China On Notice

Forbes ^ | 17MAY05 | Paul Maidment

[familyop]

NEW YORK - The Bush administration has put China on notice that it expects a revaluation of the yuan within six months.

In its biannual report to Congress on exchange rates and trade, the U.S. Treasury said China will be at risk of being accused of unfairly manipulating its exchange rate if it doesn't act swiftly to abandon its fixed exchange rate against the dollar.

For the past ten years, the yuan has been pegged to trade in a narrow band around $8.28. Beijing has repeatedly said it will widen the band, making the yuan more flexible in time, but the head of China's central bank denied again last week that a revaluation was imminent.

The Treasury report can be seen as the administration's response to a bill put forward by Senator Charles Schumer, D-N.Y., that would impose heavy sanctions if China does not revalue in the next six months.

The report and a statement from U.S. Treasury Secretary John Snow played a major role in turning around U.S. stocks Tuesday afternoon after they had been hammered on inflation fears when strong Producer Price Index and monthly housing starts numbers were posted before trading began. The Dow Jones Industrial Average posted a second straight day of gains--rising 79.59 points to 10,331.88.

The Treasury report makes clear that China would meet the requirements of being named a currency manipulator if there is no substantial change in its currency regime within six months.

"It is widely accepted that China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions," the Treasury report says.

"It is critical that we address the issues of imbalances aggressively," said Snow's statement. "China's rigid currency regime has become highly distortionary. It poses risks to the health of the Chinese economy, such as sowing the seeds for excess liquidity creation, asset price inflation, large speculative capital flows and overinvestment," he added.

The Treasury is now saying that China should take an immediate transitionary step towards a full float of its currency, but that Beijing doesn't need to move immediately to a full floating rate regime. This could be as straightforward as a significant widening of the yuan's trading band.

U.S. Congressmen and U.S. export manufactures would welcome an immediate signal of intent to allay their concerns about the U.S. trade deficit with China which they argue is being increased by what they say is China's artificially cheap currency.

China's bilateral trade surplus with the U.S. expanded in the second half of 2004 to $93.5 billion, compared to $70.2 billion in the same period the previous year.

China's global current account surplus had increased to $40 billion in the second half of last year, or 4.2% of gross domestic product--roughly twice as large as the surplus in the second half of 2003.

Though China has already been working on financial market deregulation for two years, preparing to loosen the yuan's peg to the dollar, and has gradually sought to give its financial institutions more experience operating in foreign exchange markets. China's capital markets would require substantial further liberalization to sustain the impact of a fully free float.

Further interest-rate liberalization is also crucial. If the central bank loses its exchange-rate control over monetary policy, it needs to be able to affect either of the only two alternative policy tools: a target interest rate or a target inflation rate, and targeting the latter is impractical.

Earlier this month, Vice Finance Minister Li Yong told the annual meeting of the Asian Development Bank meeting that China had to first get its market mechanisms in order and repair its corruption-ridden and bad-debt burdened banking system.

Many in Congress have been critical of the administration softly jawboning the Chinese authorities over the issue of the yuan. But the administration has been reluctant to take a more forceful approach, in public at least, for fear that the Chinese authorities won't want to be seen within China as bowing to foreign pressure, and particularly not American and Japanese pressure. (Tokyo has made similar calls for revaluation.)

Note that the Treasury report is diplomatically couched in the language of global economic imbalances rather than the bilateral U.S.-China relationship,

"The fixed exchange rate China now maintains is a substantial distortion to world markets, blocking the price mechanism and impeding adjustment of international balances. It is also a source of large and increasing risk to the Chinese economy," the report concludes.

[Destro]

America is ruled by fools and traitors - that includes Republicans y'all.

[Destro]

What you missed in your evaluation of Japan is that unlike America which is ditching manufacturing in favor of service industries Japan switched from cheap goods manufacturing to high end goods manufacturing.

[NewLand]

I am a realist. A society needs fairly decent jobs for people with lower HS education and or lack of ambition. Not everyone is a Bill Gates in intellect or ambition.

By making these people take McJobs you are creating a permanent underclass that will be a burden on socity through crime and welfare.

