What does this mean-- if anything -- for large U.S. discount retail chains such as Wal-Mart, Kmart, Dollar Stores, etc.? Not all of your readers are economists. All economic news is local at some level.
China is in a no-win situation as far as the media is concerned. When China revalues its currency (to make it worth more), the NY Times complains. Then when China devalues its currency to bring greater stability to things, the NY Times complains again.
The US government also tries to manipulate the economy, although in different ways. As I recall, during the recent recession the NY Times ran frequent op-ed pieces urging the US government to INCREASE its manipulation of the economy. Paul Krugman continues to write these types of articles.
What I would appreciate is an article explaining why it is wrong for the Chinese government to intervene in stabilizing its economy, but okay for the US to do this.
I am not advocating increased manipulation. It is just the media's double standard that bothers me.
The US government also tries to manipulate the economy, although in different ways. As I recall, during the recent recession the NY Times ran frequent op-ed pieces urging the US government to INCREASE its manipulation of the economy. Paul Krugman continues to write these types of articles.
What I would appreciate is an article explaining why it is wrong for the Chinese government to intervene in stabilizing its economy, but okay for the US to do this.
I am not advocating increased manipulation. It is just the media's double standard that bothers me.
11
China's leaders are very shrewd. Yes, there are some negatives in allowing the renminbi to decline, but the ultimate goal is, as the article states, "a bigger role in the global financial system." This furthers China's world leadership goals. The real question is when does world leadership become world domination.
1
China is learning the lessons of what "free market" really means. This education will not be finished in 2,000 years. That this is occurring now is especially troubling considering that the West is now relearning what "free market" means.
2
Let's simply this analysis veen further. China's immediate goals were really to stimulate domestic consumption by letting wages rise; and enhance its exports' competitiveness in light of rising wages at home.
To suggest that China intended to devaluate its currency to make it a "reserve-currency" is going too far. By this measure, Brazil's currency should be by now.
To suggest that China intended to devaluate its currency to make it a "reserve-currency" is going too far. By this measure, Brazil's currency should be by now.
I agree with the author's analysis as to China's motivations, and I agree that their primary motivation was concern over their slowing economy. But I fail to see how a government mandated devaluation is more likely to give the renminbi global credibility as a trading or reserve currency. If anything, it would make traders wary about holding it as its value will fluctuate by governmental fiat rather than market demand like the dollar, euro, and yen do.
To an extent, all governments manipulate their currencies, but China's action goes beyond reacting to market forces by participating in the market in the way other central banks do. If you are negotiating a contract in a particular currency, you have a feel for the economic fundamentals and can judge your degree of risk and even hedge against it. But neither tactic works when a government can simply says its currency has whatever value it wishes it to be.
To an extent, all governments manipulate their currencies, but China's action goes beyond reacting to market forces by participating in the market in the way other central banks do. If you are negotiating a contract in a particular currency, you have a feel for the economic fundamentals and can judge your degree of risk and even hedge against it. But neither tactic works when a government can simply says its currency has whatever value it wishes it to be.
6
Neil,
I think this move was necessary because of the weakening Yen, Euro, etc. China is in competition for the US market and it makes perfect sense for China to devalue. China has an export strategy and she has a time of it with both the Euro and the Yen in auto and auto related trade.
I leave it to you to do some interviews with China's financial leadership and get a better handle on their medium term strategy.
I think this move was necessary because of the weakening Yen, Euro, etc. China is in competition for the US market and it makes perfect sense for China to devalue. China has an export strategy and she has a time of it with both the Euro and the Yen in auto and auto related trade.
I leave it to you to do some interviews with China's financial leadership and get a better handle on their medium term strategy.
1
I hope people realise that China's trade imbalance with the USA, benefits the USA a great deal. China has a reserve account at the Fed a cheque account. To pay China $x is added to this account. China can just leave it or buy bonds[and earn interest]
By devaluing the accounts in the Fed rise in value, being in dollars, and at $1.3 T it's a big sum. The trade "deficit" is a good thing for the USA, because it receives goods and services which it wants or needs and in return we credit the exporter country's reserve account with dollars, of which the USA has an infinite quantity. So who do you think benefits?
China's devaluation is an attempt to improve its position regarding it's external customers and also to curtail domestic over consumption.
By devaluing the accounts in the Fed rise in value, being in dollars, and at $1.3 T it's a big sum. The trade "deficit" is a good thing for the USA, because it receives goods and services which it wants or needs and in return we credit the exporter country's reserve account with dollars, of which the USA has an infinite quantity. So who do you think benefits?
China's devaluation is an attempt to improve its position regarding it's external customers and also to curtail domestic over consumption.
The two reasons aren't economic and diplomatic: they're economic and economic. China's economy is not growing as fast as once before & China is a net exporting country; depreciating the renminbi means Chinese exports are cheaper for the rest of the world, ergo more sales for Chinese companies. Secondly, the USA will hardly find this news heartwarming. Since the Great Recession, the USA has been protesting that China has been artificially keeping the FX rate down, flooding the US market with Made in China goods that its foreign reserves can't afford. But now that China is at the beginning of its own possible Great Recession, the fixed FX rate was actually keeping the RMB artificially high. That's hardly diplomatic. But setting the RMB FX to market rates means credibility in the long run and acceptance from the global financial players.
1
How is the sudden decline in their currency an indication that China has accepted or will accept market forces more? That is an assumption of the author in arguing that they have accomplished two opposing goals at once, but buyers of RMB bonds and currency traders would hardly see this change as government exiting the business of currency manipulation! Quite the opposite. The truth is in what happens over the next year or so. A single move can't tell you anything about the government's objectives, so your story doesn't hold.
1
China seems in a hurry to turn its renminbi as another world currency, as also to challenge the West controlled twin Bretton Woods institutions, World Bank and IMF, by even contemplating parallel institutions through which it could assert its arrival over the global economic stage. The currency devaluation move seems to be a test fire by China to assess global reactions as also signal its desire for world dominance, economically, politically, and militarily, well ahead the scheduled official visit to the US by the Chinese President Xi Jinping, of course.
I often despair at the mysterious decline of intelligence of some, if not all, of the Western commentators when it comes to China, as if they have all fallen to the spell of its magic.
There is nothing mysterious about the nation if you care to do a bit of homework before venturing into the topic. They are a people like any other on earth with similar aspirations in life: food, shelter, safety, health, etc. For the past three decade, thanks to the globalisation, they have been on the way up in material wealth by selling their cheap labours, damaging their natural environment, doing corrupted deals with whoever is willing, exploiting the less fortunate and the weak. Now, some 30 years later, they find themselves runout of steam and they are on their way down.
Today, the regime is on its last legs in controlling the population. It will last for sure, and it may last another century without too much trouble, as the history of China often shows. But the day of reckoning is surely coming.
Overall, the West has not done too badly in dealing with China. The real threat of China is not its military, nor its economy, rather, its disintegration.
There is nothing mysterious about the nation if you care to do a bit of homework before venturing into the topic. They are a people like any other on earth with similar aspirations in life: food, shelter, safety, health, etc. For the past three decade, thanks to the globalisation, they have been on the way up in material wealth by selling their cheap labours, damaging their natural environment, doing corrupted deals with whoever is willing, exploiting the less fortunate and the weak. Now, some 30 years later, they find themselves runout of steam and they are on their way down.
Today, the regime is on its last legs in controlling the population. It will last for sure, and it may last another century without too much trouble, as the history of China often shows. But the day of reckoning is surely coming.
Overall, the West has not done too badly in dealing with China. The real threat of China is not its military, nor its economy, rather, its disintegration.
10
Citizen Peng:
I agree in part. As for its disintegration I submit that China will always be China. A country much like the United States, diverse, multi-cultural, human (as you say). They have a sociological flaw, though. An over reliance on a bureaucratic top-down governing style. Be it an Emperor or, the current "emperor," the CCP. It's always top down. So China will always be, China.
But this is not to say the CCP won't disintegrate. The government has careened the country from one ideological extreme to the other; from the "move everyone into the countryside" era of Mao that resulted in the mass starvation of +35Million Chinese citizens for the mid 1950's to mid-1960's....all due to pursuing what was felt to be the logic of Communism, to this recent era of pursuing (again) the extremes of a Capitalistic ideology. That being production at all costs to insure economic prosperity. The base logic of "keep everybody working." This, too, is flawed and points directly, again, to CCP ineptitude. In order to truly have a robust, diverse, economy, you must have a strong, independent, middle class. This is something that cannot occur under the CCP because as much as they fear a crumbling economy they fear even more that Middle Class and the diverse political - and economic - power they can represent. The CCP must be removed from power, or it will disintegrate of its own. But China, will always be China, as it has been for two thousand years.
I agree in part. As for its disintegration I submit that China will always be China. A country much like the United States, diverse, multi-cultural, human (as you say). They have a sociological flaw, though. An over reliance on a bureaucratic top-down governing style. Be it an Emperor or, the current "emperor," the CCP. It's always top down. So China will always be, China.
