China's Currency Manipulation Cheats Workers Everywhere
by Chithra KarunaKaran on Sunday, October 9, 2011 at 4:11am
China's Currency Manipulation hurts the world's workers and small businesses.
China's currency manipulation cheats workers in EVERY country, including China.
Yesterday the Dalai Lama called China's totalitarian rulers "liars" and "hypocrites" in the context of South Africa (China's largest trading partner and newest member of BRICS) refusal to grant a visa to the Dalai Lama on the occasion of fellow Nobel Peace Laureate Desmond Tutu's 80th birthday. Presumably, South Africa was fearful of China's disapproval.
Here's the point however -- Whether it is Human Rights abuses or manipulating its currency value at the expense of workers and small businesses everywhere, China leads!
For China, Performing as Sweatshop Nation to the World is finally beginning to expose its ugly downside.
None of the BRICS, India included, have spoken out against China's artificial lowering of the value of its yuan.
Great for China, bad for workers everywhere, bad for small businesses everywhere, very profitable for bankers, multinational corporations and fat cat Republican legislators in the US Congress.
Why has the US Congress taken so long to wake up to China's faux role in the world economy?
Why has currency manipulation by China been tolerated by the US for so long?
Because America's biggest businesses have profited and made Republicans richer? While small businesses in the US have suffered and millions of Americans are jobless or underemployed?
Those who are occupying Wall Street in my city of New York need to add China's currency manipulation to their manifesto against bankers and multinationals.
China's rulers are unethical.
The US Govt, especially House and Senate Republicans, through delaying action against China, is also unethical.
The time is now for the renminbi to reflect the actual value of the yuan, and if the Chinese keep balking on upward revision, through punitive action against China for cheating workers and small businesses everywhere.
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the Hill copyright
Ignoring Chinese currency manipulation costs America jobs
By Rep. Sander Levin (D-Mich.) - 10/03/11 06:44 PM ET
In the 15 months since China announced that it would float its currency, the renminbi (RMB) has appreciated a paltry 6 percent against the U.S. dollar, well below what economists say it should. In fact, according to one reputable estimate, the RMB is still 28 percent below its true value.
The impact on America is clear. The currency manipulation by China costs at least 1 million American jobs, according to Fred Bergsten, director of the Peterson Institute for International Economics. Bergsten has said it “is by far the largest protectionist measure adopted by any country since the Second World War — and probably in all of history.” Nobel Prize winning economist Paul Krugman estimates that the cost of China’s action is closer to 1.5 million jobs.
As our manufacturers compete with Chinese companies to produce the products of the 21st century — from solar panels to battery cells — currency manipulation is one of the most egregious tools China is using to give its exporters an upper hand.
Yet in the face of compelling evidence for action, Republican leaders have offered no plans to bring up the Currency Reform for Fair Trade Act that I reintroduced this year together with Democratic Rep. Tim Ryan of Ohio and Republican Rep. Tim Murphy of Pennsylvania. The bill is designed to rein in China’s currency manipulation and has more than 200 co-sponsors. A virtually identical bill passed the House a year ago with support from the majorities of both parties.
What’s more, the Senate is preparing to act on legislation this week that includes the central components of the House bill.
Meanwhile, China continues to purchase U.S. Treasury bills in order to leverage its currency and maintain its low value. Combined, the practices artificially lower the cost of imported Chinese products and increase the cost of American exports to China.
The Currency Reform for Fair Trade Act (H.R. 639) would allow countervailing import duties for U.S. industries that are injured by the undervalued RMB. The Commerce Department, as a result of the legislation, would have the authority to impose import tariffs to offset the negative consequences of China’s undervalued currency. The bill reverses a current Commerce Department practice that has precluded it from treating foreign government currency practices as an export subsidy while also directing the department on how to measure subsidies provided to foreign producers through currency undervaluation.
Overall, the measure could help reduce our trade deficit by $200 billion.
Our nation’s workers and businesses deserve a level international playing field, and this measure provides concrete action to help make that a reality. With 14 million Americans still looking for work, it is far past time that Republican leaders took up legislation that has a history of bipartisan support and will help strengthen the hands of American workers and businesses.
There is no excuse for inaction. The specter of a “trade war” has been raised by opponents, as it is so often used against action. It masks the fact that there is economic competition — indeed, a battle — among nations and it is unwise to let the other nation refuse to abide by long-ago-developed international rules to help prevent trade wars, including rules against currency manipulation.
House Republican leaders argue that the focus should be on other Chinese practices, relating to lack of protection of intellectual property and technology transfer requirements. We should be pursuing action on all fronts — instead of playing one off against another — especially since there has been no legislative action by the House majority on any.
