class America well off, are the same industries that now are on decline and almost none existent

The dying middle class America along with the manufacturing business is what people do not seems to grasp and to relate them, both goes hand on hand.

Between 2000-2004 three million good paying US manufacturing jobs were lost according to the think tank Economic Policy Institute.

CNN.Money analysis on the decline of the manufacturing sector it showed that from all the big industrial old towns only NY stays the same for now, most of the rest of the top 10 cities that used to be the big manufactures, Baltimore,Boston,Cleveland and St.Louis are still surviving but with heavy loses.

These cities are also having problems with the housing downfall as people lose their jobs and cannot replace them with other of equal pay.

The dollar is not doing well regardless of what many believe that if the dollar falls the entire financial world falls.

Well is not so, the dollar littler by littler since 1999 has been dumped for foreign exchange, now in 2006 the dollar has fallen in favor of the Euro.

And the Euro is growing fast, so when the need for the dollar ends the Euro will take over with no problem at all.

Nobody wants to keep their economy health on a debt ridden currency.

America is importing more millions per minute that is export increasing the national debt per minute in the process.




[edit on 8-8-2007 by marg6043]

Originally posted by pavil

China is weird. A communist country where 1/3 of the people are doing well and 2/3 are still mired in the poverty, just getting by cycle. I would have expected a more "share the wealth" approach from a communist country.

China new found wealth is now in the hands of the new emerging class that controls the manufacturing in China.

What many do not understand is that even when China is a communist country this new elite group is gaining more power over and around the communist leadership.

They own their local police and influence the local governments, while they are becoming rich the lower classes are their slaves.

They are corrupted and hungry for money.

But in our nation of freedom and democracy corporate America and our government turns the face the other way as long as goods stay cheap and profits margins are met.

Marge,
China has been artificially undervaluing the Yuan for years now, is it any surprise that jobs have fled here and went to a place where in addition to already lower labor and less monitoring, you have a built in 40% price advantage? It's a situation that can't continue this way for any party involved in it.

We are all in this together now, The US is a partner, rather than the dominating leader of the world economy. If Germany or India, Japan or China or the U.S. suffers an economic downturn, things now ripple through the globe.

Here's an example. Recession hits the U.S., dropping demand of services and products in Japan, China, India and in Europe, causing their economies to drop as well. Call it another form of Trickle down economics if you will. You can interchange almost any nation in this scenario and the same thing plays out. A Financial crisis in Asia almost upset the apple cart a few years ago which would have had worldwide consequences had it not been taken care of. We are all parts that need and depend of ALL of the others economically speaking.

Originally posted by marg6043
But in our nation of freedom and democracy corporate America and our government turns the face the other way as long as goods stay cheap and profits margins are met.

What would you propose we do to infuence things more? Everyone hopefully knows how China deals with political dissent from the Communist Party. We are limited in our efforts to promote reform in China, you wouldn't want us interfering the in the internal politics of another country would you?