But this is not to say the CCP won't disintegrate. The government has careened the country from one ideological extreme to the other; from the "move everyone into the countryside" era of Mao that resulted in the mass starvation of +35Million Chinese citizens for the mid 1950's to mid-1960's....all due to pursuing what was felt to be the logic of Communism, to this recent era of pursuing (again) the extremes of a Capitalistic ideology. That being production at all costs to insure economic prosperity. The base logic of "keep everybody working." This, too, is flawed and points directly, again, to CCP ineptitude. In order to truly have a robust, diverse, economy, you must have a strong, independent, middle class. This is something that cannot occur under the CCP because as much as they fear a crumbling economy they fear even more that Middle Class and the diverse political - and economic - power they can represent. The CCP must be removed from power, or it will disintegrate of its own. But China, will always be China, as it has been for two thousand years.
1
But when countries begin to disintegrate is often also when their military forces begin to become dangerous.
2
Neil's analysis is spot on and put's the crap spouted by Trump tonight in its rightful place!
4
It's all fine and good to analyze the various rationales and ramifications of China's currency devaluation, but so many of the soothsayers and analysts miss a crucial, fundamental fact: namely, China will never become a major economic threat to the west as long as it remains a totalitarian government that stifles basic individual freedoms. When China becomes truly free, then the west should worry about being left in the dust of such a major economic force.
3
Well, if and when China became "truly free", then China would share our values and not be a military threat. If China and Taiwan were equally free, then the logic of preventing Chinese Reunification would evaporate.
When we look at China, we should remember that China is not the Soviet Union in 1950, or even in 1970. In 2014, some 107 million Chinese tourists traveled the world. How many of them defected? I think ZERO, or about zero. That would never have happened in the old Soviet Union. (neither the "Tourist" part, nor the "not defecting" part. Every year hundreds of thousands of Chinese students study overseas. How many defect?
No, China does not give its people the same freedom that Americans have. And the 600 million Chinese internet users have to deal with the "Great Firewall Of China". However, I remember seeing a Chinese post on economist.com, that "the Internet has given the Chinese people Freedom of Speech". Even if it is not "100 %" Freedom, any kind of "Freedom" can be a dangerous thing.
It seems many "soothsayers and analysts miss a lot of crucial, fundamental facts" about China.
When we look at China, we should remember that China is not the Soviet Union in 1950, or even in 1970. In 2014, some 107 million Chinese tourists traveled the world. How many of them defected? I think ZERO, or about zero. That would never have happened in the old Soviet Union. (neither the "Tourist" part, nor the "not defecting" part. Every year hundreds of thousands of Chinese students study overseas. How many defect?
No, China does not give its people the same freedom that Americans have. And the 600 million Chinese internet users have to deal with the "Great Firewall Of China". However, I remember seeing a Chinese post on economist.com, that "the Internet has given the Chinese people Freedom of Speech". Even if it is not "100 %" Freedom, any kind of "Freedom" can be a dangerous thing.
It seems many "soothsayers and analysts miss a lot of crucial, fundamental facts" about China.
1
Neil,
Your opening and closing statements about China's goals don't quite foot which throws your piece off a bit. Still, this does bring us into the right questions.
1) "keep the economy on an even keel, keeping growth and employment high"
2) "they hope, better economic results at home"
These two things aren't quite the same and they point to the real problem: the illusion (self-deception?) of an evenly keeled growth economy (and political power) v. the reality of an economy subject to sharp bubbles and contractions as various global market phenomena (like oil) occur.
Part of this "even keel" ideology has been massive overseas infrastructure and commodity investment around the world. This is, you are quite right, part an parcel of a political global power narrative. And it all just got a serious cold shower. So no, the two big national goals did not just get cleverly pushed forward. Quite the contrary. The fiction has just been exposed.
Illusions and self-deceptions are always smoother and more even keel and can feel comforting. When the Wizard of Oz steps out from behind the curtain, however, all kinds of things can start to unravel.
Bumpy times ahead.
Your opening and closing statements about China's goals don't quite foot which throws your piece off a bit. Still, this does bring us into the right questions.
1) "keep the economy on an even keel, keeping growth and employment high"
2) "they hope, better economic results at home"
These two things aren't quite the same and they point to the real problem: the illusion (self-deception?) of an evenly keeled growth economy (and political power) v. the reality of an economy subject to sharp bubbles and contractions as various global market phenomena (like oil) occur.
Part of this "even keel" ideology has been massive overseas infrastructure and commodity investment around the world. This is, you are quite right, part an parcel of a political global power narrative. And it all just got a serious cold shower. So no, the two big national goals did not just get cleverly pushed forward. Quite the contrary. The fiction has just been exposed.
Illusions and self-deceptions are always smoother and more even keel and can feel comforting. When the Wizard of Oz steps out from behind the curtain, however, all kinds of things can start to unravel.
Bumpy times ahead.
1
Making the currency "freely usable" is all well-and-good. But more important is the question of whether anyone trusts that it will remain so.
It will require much more time of no-interference for that crucial trust to build.
It will require much more time of no-interference for that crucial trust to build.
2
looks like China is helping to spur on the next american economic bubble in CRE. 2016 is gonna be fun.
Number one, it can. Number two, it has little choice as the economy is faltering.
Unless there has been a big change in the last year this is not going to work out well for China and will not hurt the US much. The US companies usually pays for its goods, made in China, in US dollars. These dollars are then taken to Chinese banks who turn it into renminbis to use in China to pay wages etc. The Chinese banks then have a surplus of US currency on their hands and they protect it by buying US T-Bills with US cash. The US gets the cash back in the immediate while China gets a 20 or 30 year IOU at, as we speak, zero percent interest. This move by China may boost in the short term Chinese market appeal but they are still going to have to deal with the exchange rage when buying t-bills and converting the US dollars into Chinese Renmibi. This is not going to work out well for the Chinese. In the meantime the US will continue to look like a rational safe place to park money and invest.
8
China shouldn't try so hard to compete with other countries. They should do what is best for their country. Making their currency lower would help them in the long run but would it help them now? If people from different countries were to visit China and they wanted to buy something it would make things less expensive. Now that they're exports aren't as good as they wish and they are not doing very good with sales they decide to drop their currency.
this was inevitable. More will likely come. The dollar has been strong for more than a year now. US is facing growth prospects that are in line with its historical trend while China's current growth has fallen way below expectations. Since the dollar is unlikely to lose significant value against the yen, euro, pound, franc any time soon the Chinese felt the urge to act. Other dollar-pegged currencies tied to underperforming economies may follow suit.
1
We need to keep in mind that other countries, in this case China, do not necessarily have the same values and objectives we do. America really does hold business as both a fundamental value in and of itself, but also as a way to achieve a better and freer life for its people. (Forget the dislocations, functional hypocrisies, and other such for the moment.)
China, on the other hand, has no such fundamental values. The collective welfare as determined and engineered by a tightly controlled political structure defines how policies are designed and carried out. Corporate business is merely a tool, and liberty is at best irrelevant, more commonly a subversive no-no.
As individualism is not part of the Chinese sociocultural makeup as it is here, the government/Communist Party is evaluated by the people more on results than on how the results are obtained. In America, on the other hand, the "how" comes into play frequently, whether it's states rights, the 2nd amendment, the separation of powers, or tensions between internal security and individual rights.
China, on the other hand, has no such fundamental values. The collective welfare as determined and engineered by a tightly controlled political structure defines how policies are designed and carried out. Corporate business is merely a tool, and liberty is at best irrelevant, more commonly a subversive no-no.
As individualism is not part of the Chinese sociocultural makeup as it is here, the government/Communist Party is evaluated by the people more on results than on how the results are obtained. In America, on the other hand, the "how" comes into play frequently, whether it's states rights, the 2nd amendment, the separation of powers, or tensions between internal security and individual rights.
4
Many of the commentators blame China for currency manipulation when it devalued its currency.
The U.S., U.K. Japan and now EU have been using QE and low interest rates to jumpstart their economies. With that they have achieved pretty much the same thing China is blamed for having done; manipulated their currencies.
Where's the difference?
The U.S., U.K. Japan and now EU have been using QE and low interest rates to jumpstart their economies. With that they have achieved pretty much the same thing China is blamed for having done; manipulated their currencies.
Where's the difference?
6
They difference is that the dollar has appreciated ~ 20% vs a basket of other currencies. American exporters are taking a hit. China consistently runs a substantial current account surplus. The yuan should be allowed to float upward in value.
The difference timoty is that currency manipulation is against international monetary law and policy of the IMF where setting QE goals is not. It's just that simple.
America is facing the classical upward move that follows from its reserve currency status: when the dollar rises more speculators will invest in it and it will rise even more.
China needs to be careful not to change too abruptly in value: Japan never really recovered from the currency shock after the Plaza Accords.
China needs to be careful not to change too abruptly in value: Japan never really recovered from the currency shock after the Plaza Accords.
