Hands Off, China Tells G7 on Eve of Talks

DUBAI (Reuters) - China bluntly told the United States on Friday not to make it a scapegoat for its economic woes by pressing for a revaluation of the yuan at this weekend's meeting of the world's leading industrial powers.

The need for China and other Asian nations to let their currencies rise to help iron out major imbalances threatening the global economy will be a major talking point when Group of Seven (G7) finance ministers gather on Saturday in Dubai.

With the U.S. presidential election less than 14 months away, Washington in particular has been urging Beijing to act to deflect pressure from U.S. manufacturers who blame job losses on what they say is an unfairly undervalued Chinese currency.

But the China Daily, in a commentary seen as reflecting the views of the government, dismissed repeated U.S. calls for a stronger yuan, also known as the renminbi, as futile.

"Making China the scapegoat can perhaps help some U.S. politicians score cheap political points, (but) it has nothing to do with the solution of their real problems," the paper said.

China won support for its position from the No. 2 of the German central bank, who echoed concerns expressed a day earlier by the IMF about the risks posed by America's gaping current account and budget deficits.

"We should not let the discussion about the yuan distract from the main problem of the U.S.'s twin deficits," Bundesbank Vice-President Juergen Stark told Reuters.

Other European officials, including European Central Bank President Wim Duisenberg, have also tiptoed into the yuan debate.

They point to the risks that freeing the yuan and opening China's closed capital account would pose for a country with a still-immature banking system saddled with bad loans.

"The big challenge for China is not so much allowing slightly more currency flexibility as capital account liberalization -- and that's a long-term issue," said Steve Gilmore, a foreign-exchange strategist with Morgan Stanley in Hong Kong.

China's long-standing policy is to loosen its grip on the yuan, which trades in a tight band around 8.28 per dollar, but at a time of its own choosing; it has pointedly reminded its critics that the 1997/98 Asian financial crisis happened in part because countries opened up their markets prematurely to massive flows of footloose global capital.

America's largest manufacturing group said on Wednesday it would file a trade complaint with the Bush administration over China's currency policy.

But several policymakers have warned in the run-up to the Dubai talks that overt pressure on Beijing would be counter- productive, and officials said any reference by the G7 to Asian currencies was likely to be couched in general terms.

"I don't think the communique will set a new direction for (the G7's) exchange rate policy," a British Treasury official said in London.

The power of anything the G7 does have to say will be weakened by the absence of French Finance Minister Francis Mer, who is staying home to focus on future of ailing engineering firm Alstom, and Japan's Masajuro Shiokawa, who is ill.

The other G7 members are the United States, Germany, Britain, Italy and Canada. They will meet on the sidelines of the annual meeting of the International Monetary Fund and World Bank.

Apart from controversy over Asia's currencies, the group will take stock of prospects for global growth, which the Washington-based IMF expects to accelerate to 4.1 percent in 2004 from 3.2 percent this year.

A vibrant global economy generating demand for U.S. goods is crucial to President Bush's re-election prospects and his Treasury Secretary, John Snow, chided other G7 members on Friday for not pulling their weight.

"We are concerned about many parts of the rest of the world in terms of their growth rates," Snow told a luncheon in Islamabad hosted by Pakistan's finance minister, Shaukat Aziz.

Snow said European economies were "stagnant basically" and that Japan had gone through "10 years of very anemic growth." In contrast, the United States was entering what he called a period of sustained and long-term growth.

"The United States can't be the only engine of growth," Snow, who was due in Dubai late on Friday, said.

The 184 members of the IMF are staging their annual meeting in the Middle East for the first time.

Security is predictably heavy, with hundreds of khaki-clad police guarding a new deluxe $210 million convention center where the talks will run until Wednesday.

We shall see if there is pressure on China at the talks.

In the interim once more the plan

Acknowledgement RDB3 who helped hammer out this plan.

In no particular order of importance.

1. Get rid of government subsidies for offshore investment of US companies. OPIC is the first such program which should go but support of World Bank programs that subsidize the outflow of Capital would be another.

2. Use tariffs on those nations which are engaged in unfair trade practices such as currency manipulation (China and India for example), those nations which refuse to open their markets to US products (China for example with its 50% tariffs on US consumer goods and non tariff barriers), those nations that subsidize competition to American Industry (airbus for example) and those nations which have slave conditions for their workers.

