Revaluing the yuan helps no one

Gazelle SG

a) You sure that growing china doesnt create jobs in Singapore and the nett effect is negative job creation? what about the IR, airlines, hotels and services industries?

b) Do you know that companies that left singapore were actually not meant for Singapore but China? (ie. they only use Singapore as a spring board to enter China)

c) How to you explain the increase in export from Singapore to China? Doesnt that create jobs?

d) Do you have facts to proof that SE Asia economy is FLAT??? PM just annouced that Singapore GDP estimate for 2005 is 5.7%. what is your arguement on that.

boy in blues SG

http://www.americanthinker.com/articles.php?article_id=5155

China's Alan Greenspan, Mr. Zhou
January 14th, 2006

Brian Schwarz publishes the website China Challenges, and is based in Shanghai.

In February, after 18 years as Americas top banker, Dr. Allan Greenspan will step down as Chairman of the Federal Reserve. While many economic observers are very interested in the views of incoming Chairman Ben Bernanke, they often overlook another central banker - in Beijing who will have a major impact on the global economy in the years ahead.

Few in the West will recognize the name Zhou Xiaochuan, the governor of the Peoples Bank of China, but he has the twin tasks of managing the Middle Kingdoms fast growing economy while at the same time satisfy international critics, who are demanding further appreciation of the Chinese yuan.

Mr. Zhou is under enormous international pressure to orchestrate a steady appreciation of the yuan versus the dollar, while at the same time managing an underdeveloped financial system in an economy plagued by overcapacity and falling prices With growing signs that Chinas real estate boom (especially around Shanghai) is coming to end, he must also continue reforms to keep bad loans from ballooning at the state-run banks.

If Mr. Zhous reforms fail in any of these areas, he could lose the confidence of President Hu Jintao, and strengthen the hand of Marxist reactionaries.

As did the Asian Financial Crisis of 1997, a meltdown of Chinas financial system would be likely to send shock waves radiating throughout the global economy. As with Mr. Greenspan, currency traders hang on Zhous every word, given the $769 billion pile of foreign currency reserves over which he watches.

Mr. Zhou has responsibility for a financial system that is riddled with numerous structural problems and inconsistencies. China has $400 billion, give or take 50%, in bad loans on the books of its banks. The countrys bad loans, whatever their precise sum, are equivalent to a good chunk of the countrys foreign reserves. Even Mr. Zhou probably no idea what the true number is.

By keeping the Chinese currency non-convertible and fixed in value around eight yuan for every greenback for the past decade, Beijing has basically outsourced its monetary policy to Mr. Greenspan, by piling up massive surpluses and investing them mostly in federal debt. In effect, Washington runs the Chinese money supply.

China has committed to the World Trade Organization to open the banking system to foreign competition in December. This will erode the state-owned banks monopoly on deposits in the country, which has allowed them to take advantage of the high savings rate, accumulating a massive pool of capital. The state banks then lent this capital to state-owned enterprises (SOEs).

This lending served two purposes. It kept the money in the family, assisteing Beijing in maintaining control of the broader economic and political system. Because loans were disbursed frequently and at subsidized rates and banks did not insist upon strict repayment the state was able to guarantee ongoing employment to the Chinese masses working at the often-bloated SOEs.

This last point was and remains of critical importance to the Chinese Politburo: they know what can happen when the proletariat rises in anger. That is, after all, how they became the Politburo in the first place.

Strategic Partner or Strategic Competitor

Instead of supporting Mr. Zhou, some in Congress are making his job more difficult. On November 29, Senators Schumer and Graham reintroduced an ill-conceived bill that would impose a massive 27% tariff on all Chinese-made goods that move across the Pacific.

Last Spring, even President Bush fell into the protectionist trap and imposed import quotas on some kinds of Chinese-made clothing. Many Washington observers rightfully viewed this move as a shameless attempt to win support from labor unions and encourage the Chinese to speed up currency reforms.

With the Communist need to stand up to the West, foreign pressure is more likely to hinder Mr. Zhous reform efforts and give the Marxist reactionaries a great reason to drag their feet even more.