The dilemma that the world, and especially the US, faces in China’s blatant currency manipulations can be compared to the one of Israel’s flagrant settlement policy in the occupied territories. Both the manipulations and the settlements have been ongoing for a very long time and will likely continue, perhaps unabated, and both are pursued as key to development and the fulfillment of national ideals. Yet the rest of the world sees both as obstacles to stability and balance and even judges them as illegal. Both perpetrators ignore, even dismiss, the entreaties and appeals of external parties to cease their self-serving, destabilizing actions or face vague nonspecific retaliatory actions or sanctions, which are never implemented.
Both behaviors are so entrenched and entwined with other aspects of their international relations that compelling China or Israel to change and allow a healthier state of affairs to evolve presents the challenge of unintended consequences. With China, because it is a manufacturing powerhouse and global creditor, compelling it to cease its manipulations could adversely affect trading partners and debtors. In comparison, Israel’s roll back of settlements could heighten conflicts over integrity and risk greater challenges to its own and others’ identity.
China’s and Israel’s long-term willfulness, the single-minded pursuit above all else of an ideal, economic or territorial, has created dilemmas that will not be without harm for the rest of the world.
Both behaviors are so entrenched and entwined with other aspects of their international relations that compelling China or Israel to change and allow a healthier state of affairs to evolve presents the challenge of unintended consequences. With China, because it is a manufacturing powerhouse and global creditor, compelling it to cease its manipulations could adversely affect trading partners and debtors. In comparison, Israel’s roll back of settlements could heighten conflicts over integrity and risk greater challenges to its own and others’ identity.
China’s and Israel’s long-term willfulness, the single-minded pursuit above all else of an ideal, economic or territorial, has created dilemmas that will not be without harm for the rest of the world.
6
Where is the Chinese equivalent of Sony, Panasonic, Toyota, and Honda? Sure, it makes a lot of things like iPhones, but these were designed by overseas companies looking for cheap labor. So far, Chinese products are only known for their suspect quality or impressive fakes. The ancient Chinese phrase "paper tiger" seems particularly apt when describing the Chinese economy.
11
Xiaomi, Lenovo, Midea, Haier, Huawei, Volvo, Sanyo. There are more on the way. Yes, the last two are not Chinese companies but China is now on a buying spree of foreign companies. Micron might get taken over by a Chinese group.
China's playing catch-up, so they won't be creating any proprietary IP for some time but we don't want to get complacent, it's too simplistic to say all that all they do is suspect or fake.
China's playing catch-up, so they won't be creating any proprietary IP for some time but we don't want to get complacent, it's too simplistic to say all that all they do is suspect or fake.
1
China's leadership is grasping at straws in it's feeble minded attempt to have it all ways. The overarching driver of all decision making our of Beijing isn't the strength of the currency but the strength of the party. These moves are about staying in power and for the Leadership, that means avoiding at all costs, the mind boggling failures that about to rock China's economy. The bedrock principle in Chinese society is that the CP, despite all the corruption and repression, is making its people rich. The moment that bubble bursts, it will drain the CP's power as quickly as any balloon once pierced. The bottom line isn't a move to increased dominance abroad. This is another moment of panic for China's leadership and they are just as capable of revaluing their currency tomorrow if they think it will keep them power.
6
Maybe another way of expressing the problem is to say that China is still a communist dictatorship that thinks capitalist when it chooses to and socialist when it chooses not to. Unfortunately the Chinese can't have it both ways. Democracy is certainly not on the horizon but state enterprise (which provides the capital for industrial growth) will have to learn more about how the west functions to achieve the goals that the state has set for itself.
2
As long as China or any other country are not democratic, their currencies will not see the daylight of prime time. Indian currency has a better chance of becoming part of the basket of IMF currencies than Chinese currency. May be such a threat will make China a democratic country. One thing China can't stomach is India leap ahead of China. A nice leverage to have for Japan and western democracies'.
4
Our economy is an open book every morning. The Chinese economy is a closed book that is padlocked shut. Are we getting real numbers or are the we see numbers cooked up by some Communist bookkeeper with a gun to his head? Economics is in essence very simple. Money will flow where it is the safest. Where would you rather have your money: in China or America? Where would you rather own property: China or America? Where would you rather see your kids go to college: China or America?
13
China's economy is financed with borrowed dollars: funds lent by Wall Street banks to US customer for Chinese 'goods'. The Chinese use these dollars and other foreign exchange to leverage RMB both in above ground markets and in 'shadow banking' where leverage is 30-50X and more.
Now, China finds itself competing with other countries and the US for dollars.
RMB depreciation reflects the ongoing shortage of dollars; underway is a margin call. China now offers more RMB per dollar; how many more will it offer tomorrow ... and the day after?
This is not about producing a reserve currency it is about frantically trying to avoid the (inevitable) consequences of a market re-pricing of Chinese assets ... most of which are actually worthless.
Look for a lot more depreciation to come.
Now, China finds itself competing with other countries and the US for dollars.
RMB depreciation reflects the ongoing shortage of dollars; underway is a margin call. China now offers more RMB per dollar; how many more will it offer tomorrow ... and the day after?
This is not about producing a reserve currency it is about frantically trying to avoid the (inevitable) consequences of a market re-pricing of Chinese assets ... most of which are actually worthless.
Look for a lot more depreciation to come.
7
China holds up to 60% of its $3.65 TN of foreign currency reserves in U.S. dollars, 20% in government housing debt. They've got dollars up the wazoo. As for assets with inflated values,Alibaba or Alphabet, what's the diff?
1
Among China's assets is about 2 trillion dollars in US debt. Is that "actually worthless"?
1
tom, are you sure you really want to know the answer to that question?
When credit contracts -- as it is worldwide right now, for reasons unrelated to finance -- leveraged assets instantly become liabilities. There are far more claims against China's reserves than there are reserves.
When credit contracts -- as it is worldwide right now, for reasons unrelated to finance -- leveraged assets instantly become liabilities. There are far more claims against China's reserves than there are reserves.
1
Distant thunder from a building storm.
Look at the biggest picture. Global industrialization has crossed its asymptote. There is still 'untapped' slave labor on the planet but most of the poor are already employed at assembling the 'products' that drive the world's 'consumer economy'. And at the same time, machine labor is starting to really take off.
This is very bad news for the planet's poorest people who will find fewer jobs at lower wages.
China's leaders know this and understand that theirs is rapidly becoming another post-industrial society that must, like our post-industrial society, find a way to preserve the dignity and meaning of human existence absent employment. For China, with a billion and a half people to manage, the prospects are terrifying and the country isn't ready.
The planet's remaining agrarian societies should think very carefully before succumbing to the temptations of modern industrialization. It leads quickly to crisis.
Meanwhile the rest of us are sailing into dangerous and uncharted waters. The Earth will not remain a factory forever. It can't.
Look at the biggest picture. Global industrialization has crossed its asymptote. There is still 'untapped' slave labor on the planet but most of the poor are already employed at assembling the 'products' that drive the world's 'consumer economy'. And at the same time, machine labor is starting to really take off.
This is very bad news for the planet's poorest people who will find fewer jobs at lower wages.
China's leaders know this and understand that theirs is rapidly becoming another post-industrial society that must, like our post-industrial society, find a way to preserve the dignity and meaning of human existence absent employment. For China, with a billion and a half people to manage, the prospects are terrifying and the country isn't ready.
The planet's remaining agrarian societies should think very carefully before succumbing to the temptations of modern industrialization. It leads quickly to crisis.
Meanwhile the rest of us are sailing into dangerous and uncharted waters. The Earth will not remain a factory forever. It can't.
23
It can and it will. People like you have lamented invention of the wheel.
2
With all the Chinese College Students studying in America, we forget that it was not until 2012, that China began to offer ALL of its students a High School education. That is one reason China had a lot of cheap labor--- people with an 8th Grade education can only go so far.
Thus, in 2016, a record number of Chinese Students will be applying for College or some post-- HS position.
If History is any guide to the future, then countries such as Vietnam, will occupy the "Cheap Labor" role than China had. Even countries in Africa could also use a lot of cheap labor to assemble things like iPhones.
There is a cyclic nature to these things as each nation tries to see what it can do in adding value.
Thus, in 2016, a record number of Chinese Students will be applying for College or some post-- HS position.
If History is any guide to the future, then countries such as Vietnam, will occupy the "Cheap Labor" role than China had. Even countries in Africa could also use a lot of cheap labor to assemble things like iPhones.
There is a cyclic nature to these things as each nation tries to see what it can do in adding value.
Consider the Second Law of Thermodynamics.
"The Earth will not remain a factory forever. It can't."
It won't.
"The Earth will not remain a factory forever. It can't."
It won't.
China will never be a full fledged member of the world economy until exchange rates for its currency are set by the open market like the Yen, Pound, Euro etc. This is nothing but an attempt to jack up growth in China at the expense of other nation's jobs.
3
I believe that China is trying to improve their economic growth very high. First of all, the dollar has risen 22 percent against the euro last year (2014). The economy in China is already in a rough patch where their trying to keep employment rate high and job rate high. Although, China's currency is in a rough patch as well it all has to improved through the years. While, China is looking to be in a leadership role for the global economy and to establish the Renminbi as a reserve (new) country.
