China Impoverishes The World?

The last post on LUV got the Cowboy thinking about China’s internal focus.

As the Cowboy has stated:

“Given that the Chinese economy is already focused on exports anyway (like Germany and Japan), the currency manipulation just adds to the current account surplus, putting more foreign currency in the hands of the government.  This is money (or stored value) that is being saved by the country as a whole.  If the Chinese consumed more, there would be less production available for export, they would import more and, with a freely floating currency, you might eventually reach a current account balance.  As for a black market, the Chinese government has been pretty effective at keeping it to a minimum.  All of this begs the next question though.  Why would the Chinese government intentionally make its people worse off, allowing them to buy less and forcing them to save more, especially given how poor most of its population is?”

Go to the post (and the following parts) if you want the Cowboy’s answer to that question.

And as a wise friend reminded the Cowboy yesterday, it was Keynes who said:

“If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.”¹

Well, get a load of Arvind Subramanian‘s piece in yesterday’s FT.  I know, I know, that’s two consecutive posts linking to the FT, behind its pay-wall.  Sorry.  The article is entitled: “It Is The Poor Who Pay For The Weak Renminbi”.

Money quote:

“In the short run, with capital pouring into emerging market countries, their ability to respond to the threat of asset bubbles and overheating is undermined. Emerging market countries such as Brazil, India and South Korea are loath to allow their currencies to appreciate – to damp overheating – when that of a major trade rival is pegged to the dollar.

But the more serious and long-term cost is the loss in trade and growth in poorer parts of the world. Dani Rodrik of Harvard University estimates that China’s undervaluation has boosted its long-run growth rate by more than 2 per cent by allowing greater output of tradable goods, a sector that was the engine of growth and an escape route from underdevelopment for postwar successes such as Japan, South Korea and Taiwan.”

Not only are the Chinese people at large being impoverished, but other emerging markets are as well.  The Chinese currency regime is a de facto tariff, but a much smarter one than the traditional type.  With this “currency tariff” not only are imports discouraged but exports are encouraged.

Authoritarian Capitalism.  Gotta love it.

_____________

¹ As quoted in The Economist (13 February 1982), p. 11

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Published in: on February 5, 2010 at 22:02  Leave a Comment  
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