After pondering the wider implications for the global economy is it really wise for Westerners to pressure China, given all its internal weaknesses , to push up the value of the yuan at this time?

boy in blues SG

Count Your Blessings

With the American economy showing impressive GDP growth and consumer confidence rebounding during the Christmas shopping season, Washington should just sit back and count its blessings. Many in Washington should be careful what they wish for. Let us assume for a moment that Mr. Zhou gives Senators Schumer and Graham a holiday gift and announces an increase the value of the yuan by 20%.

Will the huge bilateral trade deficit that America has built up in recent years suddenly disappear? Hardly.

Will textile factories in South Carolina start announcing re-openings? Never. The most likely scenario of such a yuan appreciation is further damage to the overheated property market in China, already showing signs of stress. Portions of the billions of yuan that foreigners (led by the Taiwanese and residents of Hong Kong) have invested in the real estate in recent years will be withdrawn, as owners enjoy their instant 20% currency windfall.

If there is a hard landing in some critical manufacturing industries, then a slowdown in China may be imminent. How painful is anybodys guess, but some experts say the figure could dip as low as 5 percent next year and 3 percent in 2007.

As for Mr. Zhou, the billions of dollars in Treasury bonds that he watches over suddenly become worth fewer yuan. With an aging population and a crumbling health care system, Beijing needs every last yuan in the years ahead to satisfy the masses and maintain social stability.

Will Chinas Savings save Us?

Many American conservatives have rightfully complained about the GOPs reckless spending habits. With its high savings rate and export earnings, China is helping finance reckless fiscal policy in the West. But can central bankers in Asia save us from fiscal doom?

If it can maintain reasonable economic growth and social stability (which is a big if, as the recent violence between government security forces and farmers in the southern village of Dongzhou illustrated), new research seems to indicate China can continue for generations to come to supply us the capital we need.

In late October, BusinessWeek noted a study entitled Will China Eat Our Lunch or Take Us Out to Dinner by two German researchers, Hans Fehr and Sabine Jokisch, that concluded a flood of Chinese savings over the next forty years could turn the anticipated capital shortages into capital gluts insteadnot just in America, but in Europe and Japan as well.

Assuming the American dollar remains relatively strong, this savings glut could finance the massive social security entitlement promise made to the baby boom generation. BusinessWeek concludes:

According to their calculations, the potential impact of China is so large that global interest rates could drop by as much as a third by 2050, even with all the expected government borrowing. Those lower rates, in turn, could finance more business investment, boost productivity, and raise national incomes across the developed world.

Some American economists have claimed the methodology that Washington uses to calculate the national savings rate, which does not take into account many types of capital gains, underestimates the nest eggs of millions baby boomers.

But we are really taking a gamble if we think we can depend on Mr. Zhou and the other Beijing autocrats.

Nervousness Leads to Saving

While Chinese exports to the West generate billions of dollars in earnings, Chinas high household savings rate is a sign of weakness, not strength. A new report from McKinsey Quarterly says just 37 percent of those surveyed agreed or strongly agreed with the statement I feel confident about my financial future.

While respondents confirmed that they saved a quarter of their family income, the survey results support the view that Chinas savings rate is high because the countrys social safety net is thin and most Chinese must pay for health care and pensions out of their own pockets.

With the Shanghai and Shenzhen stock exchanges plagued by corruption and poor oversight, the average Chinese family has thousands of yuan stashed away in the state-run banking system earning little, if any, interest.

Conclusion

Despite the rhetoric coming from Senators Schumer and Graham, President Bush seems to have rediscovered his free trade principles. Just as everyone was preparing to ring in 2006, he quietly rejected a request to place quotas on steel pipe imported from China, saying the cost to American consumers would outweigh the benefit to domestic producers.

While it may win a few more labor union votes, Washington should stop bashing Beijings economic policies. In many cases, it does more harm than good. Americas prosperity does not rest on a foundation of others poverty and backwardness. Our flexibility, creativity, and responsiveness to market signals, along with our traditions of hard work and the rule of law will keep us ahead.