1
The moves by China are going to hurt it becoming a world economic leader not help it. The US dollar is going to be seen as even a more safe bet. This is going to have the opposite effect that those who root against the US want.
China wanted to establish the Renminbi as a "World Reserve Currency", rather than a "reserve (new) country". But that would make the Renminbi (or Yuan) stronger, as nations sold Dollars and bought Yuan for their Foreign Exchange Reserves.
When China makes its currency WEAKER, as it did this week, that seems to contradict the desire for it to be a World Reserve Currency.
When China makes its currency WEAKER, as it did this week, that seems to contradict the desire for it to be a World Reserve Currency.
Strenuously avoiding the pretense to be an economist, or even of understanding international economic machinations, I take deep issue with those saying China does not seek to be a dominating, meddling global power. My expertise deals with the lusophone world and Latin America. To those who say China's tentacles don't deep into the power structure of Peru or Ecuador, or Brazil or Angola- I say do your homework and look again. China is taking raw material from Ecuador- they are damming rivers, they are drilling for oil in pristine forest. Ecuadoreans and native Indians, as usual, have no say. China replaced the US as Brazil's principal trading partner... For the first time in anyone's memory, the "pororoca" the wave that travels up the Amazon to meet ocean currents... has disappeared.
6
What I'm trying to understand is why, when the Chinese act in this way, it is a "shock" to anyone. That they are driven by different motives than the US or Europe and will play the game they want to play has been obvious for as long as history has been recorded. This is not the only realm in which, if we become complacent and build expectations from our own perspectives, we will be open to a "shock". Or maybe a surprise, defeat or disaster. You will hear them say, repeatedly, they want peace, cooperation and prosperity but what they mean by that may not be what you think it means. More US citizens should read Sun Tzu to appreciate the way the Chinese think and act.
2
Lost in the hysteria about the drop in the value of the yuan is the fact that the yuan had appreciated from about 8 to the dollar to about 6 to the dollar, where is now remains after the recent "devaluation."
4
Kevin:
Please do not try to put things in perspective. That would be too "rational". Yes, the Yuan had appreciated from 8.28 to the USD in Jan. 2005, to 6.20 to the USD in June 2015, or about 33 % verses the USD in 10 years.
So in all the articles about the "Fall" of the Yuan, to 6.39 to the Dollar, you will never see the above numbers 8.28 and 6.20.
The fact is --- the media and Donald Trump just love "hysteria". It sells papers and fuels the Internet and can increase your Poll numbers if you are running for President. What's not to like about "hysteria"?
Please do not try to put things in perspective. That would be too "rational". Yes, the Yuan had appreciated from 8.28 to the USD in Jan. 2005, to 6.20 to the USD in June 2015, or about 33 % verses the USD in 10 years.
So in all the articles about the "Fall" of the Yuan, to 6.39 to the Dollar, you will never see the above numbers 8.28 and 6.20.
The fact is --- the media and Donald Trump just love "hysteria". It sells papers and fuels the Internet and can increase your Poll numbers if you are running for President. What's not to like about "hysteria"?
Well, through this event, we learn four things unambiguously about China:
(1) Chinese economy is in real trouble which has been kept away by the communist government till now,
(2) the devaluation of the Chinese Yuan will not change the fundamentals of the Chinese economy, i.e. the rising cost of labor, land, natural resource, and lastly but most importantly, the transparent and open environment (look at Google and other social media companies and see how they do in China),
(3) China has refuted all along that it has never "manipulated" the currency, despite repeated questions and warning from the US government. Now we know the truth, not through the hearing in DC, but through Chinese government's own action, and
(4) Currency manipulation is just one example that shows you what China is capable of doing; Another one is the stock fiasco that happened in China lately. Tell me if you still have faith in this totalitarian government.
(1) Chinese economy is in real trouble which has been kept away by the communist government till now,
(2) the devaluation of the Chinese Yuan will not change the fundamentals of the Chinese economy, i.e. the rising cost of labor, land, natural resource, and lastly but most importantly, the transparent and open environment (look at Google and other social media companies and see how they do in China),
(3) China has refuted all along that it has never "manipulated" the currency, despite repeated questions and warning from the US government. Now we know the truth, not through the hearing in DC, but through Chinese government's own action, and
(4) Currency manipulation is just one example that shows you what China is capable of doing; Another one is the stock fiasco that happened in China lately. Tell me if you still have faith in this totalitarian government.
11
I don't think one move by the Chinese concerning their currency is much evidence of anything other than that they are trying something out to see what its effect will be on their economy, as well as to watch how other countries around the world will react to what they have done. Doing an analysis at this point is a little bit like judging the U.S. economy by one move in the Dow-Jones Industrial average, even a big move of it.
Of interest to me is the style of capitalism the Chinese practice. Even more than the Western industrial countries, they are perfectly willing to manipulate supposedly free-market forces for their own ends. My sense is that free markets are one of the great fictions of capitalist theory. As far as I can tell, the entire thrust of capitalism is a constant process of every player attempting to manipulate and constrain the markets they play in for their own advantages.
Because of the Chinese system of repressive oligarchy, they have certain advantages in mixing some sort of capitalist system in with their heavy thumb pressure on the scales of these markets than other countries which allow these markets to operate more freely than they do. What sort of advantages this affords them is difficult to judge because their economic data is even more opaque than ours, on purpose. If their economy craters in the next decade, we may get a better sense about all of this. This happened to Japan in the 1990s after our awe at their economic might.
3
No one is on the gold standard. Currency value, and acceptance, is based on faith in the government issuing the currency. US Dollars are a standard nearer currency, because so many commodities are priced in US Dollars. It also happens that at the time the world was deciding on a benchmark currency, the Us economy and the Dollars were the strongest. Even after all the economic turmoil, the US Dollar is still strong.
China is trying undermine world currency so they become a standard bearer. While they may currently have the world;'s strongest economy; it is all government infused. Billion spent on cities, infrastructure, etc., but driven by the government; not the consumer. This is now causing a sustainability issue, which could lead to eventual economic collapse. Not only affecting China, but the world.
China is trying undermine world currency so they become a standard bearer. While they may currently have the world;'s strongest economy; it is all government infused. Billion spent on cities, infrastructure, etc., but driven by the government; not the consumer. This is now causing a sustainability issue, which could lead to eventual economic collapse. Not only affecting China, but the world.
12
We all know that government has no role in a capitalist economy. What's that you say? The Chinese government turned their economy into the strongest in the world? You must have made some mistake.
2
China is not the worlds strongest economy and this move is only going to strengthen the US Dollar as the world's reserve currency. You are spot on when you speak of the value of the currency being set by the faith of those that buy and sell currencies. The Chinese Government could demand that their currency is equal to the US dollar but that would only be heeded inside China.
What is QE for you? What have done American and European governments?
All that will end up into a war as China along with Russia are opposed to the US which wants to continue to print its dollar bills without collateral and impose itself and its spending on its military forces. The Chinese government is just doing what it needs to do for Chinese, so that the IMF, which is an American-led organization decided to retaliate and to prevent the Renminbi to belong to their basket of currencies. I would be more afraid of America with its ten aircraft-carriers that China doesn't have to impose its will.
All that will end up into a war as China along with Russia are opposed to the US which wants to continue to print its dollar bills without collateral and impose itself and its spending on its military forces. The Chinese government is just doing what it needs to do for Chinese, so that the IMF, which is an American-led organization decided to retaliate and to prevent the Renminbi to belong to their basket of currencies. I would be more afraid of America with its ten aircraft-carriers that China doesn't have to impose its will.
In other words, what China is facing here is the “trilemma of international finance” as written about in the NY Times by Greg Mankiw about 5 years ago.
http://www.nytimes.com/2010/07/11/business/economy/11view.html
The forks of the trilemma are these:
1) Countries want their economy to be open to international flows of capital.
2) Countries want to stabilize the economy using monetary policy.
3) Countries want stability in the currency exchange rate.
The problem is that economic reality forces countries to pick only two of three. The US has picked the first two, resulting in a fluctuating dollar. Europe has picked one and three, foregoing the ability to stabilize the economy in places like Greece. China has picked two and three, restricting the flow of international capital.
It seems China has a long way to go from allowing a 2% shift to allowing a free float like the US has; thereby moving from three to one. And if so, China seems to have a long way to go before the renminbi becomes a pre-eminent global currency and China has greater participation in the global economy.
http://www.nytimes.com/2010/07/11/business/economy/11view.html
The forks of the trilemma are these:
1) Countries want their economy to be open to international flows of capital.
2) Countries want to stabilize the economy using monetary policy.
3) Countries want stability in the currency exchange rate.
The problem is that economic reality forces countries to pick only two of three. The US has picked the first two, resulting in a fluctuating dollar. Europe has picked one and three, foregoing the ability to stabilize the economy in places like Greece. China has picked two and three, restricting the flow of international capital.
It seems China has a long way to go from allowing a 2% shift to allowing a free float like the US has; thereby moving from three to one. And if so, China seems to have a long way to go before the renminbi becomes a pre-eminent global currency and China has greater participation in the global economy.
