Internationalization of the Renminbi

The steady but gradual appearance of China's currency in the global market is comprehensively described on the China Economic Net. According to this article, Turkey, the latest to sign a bilateral currency swap agreement, worth 10 billion yuan, is the 16th nation to enter into such agreement with China.

My previous tabulation listed 18 countries including Brazil and Japan. Apparently these two have agreed to settle their bilateral trades in their own currency but did not actually enter into a swap agreement. A typical swap agreement with China is for initial term of three years, renewable on mutual acceptance and has a stipulated amount.

Demonizing China for Fun and Profit

Mike Daisey is the latest but not likely the last to attain fame and fortune by making up stories about China. Daisey’s case was a widely acclaimed monologue entitled “The Agony and Ecstasy of Steve Jobs” supposedly based a six-day visit to Shenzhen China and his encounters with various factory workers—except as we were to find out very little of it actually happened.

Daisey’s performance on stage was a hit and he became a media celebrity that talked about his China experiences. This American Life a radio program on National Public Radio dedicated an hour on Daisey and excerpts of his monologue. Up to this point, his monologue was considered to be a factual presentation of his encounters in China since he never qualified it in any way.

Unfortunately for Daisey, some of his more flamboyant assertions on his one-man show rang hollow to those that know China. This American Life then retroactively did some fact checking and found that Daisey had lied to the program. In the end, This American Life made a full retraction of the story they carried about Daisey. In the retraction, the listener could hear Daisey’s awkward and embarrassing retreat as Ira Glass disassembled Daisey’s lies step by painful step.

By the end of the hour program, Daisey apologized to Ira Glass for appearing on his program and misled the American public into thinking that he was doing journalism when he was only doing theater—a medium where mixing facts with fiction are permitted.

An important reason for Daisey’s initial success is his choice of topic. Much of American public are susceptible and open to hearing anything negative about China. I have reduced the formula of success as ABCDEF: Americans bash China by distortion, exaggeration and fabrication.

The earliest known example that came to my attention was the so-called human rights activist, Harry Wu. He made a decent living talking about China’s human rights conditions based on half-truths and lies. He has had the good fortune of never appearing on a stage visible enough that someone was inclined to give him a once over fact check.

Hey China! Stop Stealing Our Stuff

The cover article in latest issue of Bloomberg Businessweek has the above subject as the title. A provocative piece that is likely to be cited in months ahead by congressional spokes persons and law enforcement officers whenever China is in the cross hairs of public discussion about China's bilateral relations with the U.S.

One of the Sino American business relationships described in the article that went off the tracks involved Sinovel, a Chinese maker of wind turbines for wind farms and AMSC, an American maker of electronic systems that control the operation of the turbine. Ostensibly this was a match made in heaven; the Chinese with low labor cost to put the hardware together and the MIT spinoff to supply the sophisticated electronics.

Indeed, Daniel McGahn, the CEO of the American side said, "We always saw it as a symbiotic relationship of having China's low manufacturing cost coupled with Western technology. We would grow as they grew." It didn't hurt that Sinovel was a market leader and dominant supplier in China.

Unfortunately, as was the case with cellular phone, energy saving light bulbs, solar panels, wind turbines or other fashionable products of the day, whenever one company makes a high profile entry, others follow suit and soon China is overloaded with too many manufacturers with too much output and everyone having to resort to price cutting in order to stay in business.

In 2008, the electronics from AMSC accounted for 12% of Sinovel's cost of the turbine system. Three years later, the AMSC package made up 18%. "Everybody was getting squeezed except AMSC," according to an American consultant quoted by Business Week.

In my view, McGahn missed an opportunity to proactively re-balance the AMSC partnership with Sinovel that could have forestalled the ugliness that ensued.

Instead of assuming that his company would continue to enjoy the margin of 2008, he could have empathized with his partner's plight and share some of the pain of eroding margin. Perhaps he could have seized on the opportunity to restructure the business relationship in such a way that Sinovel would own equity in AMSC and vice versa. Perhaps he could have proposed a joint venture to develop export sales of complete turbine systems with hardware from Sinovel and control system from AMSC and thus expand the pie for both parties.

Just the information presented in Business Week is not sufficient to come up with a definitive solution that could have headed off the Chinese side from trying to steal the technology, but the principle is obvious. Namely as with any partnership, one needs to constantly think of ways for both parties to win and make sure that the cost of doing business together is more appealing than going separately.