Compared with some of the other hardliners that have claimed power and influence in the Middle Kingdom, America should be grateful that it has an ally in Mr. Zhou and do everything we can to keep China on the path toward greater economic prosperity.

Salman SG

I totally disagree with the assessment of this author.

First of all, nobody is demanding an immediate revaluation by 20%.

Secondly, this argument about the selling of US treasury bonds is absolute nonsence. I have been hearing this talk about the collapse of US due to high debts since the 80s and I understand that it goes way back to the 70s as well. Its been 4 decades and it hasn't happen at all.
Why would China sabotage the US economy and kill herself? You think the Chinese are so stupid? Please explain yoiur logic.

snow leopard SG

you're way too good for salman ... he only knows how to blow his own broken trumpet ...

Salman SG

You see, you fellas avoid the salient points and stary off w/o answering my questions.

Where is your proof that a growing china created jobs in Singapore? What abiout the jobs they took from us?

dragg SG

china's national reserves hit US819 billion.

time to argue about the yuan issue again.

snow leopard SG

you keep shamelessly lamenting that no one answers your questions when it is obvious you have no answers for gazelle's questions.

why don't an idiot like you answer gazelle's questions? you answer his questions you answer your own. he brought out that our exports to china have increased. we're delivering more goods to them because salman made them? even if they didn't take those jobs, you think they'll stay here instead of going to thailand, malaysia, philippines, indonesia, india, madagascar ... ?

Salman SG

How do you explain the lost jobs to China?
Had they not undervalued the Yuan, many jobs would not have shifted there.
Whatever jobs that are agined from export to china can never be replaced by the job losses from thsi region. Its simple logic. What are your answers to all this?
I know you will surely avoid it.

sgdiehard SG

there are many questions directed at you in this thread here but you did not answer. you can carry on dancing in circles.

Salman SG

if you follow the thread carefully, i did answer those questions.
and indeed if you do read, you will realise that many of my questiosn are not answered. The reason is simple, you guys don't dare to answer. To answer is to debunk your own stand.

snow leopard SG

even if they're not lost to china, would we continue to hold onto them? do you think those same jobs would not in turn be lost to other developing nations?

lousy logic.

our exports to china are high technology components like LCD panels. the jobs lost to china are labour intensive assembling of LCD panels to make the final LCD displays. jobs lost are low tech, low value add, low pay. jobs gained are high tech, high value add that provide good income for our workers. this on the whole is bad?

do we really have to spoon feed you answers all the time? you can't even reason out this simple logic and you have the cheek to talk about poking fun. more like poking at your own intelligence ... or lack of it.

105090 SG

Its bad for Singapore.

in 1999: S$1.00 = RMB 5.10
in early 2005 before unpeg = RMB5.00
in late 2005 after unpeg = RMB 4.77

now: S$1.00 = RMB 4.95!

So RMB has strengthen a but isnt it? bad for SGP.

on the other hand, RM was unpeg and strengthen against S$ but now, its S$1 = RM 2.298..

Before unpeg was about RM 2.22

Salman SG

our exports to china are high technology components like LCD panels. the jobs lost to china are labour intensive assembling of LCD panels to make the final LCD displays. jobs lost are low tech, low value add, low pay. jobs gained are high tech, high value add that provide good income for our workers. this on the whole is bad?

I just debunked you.
Notonly do lost jobs in Singapore directly affected us, lost jobs from the region to China also affected us. All these are made worst with the undervalued yuan.

snow leopard SG

Originally posted by Salman:

Aha so now you do admit we do lose jobs to China.
Had there not been a devalued yuan, would we have kept those jobs? Yes. Why else do you think they kept it devalued in the first place?

i've only just started contributing my thoughts on this issue, so since when have i denied that jobs are lost to china? any idiot knows that investments are pouring into china. so what? even if investments weren't pouring into china they would be pouring into india, vietnam, malaysia, thailand, indonesia, philippines ... you think they'd pour into singapore you idiot? is that all to your simplistic and unsophisticated argument?

in the first place, devaluation is debatable. and since it is debatable i cannot accept it as a reason for our job losses or china's success.

china's cost base is so low that with or without devaluation (which is in itself debatable), we wouldn't have been able to keep our jobs. if our future depended on keeping low cost labour jobs, you had better be prepared for a poorer future.

there is a whole lot more to china's success than the so-called devaluation (which is a myth to some academics really). if devaluation is their key to succes then why aren't the other nation's devaluating their currencies as well?