3
I don't hear anyone yelling that China is just like Greece. I guess that is because, unlike Greece, China has a fiscal and economic problem, not a problem with foreign debt, and they can address their problem through manipulation of their own currency, a solution that is pointedly not available to Greece.
Take heed, those of you hearing politicians wailing that the USA is the next Greece. It isn't possible. Unfortunately, some of these people are politicians running for high office.
Take heed, those of you hearing politicians wailing that the USA is the next Greece. It isn't possible. Unfortunately, some of these people are politicians running for high office.
4
China has no fiscal problem at all. They're not Communists like France or the US which ask everyone to pay more taxes on goods one buys. They can impose more taxes if they decide and solve any issue they have as many shoptenders don't give even a bill.
They still have a growth of around 7% while Greece has reduced its GDP of 25%. There is no manipulation of their currency, but just the use of their currency as a tool. Otherwise, anyone could say that the US currency is also manipulated in order to strenghten it and so that to make strenghten China Renminbi towards other currencies as Renminbi is linked to US dollar. QE is a manipulation in order to maintain zombies banks into good seeming shape while they're not at all.
They still have a growth of around 7% while Greece has reduced its GDP of 25%. There is no manipulation of their currency, but just the use of their currency as a tool. Otherwise, anyone could say that the US currency is also manipulated in order to strenghten it and so that to make strenghten China Renminbi towards other currencies as Renminbi is linked to US dollar. QE is a manipulation in order to maintain zombies banks into good seeming shape while they're not at all.
Where's the news? China have been devaluing its currency with the rest of the world since the beginning of QE1. As long as USA, Japan, Europe devalues its currency, China will just do the same.
1
My reply:
QE 1 began in September 2008.
Actually, what you write is not true. The Yuan had actually gone UP 33% against the US Dollar from Jan 2005 to June 2015:
Here are some Foreign Exchange rates to put this Devaluation into perspective.
1 U.S. Dollar (USD) (Jan. 2005) = 8.28 Chinese Yuan (CNY)1
1 USD (June 16, 2015) = 6.20 Chinese Yuan2
(See the June 16, 2015 FX Rate (1 USD = 6.208 or 6.21 Yuan here: https://ycharts.com/indicators/chinese_yuan_exchange_rate)
(See the June 16, 2005 FX Rate (1 USD = 8.28 Yuan) here:
(http://www.tradingeconomics.com/china/currency )
Sorry to burst your bubble. Yes, China is not blameless. But when you criticize China, it is important to do so based on reality and not on stuff that you just make up. You tend to sound more intelligent that way.
http://www.linkedin.com/in/rdelrosso2001
QE 1 began in September 2008.
Actually, what you write is not true. The Yuan had actually gone UP 33% against the US Dollar from Jan 2005 to June 2015:
Here are some Foreign Exchange rates to put this Devaluation into perspective.
1 U.S. Dollar (USD) (Jan. 2005) = 8.28 Chinese Yuan (CNY)1
1 USD (June 16, 2015) = 6.20 Chinese Yuan2
(See the June 16, 2015 FX Rate (1 USD = 6.208 or 6.21 Yuan here: https://ycharts.com/indicators/chinese_yuan_exchange_rate)
(See the June 16, 2005 FX Rate (1 USD = 8.28 Yuan) here:
(http://www.tradingeconomics.com/china/currency )
Sorry to burst your bubble. Yes, China is not blameless. But when you criticize China, it is important to do so based on reality and not on stuff that you just make up. You tend to sound more intelligent that way.
http://www.linkedin.com/in/rdelrosso2001
QE 1 began in September 2008.
Actually, what you write is not true. The Yuan had actually gone UP 33% against the US Dollar from Jan 2005 to June 2015:
Here are some Foreign Exchange rates to put this Devaluation into perspective.
1 U.S. Dollar (USD) (Jan. 2005) = 8.28 Chinese Yuan (CNY)
1 USD (June 16, 2015) = 6.20 Chinese Yuan
(See the June 16, 2015 FX Rate (1 USD = 6.208 or 6.21 Yuan here: https://ycharts.com/indicators/chinese_yuan_exchange_rate)
(See the June 16, 2005 FX Rate (1 USD = 8.28 Yuan) here:
(http://www.tradingeconomics.com/china/currency )
Sorry to burst your bubble. Yes, China is not blameless. But when you criticize China, it is important to do so based on reality and not on stuff that you just make up. You tend to sound more intelligent that way.
http://www.linkedin.com/in/rdelrosso2001
Actually, what you write is not true. The Yuan had actually gone UP 33% against the US Dollar from Jan 2005 to June 2015:
Here are some Foreign Exchange rates to put this Devaluation into perspective.
1 U.S. Dollar (USD) (Jan. 2005) = 8.28 Chinese Yuan (CNY)
1 USD (June 16, 2015) = 6.20 Chinese Yuan
(See the June 16, 2015 FX Rate (1 USD = 6.208 or 6.21 Yuan here: https://ycharts.com/indicators/chinese_yuan_exchange_rate)
(See the June 16, 2005 FX Rate (1 USD = 8.28 Yuan) here:
(http://www.tradingeconomics.com/china/currency )
Sorry to burst your bubble. Yes, China is not blameless. But when you criticize China, it is important to do so based on reality and not on stuff that you just make up. You tend to sound more intelligent that way.
http://www.linkedin.com/in/rdelrosso2001
1
As the USA spends billions trying to play policeman to the world, China keeps laughing all the way to the bank. Is it that hard to figure out who is going to win when everything you pick up is Made in China?
6
Americans love making things. Furniture, farm equipment, hi-end industrial equipment, commercial building products etc.
yes consumer junk products you'll find much that is made in China.
yes consumer junk products you'll find much that is made in China.
1
Many of which Americans buy by the container load.
Or, the Chinese government is finally having to acknowledge what's been happening for the last several years, i.e. massive outflows of private capital to safe harbor currencies such as the US dollar and the Euro.
1
As others have written, Irwin's second point about making
the Chinese currency more suitable as a reserve currency
is not supported. In more detail, Irwin wrote:
"...the country will adjust how it manages the renminbi to make the
currency’s value respond more closely to market forces.
The immediate result was a de facto devaluation,..."
However according to Gough and Bradsher in "China Devalues Its Currency as Worries Rise About Economic Slowdown" NYT
it was not de facto but official:
"The central bank set the official value of the renminbi nearly 2 percent
weaker against the dollar. "
Also, Irwin does not supply any evidence that there has been a
change in how the currency is managed: has there been a change in
the "strict trading band" or merely a sudden government shift in the
location of the band that is unlikely to encourage its use as a reserve
currency.
the Chinese currency more suitable as a reserve currency
is not supported. In more detail, Irwin wrote:
"...the country will adjust how it manages the renminbi to make the
currency’s value respond more closely to market forces.
The immediate result was a de facto devaluation,..."
However according to Gough and Bradsher in "China Devalues Its Currency as Worries Rise About Economic Slowdown" NYT
it was not de facto but official:
"The central bank set the official value of the renminbi nearly 2 percent
weaker against the dollar. "
Also, Irwin does not supply any evidence that there has been a
change in how the currency is managed: has there been a change in
the "strict trading band" or merely a sudden government shift in the
location of the band that is unlikely to encourage its use as a reserve
currency.
1
I think that you poorly serve the reader when you do not state that the driver of all in China is the retention of totalitarian control of the country by the communist hierarchy. They determined that it would be increasingly difficult to hide the liberty and wealth of the West from their citizens so they opened their economy to strictly controlled economic relations with countries and businesses. But, China's rulers know that they are sitting on a powder keg of 1.3 billion people who want better jobs and better pay and as their economy reaches capacity, they need to buy or steal or take more raw materials and other inputs to grow their economy. I don't think they philosophically care to be a world power or have a reference currency....they only want those things because they enable China to better afford the high growth economic growth rate needed to make their citizens happy....happy enough to forget the liberty and democracy and wealth that they do not have and will not get.
18
So, you think the NYT poorly serves the reader by not addressing what you think the leadership is up to?
1
"I'm Just Sayin""
Hmm, there seems to be many Chinese millionaires and billionaires whom, among other things, are coming to North American to buy up loads of real estate. I guess your idea of a lack of liberty, democracy AND wealth in China doesn't seem to be much of a hindrance to them.
Hmm, there seems to be many Chinese millionaires and billionaires whom, among other things, are coming to North American to buy up loads of real estate. I guess your idea of a lack of liberty, democracy AND wealth in China doesn't seem to be much of a hindrance to them.
1
No. The article states what the "leadership is up to". But the article jumps to their tactics missing the constant, animating force in China driving their strategies and tactics. Hope that helps.
Irwin's logic escapes me. How does blatant manipulation of a currency enhance its status as a reserve currency? How does lowering the purchasing power of a currency aid the consumer?
3
The Chinese consumer is also, one hopes, a Chinese worker. It is his or her status as a worker that is aided by a weaker currency; the weaker currency means more exports and more jobs.
