[CTC] Five World leaders warn China on currency exchange rates and trade imbalances

[Andrew Gussert]

http://www.familysecuritymatters.org/publications/id.5860/pub_detail.asp



 







March 30, 2010

Exclusive: China’s
‘Friends’ Work for Them, Not Us

William
R. Hawkins

In an earlier column,
I cited a spokesman for the Chinese Commerce Ministry as saying American
firms were lobbying on Beijing’s behalf in Washington. But
corporations prefer to have their views expressed by third parties, especially
when working in league with a foreign power. And there are plenty of media
outlets and think tanks willing to act as apologists for the Beijing regime.

 

For example, the Wall Street Journal



published an op-ed
by Zhong Shan, the Vice Minister of Commerce for the People's Republic of China, on March
26th. The Chinese argument was so fraudulent as to border on outright lying.
Zhong claimed that in 2008, “Chinese and U.S.
interests in bilateral trade are roughly balanced” when, in fact, the American
trade deficit with the PRC was $268.1 billion, with the cash flow running
5-1 in Beijing’s
favor. 

 

Zhong got to a “balanced”
figure by two questionable methods. First, he understated Chinese exports,
placing them at $252.3 billion when the U.S. Department of Commerce reports
$337.8 billion. Second, he lumps together all goods sold in China by
American firms whether produced in country or imported, and then compares that
number with Chinese exports. Since the U.S.
only exported to China $69.7
billion worth of goods and services in 2008, most of the $224.7 billion worth
of products Zhong counts as sold in China
was produced in China, not America. They
may have had American logos, but they came out of Chinese factories, just as
did China’s
exports. So either way, it is a “win-win” for China. Beijing gained the benefits of expanded
industrial capacity and jobs creation on a very unbalanced basis.

 

And how American are
Chinese-made brands? Consider General Motors, lured to China because
it is the world’s largest auto market. Chinese demand for motor vehicles is not
satisfied by imports, nor will it be. GM’s production and technology operations
are in the form of nine
joint ventures with Chinese partners in which GM owns no more than 50
percent of the enterprise and sometimes less. Its main partner is Shanghai
Automotive Industry Corporation, a state-owned enterprise (SOE) that is the
third largest automaker in China.
Beijing Automotive Industry Holdings has bought power train technologies from
GM's Saab unit for use in its vehicles manufactured in China. The Beijing regime makes sure
that GM serves Chinese national interests. 

 

It should be mentioned that
on March 18th, the Chinese Ministry of Finance announced
that during the first two months of 2010, total SOE profits were up 88.9
percent year-on-year. Beijing’s
“national champion” firms are expanding both at home and overseas against
foreign rivals.

 

On that same day, the WSJ editorialized
in defense of China’s
currency policy. It parroted Beijing’s
claim that,

 

Numerous countries continue
to peg their currencies to the dollar, and with the establishment of the euro
most of Europe decided to move to a fixed-rate
system. The reason isn't to get some trade advantage against their neighbors
but to gain the economic benefits of stable exchange rates –
and in some cases a more stable monetary policy. A stable exchange rate
eliminates a major source of uncertainty for investment decisions and trade and
capital flows.

 

Overlook for the moment that
the WSJ normally calls for “free markets” rather than government control of
economic factors. It has long granted Beijing
exceptions to the rules. The real point is that If China merely wanted
stability; it could adopt any fixed exchange rate
for the Yuan. What Beijing
picked was a rate that is undervalued by 30-40 percent in order to give
China-based producers a competitive edge both at home and abroad. 

 

Beijing did allow the Yuan to appreciate against the dollar
from 2005 to 2008, but this halted in as soon as China’s trade surplus started to be
impacted. China
wants a stronger currency to pay for imports, especially oil which is priced in
dollars, but not one so strong that it reduces exports. Maintaining its trade
surplus is the top priority because that is what provides jobs. Mass
unemployment would pose the risk of revolution. Beijing has not given up its independence by
linking to the dollar as the WSJ tried to argue disingenuously. It has
been moving cautiously in the resolute pursuit of the best policy outcome. The
$2.4 trillion (and growing) currency hoard it has amassed, along with the
world’s fastest economic growth rate, attests to its success.

 

Another organization that Beijing loves to use to its advantage is the libertarian
Cato Institute based in Washington,
 DC. Daniel Griswold, director of
the Center for Trade Policy Studies at Cato, often gives “exclusive” interviews
to Xinhua, China’s
state-run media outlet, in support of Beijing’s
policies. Chinese propagandists like nothing better than to throw the words of
an American back at America.
And what could be more ironic than a libertarian shilling for a Leninist
dictatorship? 

 

In a March 8th interview,
Griswold said, “China
has been moving in the right direction since 2005 by allowing the currency to
appreciate. Threats from the U.S.
government actually make it more difficult for the Chinese government to resume
appreciation because it would look as though Beijing was giving in to foreign
pressure." He apparently missed the fact that Chinese appreciation stopped
in 2008. And, of course, Beijing
will not voluntarily change a policy that is working to its advantage. It will
take exactly the kind of pressure Griswold wants to head off to redress the
imbalance. Griswold, however, is not interested in the international balance,
only in protecting Sinophile business interests. 

 

The libertarian view at the WSJ
and Cato is that corporations know best, and if they think they can profit by
working with Beijing,
so be it. That’s just “free enterprise.” Yet, there is more at stake. Beijing is using the gains from trade, capital and
technology, to expand its influence around the world in ways that confront U.S. interests
on every front and pose a rising threat to national security. 

 

Unfortunately, many in the
business community simply don’t care even when they see the danger. Best
selling author Jim Rogers made a fortune on Wall Street before
becoming infatuated with China.
In his 2007 book A Bull in China: Investing
Profitably in the World’s Largest Market, he does not advocate setting up
American firms in China;
he wants to invest directly in
Chinese corporations. He writes, 

 

Just as the nineteenth
century belonged to England
and the twentieth century to America,
so the twenty-first century will be China’s turn to rule the roost.
Before I get into a single stock listing, the very best advice of any kind that
I can give you is to teach your children or your grandchildren Chinese. It is
going to be the most important language of their life-times. 

 

His real sub-title ought to
be “How to Profit from the Coming End of Western Civilization” as if he and his
fellow travelers think their lives will be just fine in the wake the collapse
of American preeminence. So fine, they can help bring it on without a second
thought. There is nothing more dangerous (or loathsome) than arrogance based on
stupidity, fueled by an irresponsible, myopic greed. 

 

China’s “friends” need to be seen for what they are, and
their lobbying efforts summarily rejected. They do not have the best interests
of the United States
and its people at heart. 

 

FamilySecurityMatters.org Contributing Editor William R. Hawkins is
a consultant specializing in international economic and national security
issues. He is a former economics professor and Republican Congressional staff member.

 

 

 		 	   		  
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