We do lose high tech jobs to China like hardisk manufacturing. Singapore was the biggest exporter of hdd for two decades. It lost now because of the heavy export subsidy by China.

technology improves by leaps and bounds. what was once high tech manufacturing has now become low tech. so my point still stands what we lose to india, china or zimbabwe, we lose because it has become a commodity. we don't cry over lost commodity, i wonder why you do?

I just debunked you.
Notonly do lost jobs in Singapore directly affected us, lost jobs from the region to China also affected us. All these are made worst with the undervalued yuan.

no you just turned fact into myth and flunked with your lousy argument. devaluation is debatable and mostly claimed by the yankees and his allies. it is merely one sided argument that represents the interests of one side, just like in the 80s when the yankees complained about the yen being undervalued when it couldn't compete with the japanese manufacturing juggernauts.

what i may say is this. suppose indonesia devalues its currency by 20% (that is the estimate given by the yankees) to match china's supposed (not proven) devaluation. would manufacturers flock to indonesia? africa's even poorer. surely they can afford even lower wages?

there is more to competition than just costs. what about productivity? throughout your entire rethoric, you never once mentioned about productivity, you supposedly finance and economics ace.

come to think about it, all your postings are mere regurgitations of yankee rhetorics.

Salman SG

i've only just started contributing my thoughts on this issue, so since when have i denied that jobs are lost to china? any idiot knows that investments are pouring into china. so what? even if investments weren't pouring into china they would be pouring into india, vietnam, malaysia, thailand, indonesia, philippines ... you think they'd pour into singapore you idiot? is that all to your simplistic and unsophisticated argument?

Less will be lost had they not kept the yuan undervalued.
Less would have been lost from the region too had there been no under valuation. Thats the point.

in the first place, devaluation is debatable. and since it is debatable i cannot accept it as a reason for our job losses or china's success.

So why do you think they keep the yuan restricted if it is not undervalued? What for?

china's cost base is so low that with or without devaluation (which is in itself debatable), we wouldn't have been able to keep our jobs. if our future depended on keeping low cost labour jobs, you had better be prepared for a poorer future.

It is so low cost because of the undervaluation. Thats exactly the point!

there is a whole lot more to china's success than the so-called devaluation (which is a myth to some academics really). if devaluation is their key to succes then why aren't the other nation's devaluating their currencies as well?

Undervaluation is one of the main component to that growth. I say take it off and compete fairly.

technology improves by leaps and bounds. what was once high tech manufacturing has now become low tech. so my point still stands what we lose to india, china or zimbabwe, we lose because it has become a commodity. we don't cry over lost commodity, i wonder why you do?

HDD is not a commodity.

no you just turned fact into myth and flunked with your lousy argument. devaluation is debatable and mostly claimed by the yankees and his allies. it is merely one sided argument that represents the interests of one side, just like in the 80s when the yankees complained about the yen being undervalued when it couldn't compete with the japanese manufacturing juggernauts.

So why do you think they kept the yuan restricted? What for if the yuan isn't undervalued?

what i may say is this. suppose indonesia devalues its currency by 20% (that is the estimate given by the yankees) to match china's supposed (not proven) devaluation. would manufacturers flock to indonesia? africa's even poorer. surely they can afford even lower wages?

Yes, more manufacturers would indeed flock to Indonesia and accelerate joblesses in China and Singapore.

there is more to competition than just costs. what about productivity? throughout your entire rethoric, you never once mentioned about productivity, you supposedly finance and economics ace.

come to think about it, all your postings are mere regurgitations of yankee rhetorics.