Levin is the ranking member on the House Ways and Means Committee.
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AP copyright
WASHINGTON — In one of Capitol Hill’s longest running battles, opponents of China’s trade policies have used threats, negotiation, protests from small American businesses and even the occasional Peking duck dinner in a failed effort to stop China from manipulating its currency.
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J. Scott Applewhite/Associated Press
Lindsey Graham, left, and Charles E. Schumer proposed a tariff on Chinese goods.
After eight years, that campaign is on the verge of a breakthrough, as the Senate appeared ready Thursday to approve a get-tough approach that had stalled numerous times before: a bill to punish China with high tariffs on some exports if it fails to adopt a market-driven exchange rate.
Economists say China’s artificially cheap currency has cost the United States jobs and billions in lost trade. But opponents of tariffs, including major manufacturers doing business in China, warn that penalizing China could start a trade war that would hurt American businesses even more.
“We’re already in a trade war,” Senator Charles E. Schumer, the New York Democrat who has led the push for tariffs, said in an interview. “We can’t afford to just do nothing. This is a message to China that the jig is finally up.”
The American jobless problem have combined to give the tariff proposal newfound momentum, as the Senate spent much of the afternoon Thursday debating it.
Supporters, casting the measure as a way to spur job growth, were confident the Senate would approve it. Even the measure’s fiercest opponents were grudgingly predicting passage in the Senate, and probably the House.
But 11-hour resistance by leading Republicans has clouded the outcome in the House, where the speaker, John A. Boehner, this week called the tariff plan “dangerous,” and it is unclear if the issue will even come up for a House vote.
China itself voiced strong objections this week and charged that meddling by the United States in Chinese currency violated world trade protocols. The Chinese Embassy has retained one of Washington’s most powerful lobbying shops, Patton Boggs, to represent its interests for $420,000 a year.
Lobbyists for General Motors, Caterpillar, steel producers, textile manufacturers, toy makers, poultry farmers and other businesses have also weighed in, supporting or opposing the tariffs depending on their own business relations with China.
Generally, large manufacturers like Caterpillar that operate in China have opposed it, warning of a backlash. Smaller businesses, like a tube maker in Ohio or a ceramics maker in upstate New York, have supported tariffs because they say China has artificially lowered its prices and gained an unfair edge.
While the Chinese renminbi has risen 6 percent against the dollar since China loosened currency controls last year, economists say it is still vastly undervalued. Meanwhile, China’s trade surplus with the United States stands at $273 billion — more than triple the gap a decade earlier.
In Senate testimony this week, the Federal Reserve chairman, Ben S. Bernanke, went so far as to link China’s undervaluing of its currency to the slow economic recovery worldwide.
“The Chinese currency policy is blocking that process,” Mr. Bernanke testified. “And so it is to some extent hurting the recovery process.”
The Obama administration, however, has been noncommittal about the tariff proposal.
At a news conference on Thursday, President Obama would not say whether he would veto the bill it if it passed, but he raised concerns.
On the one hand, he said, “China has been very aggressive in gaming the trading system to its advantage,” and “it is indisputable that they intervene heavily in the currency markets.”
But he cautioned that he did not want to see the World Trade Organization strike down any steps the United States might take. “Then suddenly U.S. companies are subject to a whole bunch of sanctions,” Mr. Obama said.
Both supporters and opponents of the tariffs see the outcome as hugely significant financially and politically.
Page 2 of 2)
That was evident this week when the Club for Growth, a conservative free-market advocate that has led opposition to the bill, warned lawmakers that a vote supporting tariffs “will count heavily as an antigrowth action” on the group’s Congressional “scorecard,” which helps determine the group’s level of support.
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Club for Growth’s political muscle is already being felt. In the House, 99 Republicans supported a tariff plan last year. But after the club intensified its opposition, Representative Tim Ryan, an Ohio Democrat who favors tariffs, complained this week that “all of a sudden you can’t get a lick of Republican support.”
Early in the week, Chris Chocola, a former congressman who leads the Club for Growth, was pessimistic about chances of stopping the bill.
“It’s not politically expedient to defend China, so you won’t find many who will do that in words or deeds,” he said.
By midweek, after sharply critical remarks from Mr. Boehner on Tuesday, Mr. Chocola’s outlook had brightened.
“I give Boehner a lot of credit,” he said. “He clearly doesn’t want to bring it to the floor. And we’re trying to do everything we can to prevent it from getting to the floor.”