As consumers, except for the wealthier folk buying foreign cars, most of their needs are met by the domestic economy, in which the buyer and seller both deal in renminbi and are somewhat isolated from the exchange rate.
As consumers, except for the wealthier folk buying foreign cars, most of their needs are met by the domestic economy, in which the buyer and seller both deal in renminbi and are somewhat isolated from the exchange rate.
This article is unintelligible to me; it doesn't explain in plain language the significance of China's manipulation.
1
"Here are two things that China’s government wants very badly: first, for its economy to remain on an even keel, keeping growth and employment high. Second, for its currency, the renminbi, to become a pre-eminent global currency that helps promote the country’s diplomatic goals and solidify the country’s centrality to the global economy."
Why aren't these OUR goals? Why do we watch the Chinese take these moves while we sit passively and our economy stagnates and our global power declines?
I hope the next president puts the USA first. I'm tired of being a good guy and trying to help every other country, I want a president to will fight for our economy and our global position. No more apologizes for being a global power!
Why aren't these OUR goals? Why do we watch the Chinese take these moves while we sit passively and our economy stagnates and our global power declines?
I hope the next president puts the USA first. I'm tired of being a good guy and trying to help every other country, I want a president to will fight for our economy and our global position. No more apologizes for being a global power!
18
Would you like to receive the wages of a Chinese worker? Would you like their problems of wealth distribution? They are working from a much weaker position and they are running as hard as they can just to keep up. They buy the small portion of our debt that they own in order to maintain us as a market for their products to keep their people employed to prevent the internal explosion that seems bound to come some day.
1
1) "I hope the next president puts the USA first". Okay, which nation did Mr. Obama put "first" before the US? Kenya? Mexico?
2) How should "our president" "fight" for our economy and global position? War is good for corporate profits - uuuhhhh the economy - and Iran is a real strategic problem. Nuke Iran? Russia?
2) How should "our president" "fight" for our economy and global position? War is good for corporate profits - uuuhhhh the economy - and Iran is a real strategic problem. Nuke Iran? Russia?
1
The Multi-National corporations, American based included including tech, banking, auto (GM), clothing including shoes, etc. are the puppet masters behind the curtain in the United States. It is certainly the foundation of a Corporate State in which the corporations pull the strings of the government in Washington. Corporations in states are pulling the strings of the representatives and Senators where the corporations have large operations AND a large presence in China. Slowly but surely the Multi-Nationals are sucking the innards of the U.S. economy as well as some European states by pushing their brands which are manufactured in low paying Asian countries. The Chinese government is assisting them by manipulation of currency.
4
I'm glad you have this all figured out
Devaluation does give the renminbi the credibility of a free floating currency. China is just manipulating their currency like they have always done. If they believed in free markets they would have let their stock market reach equilibrium and not intervened to prop it up. To consider the renminbi on par with the euro or dollar is a joke.
6
China has ALWAYS shown to have its cake and eat it too!!
Whether its for its participation in global economy or international politics or any other area that needs international cooperation, China acts in a similar manner. Their policies are almost always selfish ones. Example: their belligerence in South China sea where they audaciously want to carve out an area FAR away from their mainland and parts of which are within the internationally recognized territorial waters of OTHER countries.
Sooner or later and consequently, their chickens of bad policies will come home to roost. Their GDP growth has already been slashed. The problem is that they will pull rest of the world down with themselves.
Ultimately it's their lack of transparency that will stand in their way for any meaningful reform. One party autocracy will NEVER provide transparency. For transparency one HAS to HAVE democracy.
In China that is NOT going to happen any time soon.
Whether its for its participation in global economy or international politics or any other area that needs international cooperation, China acts in a similar manner. Their policies are almost always selfish ones. Example: their belligerence in South China sea where they audaciously want to carve out an area FAR away from their mainland and parts of which are within the internationally recognized territorial waters of OTHER countries.
Sooner or later and consequently, their chickens of bad policies will come home to roost. Their GDP growth has already been slashed. The problem is that they will pull rest of the world down with themselves.
Ultimately it's their lack of transparency that will stand in their way for any meaningful reform. One party autocracy will NEVER provide transparency. For transparency one HAS to HAVE democracy.
In China that is NOT going to happen any time soon.
32
Sounds like the Monroe Doctrine, and America's valiant efforts in freeing the Cubans and Filipinos from Spanish oppression.
Spheres of influence are a real, if unfortunate, characteristic of geopolitics. It is only our nuclear umbrella and defense commitments that keep South Korea and Japan relatively free from China. The Vietnamese have proved that they can take care of themselves.
We are not going to war over China's man-made islands, so best not to rattle sabers and lose face.
Spheres of influence are a real, if unfortunate, characteristic of geopolitics. It is only our nuclear umbrella and defense commitments that keep South Korea and Japan relatively free from China. The Vietnamese have proved that they can take care of themselves.
We are not going to war over China's man-made islands, so best not to rattle sabers and lose face.
1
another china bashing comment.. china is doing what is best for china.. look at india and democracy is killing that country.. i guess one need to have an authoritarian rule for a country to begin with..
Some of what you say pertains to the U.S. as well. And I think we are finding out that not even a two-party system provides the choice and "transparency one HAS to HAVE democracy."
I don't agree with part of the analysis here.
I agree that China's government lowered the value of its currency to stimulate it's economy and grow its exports.
I don't agree that it did this with an eye toward making the renminbi a reserve currency.
Until the renminbi is allowed to float freely against the dollar, only political opinion like that expressed here allows such an interpretation. If China had set even the beginnings of a free-float mechanism in place, I would agree, but it has not.
It, the Chinese government, ordered a 2% devaluation. If people want to believe that this is a move toward a free floating renminbi, I don't know why. The government still controls the rate directly.
I agree that China's government lowered the value of its currency to stimulate it's economy and grow its exports.
I don't agree that it did this with an eye toward making the renminbi a reserve currency.
Until the renminbi is allowed to float freely against the dollar, only political opinion like that expressed here allows such an interpretation. If China had set even the beginnings of a free-float mechanism in place, I would agree, but it has not.
It, the Chinese government, ordered a 2% devaluation. If people want to believe that this is a move toward a free floating renminbi, I don't know why. The government still controls the rate directly.
5
China may not think like we do but they do have long memories. Memories of foreign meddling in its affairs. The Opium Wars, The Boxer Rebellion and the Japanese Invasion. A compete list is left as an exercise for the reader.
These memories leave a mark. I think they just want to make sure that they never experience those kind of events again.
These memories leave a mark. I think they just want to make sure that they never experience those kind of events again.
30
I think you left out Tiananmen. That would be China's government meddling in the affairs of its people. It's that kind of thing they are worried about.
1
Yes, and your sorrowful expression of the plight of China is a textbook retelling baed on euro-centric history. Theirs goes back 5,000 years. Please don't infantilize China as if they are a new country or somehow new players on the global stage. Your naiveté it astounding. China may be a late entrant in current global economics, but they are not uninitiated. You are leaving so many items off the list of aggressions they have made within their own region and beyond in asserting their dominance: a major producer of steel in the 1000's, the largest commercial shipping fleet in the 1500's and on...this is simply a story about China again learning how to operate in a new economy. They have shown dominance before and they will show dominance again. But please, do not act as if this is their first time at the table. They have been, and will continue to be, influential forces in market economies regardless of our euro-centric dispositions.
1
All I can think is let's see how long that - China's government giving up a little bit of power - lasts. It would be foolish for the IMF to be swayed by this little bit of concession, allow the Chinese currency to become a reserve currency, then have China's leadership seize back control. China would need to have its currency float for years for me to have any trust, and that just isn't going to happen.
2
Looks like we won the Cold War against Communism but now have to deal with our old adversaries as huge organized crime syndicates. Is this progress?
2
We won the cold war against Communism? Maybe it depends on your definition of "won".
Sure, Russia isn't communist (btw, how'd that turn out?) but as I recall, China is still Communist.
Also, Russia and China are sometimes still our adversaries.
Sure, Russia isn't communist (btw, how'd that turn out?) but as I recall, China is still Communist.
Also, Russia and China are sometimes still our adversaries.
China is more fascist than communist. The government operates on behalf of a financial and industrial elite, while requiring that elite to offer some obeisance to the central government. The idea that the means of production are owned by the people is a fig leaf that has long since lost its ability to cover anything.
2
Now is the time to call in all the chips and bring the paper dragon to its knees.
2
What "chips" are you talking about? China is holding all the chips: be careful, or they'll call in all their debt.
1
What paper dragon?
According to CNN Money, China owned $1.2237 trillion worth of U.S. government securities at the end of February, 2015.
So who is the paper dragon? If you consider the "paper" for the securities, then it is China who holds most paper and is the "paper dragon".
If "paper dragon" is used as a metaphor, then US becomes the paper dragon!!
According to CNN Money, China owned $1.2237 trillion worth of U.S. government securities at the end of February, 2015.
So who is the paper dragon? If you consider the "paper" for the securities, then it is China who holds most paper and is the "paper dragon".
If "paper dragon" is used as a metaphor, then US becomes the paper dragon!!