One particular aspect of doing business in China that is especially difficult for western executives to understand is that the best way of not getting screwed is to develop real friendship with their business counterparts. Chinese value face and yiqi（义气）. The dictionary defines yiqi simply as personal loyalty but it's much more. To behave without yiqi is to dishonor oneself and suffer a great loss of face and self respect.

As AMSC's case showed, keeping the crown jewels, in this case the source code, outside of China did not prevent theft and the attempt to go it alone. If the parties had found a way to remain in the same bed and share the same dream, they might still be living happily ever after.

The Myth of China Dominating the American Economy

Despite recent hue and cry about China taking unfair advantage of trade with the U.S., an analysis revealed that the amount of Chinese goods and services being consumed by the Americans in 2010 accounted for (gasp) 2.7% of America's total personal consumption. Not only that, but 1.2% were actual costs of imports from China. The other 1.5% were accounted by the U.S. business transporting, selling, and marketing of the made-in-China goods. By contrast, 88.5% of the total personal expenditures were spent on goods and services made in the U.S.

This study was performed by the Federal Reserve Bank of San Francisco and can be read in its entirety here. Ostensibly the reason for conducting this study was to determine how inflation in China might impact on the U.S. economy. Obviously, if Chinese imports only account for 2.7% of our total personal expenditure, it won't matter if China experience inflation in the near future. For that matter, it is immaterial whether China is manipulating its currency or not.

Keep this study in mind, the next time some politician or pundit makes a mountain out of this mole hill or indulge in flights of runaway imagination on how China is ruining our economy. Your response should be simply: Nonsense.

Debunking Cyber Warfare and Other Illicit Derring Do

Accusations of evil doers lurking in cyber space seem to fall into the following categories.

(1) Some warn of frightening cyber attacks in order to sell their network security expertise.

(2) Some describe lurid tales of evil doing in cyber space to sell books, fiction or not.

(3) Some attributes acts of cyber sabotage to other nations in order to demonize them, most often targeted being China and Russia.

(4) Of course, threat of cyberwar is another way to justifying budget allocation from the federal government to the defense industry.

Along comes in latest issue of Foreign Policy an article that should calm matters down and lower the scare meter by a notch or two. Below are some excerpts from the piece written by Thomas Rid, ridding us of some of the amorphous fears.

Cyberwar is still more hype than hazard. ...act of war has to be potentially violent, has to be purposeful and has to be political. So far we have not seen any that meet those criteria.

In his 2010 book, "Cyber War," former White House counter-terrorism czar Richard Clarke invokes the specter of nationwide power blackouts, planes falling out to the sky, trains derailing, refineries burning, pipelines exploring, poisonous gas clouds wafting, and satellites spinning out of orbit. The only tangible result so far is the establishment of the U.S. Cyber Command in 2010 with an annual budget exceeding $3 billion.

Development of a cyber weapon would require a lot of resources. The weapon has to be target specific in order to be effective. Once used defense measures would be put in place and the weapon would lose its potency. In other words, the cost effectiveness of such a one-shot weapon is problematic and doubtful.

While Rid's article provides a balancing perspective, it will not deter others to scare monger.

China's Reminbi as a Global Currency

Since the collapse of Lehman Brothers and the ensuing tsunami from Wall Street that almost swamped the financial world in 2008, China has been busy signing bilateral currency swap agreements in order to minimize the exposure of holding too many dollars.

Such swap agreements allow the two signatory nations to do business with each other using their own currency and skip having to buy dollars and settle the trade invoices in dollars.

This article co-authored with Henry Tang posted in China-U.S. Focus apropos on leap year day can be read in its entirety here.

On going tracking of bilateral swap agreements China has entered can be found here.

Linsanity too late for Soldiers Chen and Lew

An edited version appeared on February 26, 2012 in the New America Media.

On a recent Sunday morning, I was glued to the boob tube watching a professional basketball game from the opening jump ball to the last waning second. Haven’t done this for years but suddenly I too have been swept up by the global phenomenon of linsanity.


By now, everybody knows linsanity refers to Jeremy Lin, the basketball star from Harvard, undrafted by any of the NBA teams, who warmed the bench for two other professional teams before coming off the bench for the NY Knicks in an act of desperation by the coach. Lin promptly led his team to a win, the first of nine wins in the next eleven games. He became the toast of New York and an instant worldwide sensation.


The Knicks took on Dallas Mavericks, last year’s NBA champ and I saw a real deal. Lin drove through a forest of opponents for layups or passed to wide-open teammates. He sank long-range three pointers in crucial moments or he drew the defenders so that his teammates were unimpeded as they threw in three point bombs. He was fearless and physical as the game dictated.