The maneuvering reflected the stops and starts on the issue as a whole since 2003, when Mr. Schumer and Senator Lindsey Graham, the South Carolina Republican, first proposed a 27.5 percent tariff on Chinese goods.
The two senators visited China in 2005 to press economic officials there to allow their currency to rise to market rates. They were greeted with a high-level banquet at the Great Hall of the People — Mr. Schumer pronounced the Chinese dishes “extraordinary” — and by China’s assurances that it would begin liberalizing monetary policies and allowing market forces to determine values.
The United States saw some early signs of improvement, but progress stalled. The Bush administration, after avoiding confrontations with China for years on the issue, took it to the World Trade Organization in 2007 over trade barriers.
The United States imposed tariffs on Chinese tires in 2009, and China followed the next year with steep tariffs on American poultry imports. Tariff opponents see the tit-for-tat as a small-scale version of the kind of trade wars they predict will break out en masse if the current plan becomes law.
“Every time we engage in protectionist behavior,” Mr. Chocola said, “bad things happen.”
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NYTimes copyright
As Its Economy Sprints Ahead, China’s People Are Left Behind
Shiho Fukada for The New York Times
A shopkeeper napping on a busy shopping street in Jilin. While Western companies look at China as a potentially huge market, consumers in Jilin and other heartland cities mostly settle for what state-run department stores and mom-and-pop shops offer.
By DAVID BARBOZA
Published: October 9, 2011
JILIN CITY, China — Wang Jianping and his wife, Shue, are a relatively affluent Chinese couple, with an annual household income of $16,000 — more than double the national average for urban families.
Endangered Dragon
The Price of Growth
This is the second in a series of articles examining China’s system of government-managed capitalism and the potential weaknesses that could threaten the nation’s remarkable economic growth.
Graphic
China’s Reluctant Consumers
Map
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Shiho Fukada for The New York Times
Yang Yang and her son, Guo Liming. To save money, Ms. Yang, her husband and son recently moved in with her parents.
They own a modest, three-bedroom apartment here in this northeastern industrial city. They paid for their son to study electrical engineering at prestigious Tsinghua University, in Beijing. And even by frugal Asian standards, they are prodigious savers, with $50,000 in a state-run bank.
But like many other Chinese families, the Wangs feel pressed. They do not own a car, and they rarely go shopping or out to eat. That is because the value of their nest egg is shrinking, through no fault of their own.
Under an economic system that favors state-run banks and companies over wage earners, the government keeps the interest rate on savings accounts so artificially low that it cannot keep pace with China’s rising inflation. At the same time, other factors in which the government plays a role — a weak social safety net, depressed wages and soaring home prices — create a hoarding impulse that compels many people to keep saving anyway, against an uncertain future.
Indeed, economists say this nation’s decade of remarkable economic growth, led by exports and government investment in big projects like China’s high-speed rail network, has to a great extent been underwritten by the household savings — not the spending — of the country’s 1.3 billion people.
This system, which some experts refer to as state capitalism, depends on the transfer of wealth from Chinese households to state-run banks, government-backed corporations and the affluent few who are well enough connected to benefit from the arrangement.
Meanwhile, striving middle-class families like the Wangs are unable to enjoy the full fruits of China’s economic miracle.
“This is the foundation of the whole system,” said Carl E. Walter, a former J. P. Morgan executive who is co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”
“The banks make loans to who the Communist Party tells them to,” Mr. Walter said. “So they punish the household savers in favor of the state-owned companies.”
It is not just China’s problem. Economists say that for China to continue serving as one of the world’s few engines of economic growth, it will need to cultivate a consumer class that buys more of the world’s products and services, and shares more fully in the nation’s wealth.
But rather than rising, China’s consumer spending has actually plummeted in the last decade as a portion of the overall economy, to about 35 percent of gross domestic product, from about 45 percent. That figure is by far the lowest percentage for any big economy anywhere in the world. (Even in the sleepwalking American economy, the level is about 70 percent of G.D.P.)
Unless China starts giving its own people more spending power, some experts warn, the nation could gradually slip into the slow-growth malaise that now afflicts the United States, Europe and Japan. Already this year, China’s economic growth rate has begun to cool off.
“This growth model is past its sell-by date,” says Michael Pettis, a professor of finance at Peking University and senior associate at the Carnegie Endowment for International Peace. “If China is going to continue to grow, this system will have to change. They’re going to have to stop penalizing households.”
The Communist Party, in its latest five-year plan, has promised to bolster personal consumption. But doing so would risk undermining a pillar of the country’s current financial system: the household savings that support the government-run banks.