Productivity is related to costs isn't it?

diggo SG

It is about the Trade Surplus in USD that China has. It is more political than economical for the revaluation.

Even if China do revalue to be 1SGD = 1 RMB. We will still lose out to them on cost. Land and labour is plentiful there... so singapore still cannot compete. So even if we can improve productivity by 20%... the bottomline will still lose out the China as they difference in the direct cost is already 30-40%.

Salman SG

You are wrong, if 1RMB = 1SGD, lots of factories will immediately move back to Singapore.

snow leopard SG

Originally posted by Salman:

Less will be lost had they not kept the yuan undervalued.
Less would have been lost from the region too had there been no under valuation. Thats the point.

in the first place, the yankees who claim that yuan is undervalued cannot actually prove it is. so unless you can prove to us that the yuan is indeed undervalued, you have no basis to attibute job losses to it.

even if yuan were indeed undervalued (for argument's sake, not agweement), how much less job losses would we have had? two factories? two machines? two workers? tell us how much difference would it have made? and tell us what is the point of lambasting china for undervaluation if it actually wouldn't have made any difference?

So why do you think they keep the yuan restricted if it is not undervalued? What for?

stability. our currency is pegged too albeit to a basket of currencies.

It is so low cost because of the undervaluation. Thats exactly the point!

it is low because china's only beginning to rise from proverty. undervaluation is merely an allegation and unless you can prove it, there is no point attributing china's low cost to it.

Undervaluation is one of the main component to that growth. I say take it off and compete fairly.

is that mere allegation or can you actually prove it? if it is allegation what is there to take off? even if your so called undervaluation did take place (for argument's sake, not agweement), the wage discrepancy is still so wide, far wider than any productivity can make up for so what fairness or unfairness is there to talk about?

if you want to be fair, you should think this way. we have a sixth of the world's population locked in virtual poverty for the last couple of hundred years that is finally free to improve it's livelihood and grow out of poverty. instead of feeling happy for them you actually feel indignation?

HDD is not a commodity.

in a stable country with an abundance of cheap, hardworking workers with the capacity to absorb new knowledge, few things are beyond their capacity to commoditize, the same way india is commoditizing IT.

So why do you think they kept the yuan restricted? What for if the yuan isn't undervalued?

they kept the yuan pegged, whether or not it was at a fair value is still debatable even amongst economists so unless you think you're more illustrious than those economists, i suggest you keep your limited understanding to yourself.

for stability. if undervaluation is the key to their success, then isn't it a simple solution for all those who allege unfairness to undervalue as well?

Yes, more manufacturers would indeed flock to Indonesia and accelerate joblesses in China and Singapore.

your yes is not worth a penny and certainly not worth taking seriously. in fact, it only shows how ridiculously stupid you are. indonesia is political unstable so investors dare not put too much into that basket. your supposed under / over valuation wouldn't have affected investors' confidence in indonesia, least of all influence china's growth.

Productivity is related to costs isn't it?

costs or wages alone tell only half the story. you are complaining about the supposed under valuation of the yuan. supposed under valuation of the yuan supposedly affects only wages. it doesn't say anything about how much you can produce with those low wages. low wages in indonesia produce low output, but low wages in china produce high output, that's why investors flock there.

you don't even know your basic economics yet you claim to have aced finance and economics. no wonder our nation is faltering, we have idiots like you ace-ing our schools who needs to be taught economics by an engineer.

in short, yuan is just an inconsequential factor in china's success story, be it over or under valued. of greater consequence is the influx of a virtually inexhaustible (for the time being) supply of low cost labour from the countryside and a culture with the capacity for hardwork, learning and improvement.

MobyDog SG

No, that's naive... It will move to the next low labour cost country likely Vietnam. Our govt has infact lay basic foundation there.

China has also a huge comsumer market potential. Wealth disparity are present now because of splurging growth, but in time, wealth distribution will be somewhat marginalise. Some manufacturing will remain to cater to that, it just that they will move more in land where cost are still low, and China's logistics infrastructure also be along that line. It's a natural flow of things.

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