3. Use tariffs and other means to prevent the relocation of jobs offshore that are essential to the national defense. If necessary take control of the company seeking to export vital technology or industry by means of eminent domain (No I do not like this last option and I will only defend its use as an absolute last resort like say in the case of rare earth magnets essential to smart bomb technology). Provide a hardened, widely distributed infrastructure to supply all that is needed for our military units and civil defense that can be continued to be deployed in the event of any military attack.

4. An immediate end to guest worker programs. If people wish to come to the USA to work and make a life let them immigrate according to the rules.

5 Provide economic development zones where the corporate income tax is zero for operations within these zones. In order to operate in this zone a company must agree to only purchase American components if available and employ only American citizens or legal immigrants in these operations. These economic development zones shall be eventually be expanded to include every bit of every state once the benefits are shown I would like them to be totally implemented immediately but I realize that may be overreaching. It must be stated for clarification that simply being in the geographic area of the zones does will not subject any company to any new mandatory regulation. Everything is voluntary for getting the exclusion from corporate taxation. The profit attributable to direct imports is subject to the same rules that exist everywhere else in this nation for corporate taxation. Only free from such taxation is the profit attributable to American content and any American improvement. In short no new mandatory regulation will be a part of this. It is my opinion that there will not be a lack of companies seeking this tax relief. And no the regulation implied is absolutely minimal in order to get this through.

6. Scale back unnecessary regulation including the tort system. Institute a cap on punitive damages, limits on class action suits, and limits on liability to the actual percentage of liability with no plaintiff able to collect if said plaintiff was involved in the commission of a felony at the time of the alleged tort or was more than 49% negligent in the alleged tort. Note that the loser in a frivolous lawsuit shall pay the attorney fees of the winner. There are many other regulatory structures that also need to be included that need to be included such as repealing the Family leave mandate, getting rid of OSHA etc.

7. Increase the domestic content in purchases by the Department of defense and give absolute preference in non-domestic content to proven allies of the USA over say the French or Germans. The only reason any content for DOD purchase may come from non US allies is that content is not available elsewhere and is essential.

8. Do not allow expense involved in moving operations overseas to be included in business expenses under the IRS code.

9. Prosecute for perjury anyone who has made a false statement in order to employ an H1B or L1 visa worker. I will be lenient on the actual perjurer if he/she was ordered to make this false statement and he/she provides testimony to aid in the conviction of the person ordering the perjury. Just because a person is a CEO does not give them a pass on criminal behavior.

10. Prosecute anyone who orders the transfer of vital defense technology or funds a R&D project that could be of use to our military overseas except to strong allies of the USA. Make the necessary enhancements to our espionage laws so that continued support or funding of any R&D in a nation whose government has threatened the USA is guilty of espionage. The UK and Australia come to mind as meeting these criteria for being eligible for transfer of technology first. There will be other nations and a gradation of what can be transferred to which specific nation. Under no circumstances may technology be transferred to any nation whose government has threatened the USA within five years without a complete change of government or specific exemption from Congress and the administration.

11. Deport all illegal aliens immediately and take measures that prevent the entry of any more illegal aliens. Fine all companies knowingly employing illegal aliens Criminal sanctions should be imposed on anyone helping an illegal alien stay in the USA in violation of our laws.

12. Decrease the punishing levels of taxation on companies and eliminate the double taxation on corporate dividends. See effects of item 5 for how minimal this will be if item 5 covers the entire USA. Eliminate all IRS provisions that inhibit free use of independent contractors by businesses for example section 1706.

13. Eliminate the minimum wage so that the worker can be paid based on productivity. Overtime compensation will remain the same but instead of 150% of the "wage" the worker would receive 150% of the production pay. If one through 13 are enacted # 14 becomes an irrelevancy as no one will be working for that low a wage.

Now since I started posting this plan another idea has come up that in my opinion is a very good policy that stands on its own. Now I give credit to Jim Gibson and Freeper Ed_in_NJ for coming up with the idea, separately to the best of my knowledge. However I can be corrected on that. The tariff phrasing is from Jim Gibson.

