Comments on: The Great Stall of China

By: Nathan Stockman

Nathan Stockman — Wed, 17 Mar 2010 21:03:56 +0000

Sandy,

First off, thank you for putting out your blog, as I always find it interesting and entertaining. All of this is probably above me, but I cannot get this concern about China to play out right in my head. The dumbed-down version that I try to understand in my head is that China artificially keeps its currency undervalued by printing lots of Yuan and buying lots of Dollars (and other currencies). This increases the demand for Dollars so its value goes up and increases the supply of Yuan and its value goes down on the international scale. So, Chinese people who are paid in Yuan are cheaper than international competitors. Jobs go to China and then they export goods around the world. The US finds the Chinese price as the lowest, so we keep sending them our $’s in return for cheap goods. Chinese consumers cannot afford other countries goods, so they can only consume what other local businesses sell.

Assuming that all of the above is not too far off, what I cannot get is why do I care if China is selling its “stuff” too cheaply? Aren’t I happy when Walmart sells me a book for 40% less than a independant book store? And, doesn’t China keeping their prices lower mean that they are worse off as they get less money for their stuff and the US is better off in that we had to give up less money for their stuff? I would be happy if everyone who sold me stuff would lower their prices by 40% (of course being a typical American I would probably just buy 40% more). Also, a lot of goods are global in nature (i.e. crude oil); doesn’t China depressing the Yuan just make crude oil as measured in Yuan/Bbl continue to get more expensive for China? I am sure my (il)logic has some glaring issues, and I would appreciate your thoughts on where I am going wrong.

By: Harrison Cao

Harrison Cao — Tue, 16 Mar 2010 17:45:16 +0000

Hi, Dr. Leeds
I agree that China needs to reform its currency system, and it should definately continue to appreciate its currency, but I think it is not the right time to do it now. If the Chinese Yuan appreciates 40%, economy in China will slow down consider that China is still heavily replying on manufacturing and exports. Unempolyment rate is going to be high once those manufacturing jobs are moved to countries such as Vietnam, India, and Mexico. When it does, consumption in China is not going to help U.S. companies who invest heavily in China. If Chinese consumers lose buying power and exports cannot compete on low-wage and price, that only leaves one thing in China: recession.
If China is in recession, jobs lost in China is not going to created in the U.S. but other low-wage countries. I expected that the unemployment rate in the U.S. could be a lot higher than 10% because of lost sales in China. Therefore, stock market will probably go back to March 9th, 2009 and most Americans’ 401 ks will drop down to 201 Ks.
Personally, I think China does deserve a currency manipulator title. In fact, I don’t understand what takes the U.S. so long to give the title to China (maybe it is because China had been continuously appreciating its currency in between 2005 and 2008?) I believe the currency is used as one of the tools that are available to China to fight global recession and to boost economy. If the economic condition improves, China will feel more comfortable to appreciate its currency.

By: DJ Dodson

DJ Dodson — Tue, 16 Mar 2010 11:41:17 +0000

Dr. Leeds,

That (almost) one trillion dollars China is holding in U.S. Treasuries is probably the best argument I have heard yet for the United States’ multi-trillion dollar “stimulus” packages of late (and plans to put in an unnecessarily complex mo$aic “floor” for socialized medicine).
If only we could get an optimal “bang-for-our-(trillions of)-bucks” out of our government in the process.

Thanks for the concise summary of the currency traffic on the “China $ea.”

DJ Dodson – Austin Native – UT-GSB-Alum