In the post game analysis, the great Magic Johnson unequivocally declared that Lin’s star presence would be in the NBA for a long time. None of his fellow panelists disagreed.


Lin’s heroics on the court immediately drew a following from the Asian communities of the world, heretofore thought too small, too short and too frail to play this contact sport. But Lin didn’t just become a role model for Asian Americans. He has won the ultimate accolade: every kid--black, brown or white--on the neighborhood playground now aspires to be a Jeremy Lin.


Linsanity also caused me to reflect on the tragic fate of Danny Chen and Harry Lew, two American soldiers who took their own lives in Afghanistan. These were two unrelated victims of hazing by their fellow soldiers. Sadly the misery they experienced was so brutal and unrelenting that they found ending their young lives the only way out of their torment.


These incidents reflect a failure of American values and the leadership of the military: The former because America continues to regard people of Asian ancestry as not American, but as the other; the latter because the military not only failed to prevent such racism from their ranks but also failed to impose appropriate penalty on the perpetrators for the hate crimes.


Hate crimes against African Americans evoke high decibel outcries but hardly a murmur when perpetrated against Asian Americans.


It will be up to the Asian American community to make noise in order to rectify the wrong. During the first Gulf War, friendly missiles shot down two American helicopters. The pilots who pulled the trigger were exonerated but not Captain Jim Wang of the Awac flying surveillance.


The late Sam Chu Lin, a mainstream media star who became a voice of conscience, rallied the Chinese American community and with the help of the Committee of 100 made sure that Captain Wang had proper defense counsel leading to dismissal of all charges against him.


Wen Ho Lee was the designated scapegoat and sacrificial lamb in the political struggle between the Republican Congress and Democrat President Clinton. He would have rotted in jail as a spy for China had the Asian American community not come to his support. Sam played an active role in this case as well.


In this case, the American public took no pains to make the distinction as to whether Lee, who came from Taiwan, was Chinese or not. To this day, some still considers him a spy though the court found him not guilty of any espionage charges. Those that still accuse Lee of spying have also forgotten that the court did find the FBI lying in court under oath.


Maybe Jeremy Lin with his continued success will erase some of the prejudices that reside in America against Asians. Perhaps linsanity, had it occurred a couple years earlier, could have blunted some of the bias of the American soldiers and caused them to regard ethnic Asian in their ranks as less gook and more fellow soldiers.


But we can’t count on Jeremy Lin to carry entire load for racial equality on his shoulders. We, the Asian American community, must stand up and demand our rights as full fledged, tax paying, law abiding citizens to all the respect pertaining thereto just like the next person.

The Making of Renminbi on Becoming a Global Currency

In 2002, I remember visiting the Leaning Tower of Pisa as a tourist. I was surprised to see a souvenir stand displaying a prominent sign: "Your Reminbi are welcome here" written in Chinese. This was significant on two counts. One, there were already significant amount of tourists from China visiting Europe and two, the Chinese yuan was becoming a global currency, albeit unofficially.

After the financial crisis of 2008, it became obvious that the dollar was on a long term path of declining value. While China has not been the only country to want to avoid holding on to too many dollars, China has been the busiest in entering currency swaps with its many trading partners. Bilateral currency swaps allow the participating nations to pay their trade invoices with their own currency and not with dollars.

Here is a compilation of swap agreements China has entered to date.
2008, December - South Korea, 180 bn yuan since extended
2009, January - Hong Kong, 200 bn yuan since doubled to 400 bn in Nov 2011
February - Malaysia, 80 bn yuan, extended 2/12 & increased to 180 bn yuan
March - Indonesia, 100 bn yuan
- Belarus, 20 bn yuan
- Argentina, 70 bn yuan
June - Brazil, no exact amount known
2010, June - Iceland, 3.5 bn yuan
July - Singapore, 150 bn yuan
2011, April - Uzbekistan, 0.7 bn yuan
- Mongolia, 5 bn yuan, doubled to 10 bn yuan in March 2012
June - Kazakstan, 70 bn yuan
December - Thailand, 70 bn yuan
Pakistan, 10 bn yuan
Japan, no exact amount known
2012, January - U.A.E., 35 bn yuan

February - Turkey, 10 bn yuan
March - Australia, 200 bn yuan

Other imminent swap deals currently under discussion include Nigeria and South Africa. The number of deals are likely to accelerate. As more countries hold and accept Reminbi, the more appealing the yuan will become as the alternative to holding too many dollars and more bilateral swap agreements will result.