“I suggest that the US Customs Department charge a $1,000-per-container inspection fee on every container entering the United States. This fee would be used to completely fund the cost of inspections. If we assumed that a four-man team could fully inspect two containers a day or about 500 per year, it would require 48,000 inspectors. Allowing for at least 2,000 support personnel, we would need at least 50,000 workers. Because these workers would require high intelligence and skill levels they should earn at least $30 per hour. At 40-hour weeks plus benefits, I estimate the cost per worker to be over $75,000 per year, all paid by the foreign manufacturers. Even so, this would still leave over $2.25 billion to cover all other costs. Any revenue not used would be used to compensate American workers displaced by foreign imports. “

I urge and encourage everyone who agrees with this plan and or the terror tariff idea to communicate this to every politician you can think of.

Between what you have posted here, and this tidbit from the Washington Times, it is clear that the critical nature of the situation with Red China is perculating to the top. It was bound to do that sooner or later...and the sooner the better IMHO. This is what they are doing with the trade imbalance and the manufacturing we are foolishly shipping to them...

U.S. tags China with stiff penalties
By Bill Gertz
Published September 19, 2003

    The State Department has imposed economic sanctions on China for its sales of missile technology, State Department officials said yesterday.

    "These are the strongest sanctions we've ever imposed on China," said one official, speaking on the condition of anonymity.

    The sanctions were imposed on the government-run conglomerate Norinco and will ban all export licenses on controlled U.S. goods to China. That ban prohibits launches of U.S. satellites on Chinese rocket booster.

    Additionally, the sanctions triggered a provision of the Arms Export Control Act that could lead to a ban on imports of a large number of Chinese goods into the United States.

    All of Norinco's products are banned from entering the United States under the new sanctions.

    But more severe sanctions that cover other major Chinese companies were waived for one year and could be triggered if China continues to permit its companies to sell missiles to rogue states, said officials who spoke on the condition of anonymity.

    Those sanctions could cost China "billions" of dollars in lost sales, one official said.

    "These sanctions invoke the Helms amendment," the official said. "In this case what it does is that it prevents the U.S. government from issuing any type of export license to a variety of products, including satellite launches."

    The 1991 Helms amendment to the arms-control act, named after Sen. Jesse Helms, North Carolina Republican, punishes nations with nonmarket economies, such as China, by extending sanctions to all companies.

    Invoking the amendment restricts sales to the United States of all goods that could be used in building missiles, including aircraft, electronics, and space systems or equipment.

    No details of the missile-related sale were made public and the identity of the missile-goods purchaser was not identified.

    The sanctions were announced in public documents sent to the Federal Register that will be published in today's edition of the official announcement bulletin.

    It is the third time in four months that China was hit with sanctions for violating U.S. laws regarding the spread of weapons of mass destruction and missile-delivery systems for those weapons. Norinco also was sanctioned in May and July.

    The additional sanctions are an attempt to target a company that U.S. officials have labeled a "serial proliferator" that China's government refuses to rein in.

    Norinco is one of China's largest state-run manufacturers and U.S. officials have estimated that recent sanctions will cause the company up to $100 million in lost U.S. sales.

    The weapons sanctions come amid mounting pressure from the Bush administration on China for trade and financial practices.

    A CIA report to Congress released in March stated that, "Chinese entities remain key suppliers of [weapons of mass destruction] and missile-related technologies to countries of concern."

    Norinco was punished in May with stiff penalties for selling missile-related goods to Iran's Shehid Hemmat Industrial Group, the state-owned defense contractor that builds Iran's short- and medium-range missiles.

    Norinco was caught selling specialty steel used in Iran's missiles in October 2002. The specialty steel sale was upsetting to U.S. officials because it took place two months after Beijing announced new export regulations aimed at curbing missile-technology sales.

    China's government denied the sale took place and denounced the sanctions as an attempt to hinder China's economic growth.

    In July, Norinco and five other Chinese companies were hit with U.S. sanctions under the 2000 Iran Nonproliferation Act for selling chemical, biological and nuclear arms and missile materials to Iran.

    Norinco has been identified as a China's third-largest manufacturer and its products are distributed through numerous U.S. discount retailers.

It will be very painful at this point to address this issue properly...but we MUST do so, because as I try and point out in my Dragon's Fury Series of novels, later the pain will be much, much greater and it will be felt and paid in blood IMHO.

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