Here in Jilin City, where chemical manufacturing is the dominant industry, the state banks are flush with money from savings accounts. The banks use that money to make low-interest loans to corporate beneficiaries — including real estate developers, helping fuel a speculative property bubble that has raised housing prices beyond the reach of many consumers. It is a dynamic that has played out in dozens of cities throughout China.
As Its Economy Sprints Ahead, China’s People Are Left Behind
Published: October 9, 2011
(Page 2 of 3)
Meanwhile, China’s central bank in Beijing also depends on the nation’s vast pool of consumer savings to help finance its big investments in the foreign exchange markets, as a way to keep the currency artificially weak. The weak currency helps sustain China’s mighty export economy by lowering the global price of Chinese goods. But it also makes imports unaffordable for many Chinese people.
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Shiho Fukada for The New York Times
Wang Shue and her husband live frugally and put much of their income into savings.
Endangered Dragon
The Price of Growth
This is the second in a series of articles examining China’s system of government-managed capitalism and the potential weaknesses that could threaten the nation’s remarkable economic growth.
Multimedia
Graphic
China’s Reluctant Consumers
Map
Enlarge This Image
Shiho Fukada for The New York Times
Left, a billboard announcing Jilin Fortune Plaza, a real estate project in Jilin, China. Local governments have come to view such projects as a source of easy riches.
News reports of the nouveaux riches in Beijing and Shanghai snapping up Apple iPhones, Gucci bags and Rolex watches may conjure Western business dreams of China’s becoming the world’s biggest consumer market. But consumer choice here in Jilin and many other heartland cities is confined largely to the limited offerings of dingy state-run department stores and mom-and-pop shops. Any sales of global “brands” come mainly in the form of the counterfeits and knockoffs often sold at outdoor markets.
On a recent weekday at the Henan Street flea market, crowds sifted through stacks of clothes that included $3 T-shirts with images of Minnie Mouse and $5 imitation Nike sports jerseys. Just a few yards away, an authentic Nike store selling the real thing for $35 had nary a shopper. Because consumers have so little spending power, many global-brand companies do not even bother to open stores in cities like Jilin.
With the faltering economies of the United States, Europe and Japan limiting China’s ability to continue relying on growth through exports, the Chinese government knows the importance of giving its own consumers more buying power. Already, the central government has pushed to raise rural incomes and has even offered subsidies to buy cars and household appliances.
The question is whether the government can change its entrenched economic system enough to truly make a difference. “The central government is committed to increasing the share of consumption in G.D.P.,” says Li Daokui, a professor of economics at Tsinghua University and a longtime government adviser. “The issue is what is going to be the means.”
THE SAVERS
Frugality Born
Of Necessity
If China is to make consumer spending a much larger share of the economy, it will need to encourage big changes in the habits of people like Mr. Wang, 52, a highway design specialist, and Ms. Wang, also 52, who retired as an accountant seven years ago because of health problems.
“We’re quite traditional,” says Ms. Wang, who draws a pension. “We don’t like to spend tomorrow’s money today.”
But tomorrow’s money may not be worth as much as today’s — not as long as their savings account earns only a 3 percent interest rate while inflation lopes along at 6 percent or more.
Yet the Wangs see no good alternatives to stashing nearly two-thirds of their monthly income in the bank. They are afraid to invest in China’s notoriously volatile stock market. And Chinese law sharply limits their ability to invest overseas or otherwise send money outside the country.
Nor do the Wangs feel flush or daring enough to join the real estate speculation that some Chinese now see as one of the few ways to get a return on their money — risky as that might prove if the bubble bursts.
Mainly, like many in China, the Wangs save because they worry about soaring food prices and the high cost of health care, which the People’s Republic no longer fully provides. They also worry about whether they can afford to buy a home for their son, a cost that Chinese parents are expected to bear when their male children marry.
“If you have a daughter, it’s not so expensive,” Wang Shue said. “But with a son you have to save money.”
Housing prices have become crucial in pushing up savings rates. Here, too, analysts say government policies are shifting wealth away from households.
In the case of the Wangs, they are being forced to move to make way for a new real estate development authorized by municipal authorities — the sort of project that local governments throughout China have come to regard as an easy source of riches.
Although the Wangs and other current residents have received some cash compensation for the apartments they are leaving, the Jilin City government has sold the land to a developer that plans to demolish the current dwellings and erect a new complex with more, and more expensive, apartments.
(Page 3 of 3)
The Wangs are not sure they will be able to find a home comparable to their current apartment from the money they are being paid. But the developer and the local government are expected jointly to earn a profit of more than $50 million.