If you owe your bank a million dollars, you have a problem.
If you owe your bank a trillion dollars, your bank has a problem.
We can choose to manipulate our currency, as well, and pay our debt back in worthless dollars, should be choose to do so. We don't, because we want to be a responsible banker to the world.
China owns a relatively small percentage of our national debt; less, in fact, than Japan, our number one foreign creditor. Most of the national debt is owed to Americans.
If you owe your bank a trillion dollars, your bank has a problem.
We can choose to manipulate our currency, as well, and pay our debt back in worthless dollars, should be choose to do so. We don't, because we want to be a responsible banker to the world.
China owns a relatively small percentage of our national debt; less, in fact, than Japan, our number one foreign creditor. Most of the national debt is owed to Americans.
2
I am still getting over being told for years, the Japanese were going to take over our economic leadership role. The big forthcoming test of all nations is, when all this debt comes due, who will survive a depression best.
2
China has been outsmarting for decades it was truly stupid and foolish of America to open trade with China. We have created the biggest monster on earth.
8
A monster called xenophobia?
2
Yes, the "monster" would be called "xenophobia", if the playing fields were similar. But they are NOT.
"Meanwhile, China is looking to assert more of a leadership role in the global economy..."
So, when they seize land by force and fait accompli, I can see how it might allow them to assert more of a leadership role in the global economy. This is especially true when the land that they are seizing allows them to control the South China Sea, through which $5.3 trillion of trade passes every year.
So, when they seize land by force and fait accompli, I can see how it might allow them to assert more of a leadership role in the global economy. This is especially true when the land that they are seizing allows them to control the South China Sea, through which $5.3 trillion of trade passes every year.
4
And we sit complacently by as they hack the global economic system, recolonizing Africa and imposing their subhuman working conditions on the rest of the world. Once we get China to sign on to TPP, we have every assurance that American workers, too, will get $1 an hour, no sick leave, no vacation, no parental leave, clouds of lead and arsenic all around.
Now that's a level playing field!
Now that's a level playing field!
16
China isn't foolish enough to be part of the TPP.
The error this article and many other US media pundits make is not realize China does not think like the United States. It does not project power overseas. No bases, no meddling in foreign governments, no coups, no secret police all over the place. No War on Terror created to reinforce its foreign wars. This is an economic move, not a political strategy per se.
When will we get more journalists who are not ethnocentric?
When will we get more journalists who are not ethnocentric?
53
"It does not project power overseas."
Baloney! They are aggressively projecting power in Africa and, more recently, South America. They are building military bases on islands they're creating. They are spending large sums to build up their navy. Trust me, when they're ready, they will flex a strong military arm.
Meanwhile, their spies and hackers are stealing all of our government and private company secrets. Why spend millions on R&D when some sharp hackers can steal the plans.
Baloney! They are aggressively projecting power in Africa and, more recently, South America. They are building military bases on islands they're creating. They are spending large sums to build up their navy. Trust me, when they're ready, they will flex a strong military arm.
Meanwhile, their spies and hackers are stealing all of our government and private company secrets. Why spend millions on R&D when some sharp hackers can steal the plans.
26
"No secret police all over the place."? Domestically, they are literally "all over the place!"
6
Who supports North Korea?
China is too busy violating it's own citizens' human rights to be involved much overseas anyway.
Seriously, you must have missed the news on what's going on in the Spratly Islands, or China's plan for a major eco disaster with the proposed Nicaraguan canal.
China is too busy violating it's own citizens' human rights to be involved much overseas anyway.
Seriously, you must have missed the news on what's going on in the Spratly Islands, or China's plan for a major eco disaster with the proposed Nicaraguan canal.
11
We need to keep in mind that other countries, in this case China, do not necessarily have the same values and objectives we do. America really does hold business as both a fundamental value in and of itself, but also as a way to achieve a better and freer life for its people. (Forget the dislocations, functional hypocrisies, and other such for the moment.)
China, on the other hand, has no such fundamental values. The collective welfare as determined and engineered by a tightly controlled political structure defines how policies are designed and carried out. Corporate business is merely a tool, and liberty is at best irrelevant, more commonly a subversive no-no.
As individualism is not part of the Chinese sociocultural makeup as it is here, the government/Communist Party is evaluated by the people more on results than on how the results are obtained. In America, on the other hand, the "how" comes into play frequently, whether it's states rights, the 2nd amendment, the separation of powers, or tensions between internal security and individual rights.
China, on the other hand, has no such fundamental values. The collective welfare as determined and engineered by a tightly controlled political structure defines how policies are designed and carried out. Corporate business is merely a tool, and liberty is at best irrelevant, more commonly a subversive no-no.
As individualism is not part of the Chinese sociocultural makeup as it is here, the government/Communist Party is evaluated by the people more on results than on how the results are obtained. In America, on the other hand, the "how" comes into play frequently, whether it's states rights, the 2nd amendment, the separation of powers, or tensions between internal security and individual rights.
5
That's true. So what's your point?
If we can maintain our traditional values and still have a strong economy and project global power, that's great. But what if our economy continues to sink, joblessness becomes chronic, social unrest follows (e.g., Ferguson, Baltimore) and China begins to dominate in global power?
If we can maintain our traditional values and still have a strong economy and project global power, that's great. But what if our economy continues to sink, joblessness becomes chronic, social unrest follows (e.g., Ferguson, Baltimore) and China begins to dominate in global power?
1
Get real! America holds business as a fundamental value and a way of making a buck off the rest of the world and the poor suckers they hire to work for them.
Wrong - China will not help the renminbi by manually establishing its value - adding uncertainty to free markets. A currency set by people in Shanghai will rightly never be a viable reserve currency.
There is no global currency motive or at least this move does not advance it one bit. The move was done with the sole intention of recouping "losses" from regional exporter competitors like Korea, Japan and Vietnam. China's leadership is greedy - not that unique to leaders really.
There is no global currency motive or at least this move does not advance it one bit. The move was done with the sole intention of recouping "losses" from regional exporter competitors like Korea, Japan and Vietnam. China's leadership is greedy - not that unique to leaders really.
You mean Beijing?
For most of the past 2200 years, China has been a socioeconomic political educational technological scientific superpower. Primarily by avoiding any entangling burdensome economic or political or military alliances or colonial imperial ambitions.
America spends 5x what China does on it's military. Moreover, with 1.3 billion people. China's status as the world # 2 economy would rank only 79th on a per capote basis between Bulgaria and Botswana. China's gravest threat is internal from the informed rising expectations of it's citizens. About 18% of the human race is Chinese. About 23% of humans are ethnic Han Chinese.
By focusing on internal stable economic rewards instead of external foreign power China is playing the short certain game first.
America spends 5x what China does on it's military. Moreover, with 1.3 billion people. China's status as the world # 2 economy would rank only 79th on a per capote basis between Bulgaria and Botswana. China's gravest threat is internal from the informed rising expectations of it's citizens. About 18% of the human race is Chinese. About 23% of humans are ethnic Han Chinese.
By focusing on internal stable economic rewards instead of external foreign power China is playing the short certain game first.
27
The Wall St titans exported jobs and factories to China in the 1980s, making a great profit. The Chinese try to depress their currency to sell junk in the US. The US imports that junk from China that is sold at Walmart, allowing the Waltons to make great profits. Apparently this is not enough for the Chinese, since they are now manipulate their currency to sell mroe junk in the US. Europe has a 25% duty on that junk.
19
"The Chinese try to depress their currency to sell junk in the US. The US imports that junk from China that is sold at Walmart, allowing the Waltons to make great profits."
The iPhone is junk? Quit blaming Walmart -- they are just importers and retailers. The problem is labor costs in the USA just aren't competitive with China, Viet Nam and other developing countries. Try to buy a smart phone, TV or computer manufactured in the USA.
If a new factory needs to be built in China to create lenses for a new iPhone, the bulldozers start rolling in a week. Here you're looking a years to pass EPA muster, deal with lawsuits and then negotiate with unions.
The iPhone is junk? Quit blaming Walmart -- they are just importers and retailers. The problem is labor costs in the USA just aren't competitive with China, Viet Nam and other developing countries. Try to buy a smart phone, TV or computer manufactured in the USA.
If a new factory needs to be built in China to create lenses for a new iPhone, the bulldozers start rolling in a week. Here you're looking a years to pass EPA muster, deal with lawsuits and then negotiate with unions.
1
The EU tries to stop this, with success. Think of the European exports of autos, machinery and other goods. It can be done. Blaming the EPA is not more rational than my blaming Walmart, who favor these cheap imports.
1
At the end of the day we also cannot allow our exports to collapse, or risk another downturn here in the US. We have less direct but effective means to devalue the dollar as well. Interestingly, the US and China are linked at the hip whether we like it or not. What the Chinese should have done was work with the US to jointly drive the US dollar down. Since they peg their currency to ours they would have an indirect devaluation. We would have benefited vs. the rest of the world with cheaper US exports, at least to the EU. Now that would have been an interesting partnership!