If you are a realist, then I urge you to review the data on this link... Gross Output By Industry In Current Dollars and tell me industry by industry, category by category, sector by sector, how we will be impacted in the coming 5-10-20 year periods. What you will see is an economy that is so wide and deep in all aspects of industry, you will realize that we are well cushioned to withstand the current and near term future threat from China and elsewhere.

The 'sky is falling' doom and gloom statements that I read here do not jive with the data. We have a HUGE economy that offers millions of jobs across hundreds of industry sectors, including manufacturing. We need to be more concerned (the long term threat) about the trash that is being produced in our government school systems and reverse that trend to one of competition and basics in language, math, science, engineering.

There will always be opportunities for the less ambitious.

[NewLand]

What you missed in your evaluation of Japan is that unlike America which is ditching manufacturing in favor of service industries Japan switched from cheap goods manufacturing to high end goods manufacturing

Did I? Here is what I said in that specific post:

Japan was a low cost producer in the 50's-60's-70's...only when they became successful in the higher value industries AND improved their quality levels did they become an economic power.

If you include agriculture, which IS a form of manufacturing, our economy is still primarily a manufacturing economy, well over 50% of total output.

[NewLand]

America is ruled by fools and traitors - that includes Republicans y'all.

Is that so? And just who is included on that list, and who isn't?

[superiorslots]

Quote: If you include agriculture, which IS a form of manufacturing, our economy is still primarily a manufacturing economy, well over 50% of total output.


Give me a break. Ag is not manufacturing. I come froma farming family. Most ag jobs are lower paying. That is one reason I never entered in that profession.

[Destro]

If you include fast food burger making our manufacturing economy is 80%

[A. Pole]

If you include agriculture, which IS a form of manufacturing, our economy is still primarily a manufacturing economy, well over 50% of total output.

So is the burger flipping a form of manufacturing. Some hamburgers taste indeed like a synthetic/machine made product!

[NewLand]

extremism in the defense of liberty is no vice.

I agree, and please point out to me where I am not fully and totally in support of our liberty triumphing over the Chicoms and socialism anywhere?

I did a very quick read on that lengthy article from 'the enemy' (I will now scan my computer for viruses and wash my eyes after reading a white paper from the bolsheviks), but I believe much of it supports my position that China is not strong enough to withstand the power of the USA.

I found this section particularly interesting:

The Imperialist Noose

The imperialist noose around China’s neck has tightened considerably in the past few years. The restoration of China as a field for unfettered imperialist looting remains a key strategic priority of the U.S. One of the objectives of America’s recent neo-colonial wars has been to increase its leverage over the Chinese deformed workers’ state. China is increasingly dependent on imported oil, and the creation of a viable U.S. puppet state in Iraq would represent a real threat to Beijing.

U.S. military installations in Kyrgyzstan and Uzbekistan, established during the conquest of Afghanistan, have displaced Chinese influence in former Soviet Central Asia. In addition to its garrisons in Afghanistan, South Korea and Japan, the U.S. is currently negotiating with Vietnam and Thailand for naval and air facilities and is continuing to arm Taiwan. U.S. policy is currently focused on exerting economic pressure on China and checking its ability to project power abroad. At the same time, American missiles permanently target key Chinese installations, and the risk of aggressive military action against the Chinese deformed workers’ state on one pretext or another remains very real.

Sounds good to me! :-D Much of the rest read like typical socialist idealism and dreams...no reality.

[lucysmom]

If I can live off their efforts for free, why do I need a job?

Can you eat your TV, camera, or clothes? Are you willing to live under a bridge?

[Nowhere Man]

So is the burger flipping a form of manufacturing. Some hamburgers taste indeed like a synthetic/machine made product!

Will you have fries with that? (cough) B-P BUMP!

[Brilliant]

If all they give us is TVs, cameras and clothes, then I won't lose my job. We don't make TVs or cameras in this country anyway, and there are very few textile companies, which pay basically dirt to their workers anyway. You can get a better job at McDonalds, and the government won't have to protect it from being moved to China.

[NewLand]

So is the burger flipping a form of manufacturing

Can't take either of you serious with that kind of nonsense.

Your henny penny, sky is falling, doom and gloom scenarios belong in a different forum for a different audience.

[Destro]

Shame on you. None of us said the sky is falling. Only our manufacturing is suffering against unfair practices from China.

