China: Underloved, Underappreciated

  • Thursday, February 16, 2012
  • Archimedes
  • Labels: , , ,
  • With election year rolling in to the dockets of politicians nationwide, international issues that fall short of wars roll right out of those same dockets. The Obama Administration has handled the Iran/Iraq situation for now, and steered the nations economy somewhat through troubled times, but the issue of international trade has been in the backstage for quite a while now, and a major player is getting a little riled.

    Ever since the Bush administration, the United States has been pressuring China to raise the value of its currency, the Chinese Yuan. Because of the very biased conversion rate of aproximately 8 yuan to one dollar at the start of the century, China's manufacturing industry has been booming due to low relative cost of manufacturing. In a Chinese sweatshop, workers are paid a few yuan a week, and the same goods they make by the thousands sell for a few dollars worth of profit each. Just assuming that one happy meal toy equivalent takes 1 yuan to make and makes a profit of 1 dollar, the profit margin is a huge 800%.

    The policy of high conversion rate, however, has its downsides. Because the currency is so weak, the Chinese businessmen who make their profit in Yuans are at a disadvantage when purchasing American goods, a meal in New York can easily cost a week of a Chinese tradesman's salary. This leaves the average Chinese household and businesses with a tiny amount of purchasing power for the amount of labor they produce. And to further worsen the issue, the sensitive goods that China want to import, like high end manufacturing know-how and weapons/space development technology is being marked as banned goods by the international community, so even though the Chinese in general have a large amount of relative buying power, no one will sell them what they want.

    These factors lead to the situation we saw a few years back, with every cheap thing in Wal-Mart being made in China. The import-export surplus equaled to almost 10% of China's GDP at its peak, and that is a very large number thought to be unsustainable by many economists. Manufacturing jobs flowed out of the US and into China where better markets and cheaper labor and materials can be had, which is why the US was hit a lot harder than China by the global recession.

    The Bush administration thought it could solve the economic turmoil in America by forcing China to raise the value of its currency. Done through some one-sided and brutal diplomacy, the Chinese agreed to the request. The conversion rate is now 6 yuan to one dollar and dropping, but the United States is hardly very appreciative...

    Thanks to Bush's antics in office, most of what he has done for the country has been smeared in bias. Public opinion polls today reveal that more than 50% of Americans still blame China in some way for the current recession despite the recent change. Instead of congratulating China for their remarkable progress to our request, the people of the United States would love to see harsher China policies. Obama is being a little indecisive, but several republican candidates would like to see even more economic demands on China to ultimately make China the economic servant of the "developed" world.

    Already the change in conversion rate is hurting the Chinese economy. China, which holds some trillions of US debt, is rapidly losing relative debt value thanks to the conversion change that was almost forced upon them. 1 trillion dollars of debt used to be bought by 8 trillion Yuan, but now the effective value of that same debt is only 6 trillion. Over the course of 4 years, China has lost 2 trillion Yuans of debt value per trillion dollars of debt held, to a market being manipulated by the US. Instead of even a pat on the back or plain indifference, China is being faced with even more pressure for lower conversion rates and more open markets.

    You can only extort so much money out of a country, and when you go too far, the country getting pushed blows a really big gasket. When Germany was being pushed over the brink, it embraced Hitler and started WWII, and should China, who is the only country showing steady signs of growth at a time of global economic strife so much as looks down the path of blood and iron, the rest of the world should be very scared indeed. Even if the "free world" can rein in the dragon, the world will lose the largest producer and exporter it has ever seen, and this little recession we are getting right now will then seem like "the good old days".


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