3
Let us never forget that the Chinese Communist Party rules in China. The CCP is a Han Clan. The CCP is the single most economically and militarily powerful clan on the planet. It is self serving and breaks international rules whenever it is convenient. If we aren't careful, we will all be subservient to the CCP to some extent
5
Nonsense. The ruling clan in the United States is the most economically and militarily powerful clan on the planet.
2
you better catch up on your current events. Firstly, The USA doesn't have a ruling clan. The USA is politically dysfunctional. Secondly, the US military is an expensive and unproductive anachronism, that contributes to an unsustainable deficit. The USA is constantly defeated by hackers in the WWW. The CCP has a lot more discretionary money, than the USA, almost $4 trillion in reserves, and very little in liabilities, unlike the USA. The CCP controls a labor force of one billion and its manufacturing capacity, so can generate wealth at will.
If manufacturing is important to the U.S. economy we should be the ones to do the devaluating. Apparently manufacturing is only important to the Chinese. No wonder we have a trade deficit.
4
It is called labor cost. Under pure capitalism, in essence, he produces most efficiently gains the most business. We have a trade deficit because we are wealthy and value the goods of the world.
I do believe, the US needs to devalue the dollar through some means . If the feds up the interest rate the dollar will go higher and will compound what the lack of exports causes.
I do believe, the US needs to devalue the dollar through some means . If the feds up the interest rate the dollar will go higher and will compound what the lack of exports causes.
1
It would take a lot of devaluation to make USA labor rates competitive with China, Viet Nam and other developing countries. The only hope for our manufacturing industry is to automatic the factories to reduce the labor cost. Of course, then you end up displacing even more manufacturing workers. This is the real reason for rising inequality -- well paying, middle class manufacturing jobs have been automated or moved overseas, and there are no alternative jobs that pay as well.
1
You can't be a world power and control your people's political thoughts.
A society where people can express a variety of opinions, even opinions contrary to the government, without fear of persecution, leads to a percolation of ideas such that the majority opinion of the people and the agenda of the government closely track.
But if a special political class has its own agenda, apart from the people, and is insulated from the people with the inclination to suppress and punish, you have an unstable and unsustainable status quo. The people see that their government does not speak for them, and this leads to the people seeing their government as illegitimate, not of their will. Social instability results when the great mass of people sees no legitimacy in what their government imposes.
Only reconciliation of the people's will and the government's will can provide a sense of legitimacy again. In democratic countries, this is done every few years, peacefully. In nondemocratic countries, only violent revolution refills the well of legitimacy every few decades.
So this is China's fate, some time this century.
China has avoided the inevitable reckoning with eye popping economic growth for a long time. That's going to come to an end soon. At which point there will be social unrest that can not be placated.
Until China respects its own people, no one can take the word of the grumpy old men in Beijing seriously. Because their words and their policies are living on borrowed time.
A society where people can express a variety of opinions, even opinions contrary to the government, without fear of persecution, leads to a percolation of ideas such that the majority opinion of the people and the agenda of the government closely track.
But if a special political class has its own agenda, apart from the people, and is insulated from the people with the inclination to suppress and punish, you have an unstable and unsustainable status quo. The people see that their government does not speak for them, and this leads to the people seeing their government as illegitimate, not of their will. Social instability results when the great mass of people sees no legitimacy in what their government imposes.
Only reconciliation of the people's will and the government's will can provide a sense of legitimacy again. In democratic countries, this is done every few years, peacefully. In nondemocratic countries, only violent revolution refills the well of legitimacy every few decades.
So this is China's fate, some time this century.
China has avoided the inevitable reckoning with eye popping economic growth for a long time. That's going to come to an end soon. At which point there will be social unrest that can not be placated.
Until China respects its own people, no one can take the word of the grumpy old men in Beijing seriously. Because their words and their policies are living on borrowed time.
32
I wouldn't bet on this prediction coming true. China is on course to be a great nation, with no violent revolutions. Look at the progress China has made in the last 20 years, which would have been impossible without the control exerted by the government. It is much more likely that, instead of revolution, China's political system and freedoms will continue to evolve in the direction of the western model as the country develops and matures.
7
Let's see if they come up with a song to replace the one they ripped off from Frozen; betcha they won't. They don't get the whole creativity thing, not why anyone would need it or value it, nor how to do it, encourage it or even avoid punishing it.
1
Living on borrowed time? The Chinese society has been around for 2000 years.
"Global Power" ... spoon feed much? Last I heard America has a military arsenal that exceeds all the others combined. Then theres NATO outposts and garrison's all over the world.
1
"Last I heard America has a military arsenal that exceeds all the others combined. Then there's NATO outposts and garrison's all over the world."
That's true -- today. But the Obama administration is determined to cut military spending so they will have more money to get people hooked on government dependency. Meanwhile, China is moving aggressively to establish economic power in Africa and, more recently, South America.
That's true -- today. But the Obama administration is determined to cut military spending so they will have more money to get people hooked on government dependency. Meanwhile, China is moving aggressively to establish economic power in Africa and, more recently, South America.
1
Trump was right of course. China is manipulating its currency in order to increase its export, and hurt American manufacturers. The Chinese are ruthless.
26
China manipulates its currency to help its own economy. If that comes at the expense of US manufacturers, then "so be it" from their perspective. This is not the same as doing it to "hurt American manufacturers". The two aren't mutually exclusive, but the second suggests that they are out to get us. That is something that is not really true. China would probably be perfectly happy to have the US consuming its goods forever, so the idea that they are actively trying to harm us is a little too jingoistic.
11
Yes, of course, he was right, he is the first in line to export and outsource work to their manufacturers.
1
...aided and abetted by America's investment class. Really ruthless.
5
There is no way to sustain 7% economic growth, without manipulating interest rates and currency values. But China keeps finding ways to try. China can do whatever it wants; they don't give a damn about anyone but themselves. The U.S. and other nations like Germany will kick and scream, but they will continue to purchase even cheaper goods from China. China will laugh all the way to the bank, as the silly western nations continue to help China achieve world domination in manufacturing. Meanwhile American economic growth stagnates, even with nearly zero based interest rates. China is cleaning our clock, and our own government is helping them.
36
I am sorry, but you don't know what you are talking about.
http://theweek.com/articles/478705/why-apple-builds-iphones-everything-e...
http://theweek.com/articles/478705/why-apple-builds-iphones-everything-e...
1
China's entire economy is over manipulated. Stock values are still 2x+ their real value yet shares are purchased by the state (or by force) to keep prices high. I cannot imagine trusting an investment in China when the communist party will manipulate so freely. China's economy needs to crash and reset so that investors can understand where they really stand.
11
China's economy needs to crash? Hold on to your hats and 401k's, because you and the rest of the world will crash with it.
1
"The cheaper renminbi will . . . create an even greater burden for Chinese companies that owe money in dollars, potentially setting off a new round of failures."
It will also lower prices of Chinese companies that sell exports.
Chinese don't owe much money in dollars. They export. They sell in dollars.
This is much more likely to help Chinese companies than to hurt them.
It will also lower prices of Chinese companies that sell exports.
Chinese don't owe much money in dollars. They export. They sell in dollars.
This is much more likely to help Chinese companies than to hurt them.
58
Inflation is the last thing China needs. In order to transform into a consumer driven economy, people need to have confidence in the future. Because China lacks a Social Security and Medicare type system, people stash away in savings as much as they can, which means depressed spending. Now people are going to see their savings nest egg eaten away by inflation.
Yet the government sits on a trillion-plus dollars of accumulated wealth. It needs to provide simple old age and disability insurance and medical coverage, in the form of an account that people can see is there with their name on it. It would reduce anxiety and aid the government's goal of becoming more of a first-world economy.
Yet the government sits on a trillion-plus dollars of accumulated wealth. It needs to provide simple old age and disability insurance and medical coverage, in the form of an account that people can see is there with their name on it. It would reduce anxiety and aid the government's goal of becoming more of a first-world economy.
38
China does not lack a social security system, nor a Medicare-type system. Its government pays a proportion of its poor citizens' medical costs, up to 80% depending on the location. Annual insurance costs for a person living in rural areas is as low as $1.60, as the government pays the remaining amount. Social security is not lacking either, managed by the Ministry of Human Resources and Social Security.
29
Two small things in addition to what Joshua said: People do sit on cash in savings but that is mostly because credit is difficult to get and there is a generation that still remembers the extremely lean (i.e. starvation-level lean) times of early modern China in the 50's and 60's. Secondly: I'm not so sure the government is sitting on very much cash. I think they've used most of it to pay for all their beautiful infrastructure.
But, higher inflation is definitely the last thing they need given that, using international standards for poverty, they have a class of poor people that is almost as large as the US.
But, higher inflation is definitely the last thing they need given that, using international standards for poverty, they have a class of poor people that is almost as large as the US.
Thanks for that info. But perhaps you agree that the Chinese people save "too much" for whatever reasons - the too much being relative to that necessary for a consumer-driven economy. Thanks again.
It will take a while but I look forward to comments from Chinese readers. The Times correspondent in Beijing and Shanghai should be able to put together a good article.