[Paul Ross]

First, if a foreign country prices their goods such that the products are essentially free then how is the country that imports the goods at a cheap price harmed?

Fair question...but one that was already answered tellingly by Alexander Hamilton, one of our nation's greatest Founders, and the one who laid the basis for its industrial greatness:

"Not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufactures. Every nation...ought to endeavor to possess within itself all the essentials of a national supply. These comprise the means of subsistence, habitation, clothing and defense."

If the subsidized export strategy of a foreign nation damages us in any particular such industry to the level of destruction therein...Alexander Hamilton would clearly have taken steps to neutralize those predatory actions.

[simon says what]

Alright, I have taken a look at infamous post #65 and reviewed the data. Here is what I found:

Total Gross Output increased by $3,827 Billion (3.82 Trillion) between 1998 and 2003. The following six categories in the output spreadsheet were responsible for $2,847 Billion (2.85 Trillion) of the Total Gross Output.

Finance, insurance, real estate, rental, and leasing
Government
Professional and business services
Educational services, health care, and social assistance
Retail trade
Construction

The six categories represent 74.4% of the Total Output Growth between 1998 and 2003. These categories are services, real estate, and government.

Well how about the manufacturing numbers ? Of the 19 subcategories listed under manufacturing, 12 have negative growth between 1998 and 2003. Total Gross Manufacturing Output between 1998 and 2003 grew 1.8%. Virtually all of the manufacturing growth came from the petrochemical industry which benefited from much higher oil prices.

So again I ask you ? Where is the manufacturing growth to which you speak. The data you referred us all to refutes your own arguments. Our economy is slowly losing its manufacturing base. These numbers don't even account for inflation. If they did they would more than likely show a larger manufacturing loss.

74.4% of Total Output Growth between 1998 - 2003 was due to Government Spending, the Real Estate Boom, and Services growth. What happens when interest rates rise ? What happens when these six categories no longer grow at the rates they have grown the past several years ? Will manufacturing be able to pick up the slack if we can not compete due to the predatory currency policies of the Chinese ? The data you pointed us too clearly shows it will not.

[NewLand]

Most ag jobs are lower paying. That is one reason I never entered in that profession

But didn't you say...A society needs fairly decent jobs for people with lower HS education and or lack of ambition.

So why are ag jobs not 'good enough' for people with lack of ambition?

I have read many of your posts and you seem to consisently ring one of two bells:

-The US economy is doomed
-Corporations versus the poor workers

Interesting...very revealing.

[HolgerDansk]

The ASEE numbers are for the 2002 academic year. The more recent Taulbee Survey numbers, as quoted in the more recent Mercury News article, show a 19% decline in enrollment in a single year (2004). (And I suggest that you read the Mercury article, and stop whining about registration sites, since bugmennot.com will fix that). BTW, did you note from your own study that 57% of all engineering Ph.Ds were awarded to foreign students?

Is the rest of your data this stale? Perhaps you don't work in "high tech", and are therefore unaware of the fact that the vast majority of venture capital, which used to fund high tech innovation here in the US, has been going to China and India during the past five years?

[HolgerDansk]

So why are ag jobs not 'good enough' for people with lack of ambition?

Because 1)it's not just lack of ambition, but also the bell curve of talent, and 2) the situation of the average voter determines the course of the republic. You're pretending that education is the only problem -- without realizing that without the motivation to complete an education, it's not going to happen.

[Southack]

"It could not make money competing against the Japanese with American labor, but using Chinese labor has turned things around."

No, you can't make such blanket statements, and the reason that you're making them is because the Chinese have created a false economic picture via currency manipulation.

For instance, you can't say that Mercedes won't make money competing against the Japanese by using American labor -- because Mercedes *makes* money on their M Class SUV that's made in Alabama. So claiming that Kodak can't compete against the Japanese if Kodak uses American labor is false logic.

...And the reason that we get to such false logic is because the Market is being distorted by China's massive currency manipulation that makes Chinese labor *appear* to be cheaper than its actual cost...by roughly 40% right now.

We see the sticker price of Chinese labor and we think "My God, that's cheap!" But the hidden subsidies and camouflaged costs of corruption aren't being factored in to those Chinese labor prices by our current Market...

...And most of those costs *won't* be factored in until after China re-values their Yuan upward somewhat.