Endangered Dragon
The Price of Growth
This is the second in a series of articles examining China’s system of government-managed capitalism and the potential weaknesses that could threaten the nation’s remarkable economic growth.
Multimedia
Graphic
China’s Reluctant Consumers
Map
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A POLICY’S HISTORY
Averting a Crisis,
But Forming a Habit
Why would China, which hopes eventually to surpass the United States as the world’s biggest economy, deliberately suppress the consumer market that might help it reach that goal?
Some analysts trace the current policies to habits formed in the late 1990s. That’s when the bloat of China’s giant, uncompetitive state-run corporations nearly brought China’s economic expansion to a standstill. Suddenly, with state-owned companies facing bankruptcy, the state banks were saddled with hundreds of billions of dollars in nonperforming loans; many banks faced insolvency.
To avert a crisis, Beijing allowed state-owned companies to lay off tens of millions of workers. In 1999 just one of those companies, the parent of PetroChina, a big oil conglomerate, announced the layoff of a million employees. And to shore up the banks, Beijing assumed tighter control over interest rates, which included sharply lowering the effective rates paid to depositors. A passbook account that might have earned 3 percent in 2002, after inflation, would today be effectively losing 3 to 5 percent, once inflation is factored in.
That is how Chinese banks can provide extremely cheap financing to state-owned companies while still recording huge profits. It has also helped the banks provide easy financing for big public works projects, which besides the high-speed train system have included the 2008 Beijing Olympics and the monumental Three Gorges Dam.
It was during this same period that the Communist government discarded the longstanding “iron rice bowl” promise of lifelong employment and state care. Beijing shifted more of the high costs of social services — including housing, education and medical care — onto households and the private sector.
Together, these measures added up to the managed-market system now known as state capitalism. They worked so well that they not only helped resuscitate China’s failing banks and state companies, but also fueled the nation’s economic boom for more than a decade. But the system also took an enormous economic toll on personal pocketbooks.
“We’d like to spend, but we really have nothing left over after paying the bills,” said Yang Yang, 34, a school administrator who lives in Jilin City with her husband, a police officer, and their son, 10. “Even though our son goes to a public school, we need to pay fees for after-school courses, which everyone is expected to take. Almost every family will do this. So there’s a lot of pressure on us to do it, too.” To save money, Ms. Yang, her husband and son recently moved in with her parents.
Nicholas R. Lardy, an economist at the Peterson Institute for International Economics in Washington, calculates that the government policies exacted a hidden tax on Chinese households that amounted to about $36 billion in 2008 alone — or about 4 percent of China’s gross domestic product. Over the last decade, Mr. Lardy says, that figure probably amounted to hundreds of billions of dollars — money that banks essentially took from consumers’ hands.
The distortions may have actually cost households far more, because his figures do not include hidden costs like artificially high prices for imports.
For many Chinese economists, the state capitalism that helped jump-start growth has become counterproductive.
“China is already beyond the point where the law of diminishing returns starts biting,” said Xu Xiaonian, an economist who teaches at the China Europe International Business School in Shanghai.
Mr. Xu argues that China risks repeating the mistakes Japan made in the 1980s and early 1990s, when it relied too long on a predominantly export economy, neglected domestic markets and allowed real estate prices to soar. Since Japan’s bubble burst in the mid-1990s, its economy has never really recovered.
“If we don’t change, we will follow those same footsteps,” Mr. Xu said. “We have already seen the early signs of what we might call the Japanese disease. China invests more and more, but those investments generate less and less growth.”
PREDICTIONS FOR CHANGE
A Radical Overhaul,
But Within Reach
Some economists predict major changes, noting that the Chinese government has the cash and the power to alter course as drastically as it did in the late ’90s, this time in the people’s favor.
“China has faced more daunting challenges in the past,” said Wei Shangjin, a professor at the Columbia Business School. “I don’t doubt that they want to do it. The question is, Can they successfully engineer such a major restructuring of the economy?”
Certainly, multinationals like McDonald’s, Nike and Procter & Gamble are still betting billions of dollars that China will grow into the world’s biggest consumer market within a few decades.
But raising consumption will require a radical overhaul of the Chinese economy — not just weaning state banks off household subsidies but forcing state-run firms to pay much higher borrowing rates. It would also mean letting the currency rise closer to whatever value it might naturally reach. It would mean, in other words, a significant dismantling of the state capitalism that has enabled China to come so far so fast. “To get consumption to surge,” said Mr. Pettis, the Peking University lecturer, “you need to stop taking money from the household sector.”
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