Even if all the swap agreements were drawn down in full, there might be as much as two trillion yuan circulating outside of China. This might be enough liquidity for the renminbi to act as a de facto global currency but not enough to replace the dollar as the hard currency.

We can be sure, however, is that the dollar will cease to be the only global currency because no one will be satisfied with owning a currency that decrease in value with time. Japan has entered a currency swap deal not just with China but also with India, and Turkey with Malaysia. These are some examples how others are looking for ways of going around the dollar.

Keeping Manufacturing in America Won't be Easy

In his State of the Union, President Obama stressed the importance of keeping manufacturing in America. The reasoning is that in order to continue to innovate and develop the next generation must-have products, the US needs manufacturing that uses leading edge technology. Nothing wrong with the reasoning, but it may be too late.

A lengthy analysis on why jobs are flowing to China based on the Apple iPhone experience appeared in the New York Times. One of the most important findings of the NYT piece was that America simply no longer has the skill sets to meet Apple’s demands for a high quality, technology product. America has lost the edge to make things.

Advanced manufacturing depends on staffing the factory floor from the production line to the line supervisors with people possessing technical skills. The training programs Obama talked about might serve as temporary Band-Aids that might keep certain production from leaving in the short term. But to maintain a world leadership position, the US will need far more technicians, engineers and scientists than the country is producing.

For many years long before the 2008 financial meltdown, the smartest and brightest of American graduates were pursuing careers on Wall Street rather than careers in science and engineering. Making financial products was easier and more lucrative than manufacturing hard goods. Value was created more rapidly and more profitably by financial manipulation than by selling hard goods.

During the height of Japan bashing in the 1980’s, the late legendary Akio Morita, CEO of Sony, said America was good at moving money from one pocket to the other but not in making anything.

For decades the majority of Americans, most of the so-called 99%, have been getting a basic education inferior to what their parents received. Although politicians readily acknowledge the importance of public education, budget allocations did not follow lip service. Classroom size got bigger and kids were taught fewer hours in a day and fewer school days in a year.

To meet the required budget cuts, schools are forced to cut out arts, music and other non-core courses and after school activities. Bare bones programs leave students uninspired as they sleep walked to graduation not much wiser than when they started. Teachers waved the students through rather than making sure that the lessons took hold.

Of course, there are pockets of exception. Perhaps 5% of the Americans can afford to subsidize their local school budget out of their pockets and help raise the quality of education for their children or send their kids to better quality private schools. But that leaves a lot of untrained minds that will not realize their full potential.

In some parts of America, pro science is regarded as anti-religion, or worse yet pro religion is ipso facto considered as antithetical to science. The local sentiment that religious concepts should be taught on same footing as science, such as creationism vs. evolutionism, would leave young minds poorly prepared for a productive adult life in a technology driven world.

Out of the forty 2012 finalists of Intel Science Talent Search, 14 have been identified as ethnic Chinese, 7 with South Asian surnames and 5 others with some other Asian surnames. For many years now, more than half of the finalists, high school students with outstanding aptitude in sciences, are first generation immigrants or sons and daughters of immigrants from Asia.

Immigrants from China, India and Russia, in particular, come from cultures with deep respect for learning and science. They have not been in America long enough for the anti-science mentality to rub off.

So long as we are not able to turn out enough science and engineering graduates of our own, then President Obama is correct when he said we need to welcome foreign students to stay after they graduate and not push them away.

But even if immigrants lead in the development of innovations, as we see in Silicon Valley, America still needs a solid pyramid base of people with skills that would turn innovations into commercial successes. President Obama spoke of keeping and building leading edge manufacturing in the US. This is not going to happen unless there is a fundamental shift in the American attitude about the importance of math and science.
__________________
An edited version appeared in New America Media and Nation of Change.

Lesson from Taiwan's Recent Election

Much to the relief of the US, China and of course the majority of Taiwanese who voted for him, Ma Ying-jeou was re-elected as president for another four years. His re-election means no disruption in the building of cross straits relations and corresponding reduced likelihood of flare-ups and incidents that would raise cross strait tensions. Stability across the straits was highly sought after by Washington, Beijing as well as Taipei.

Ma won by a 6% margin, less than the 17% landslide from his first election but nonetheless a surprisingly comfortable lead considering the widely anticipated wire photo finish with his opponent from the opposition party. There were no last minute shenanigan, such as an election eve assassination attempt, to interrupt the proceedings. Some observers have even gone to proclaim that Taiwan's orderly exercise in democracy should inspire their brethren on the mainland.

Actually, I think Taiwan could serve as a lesson for America. Essentially three out of four voters in Taiwan turned out to vote. In the US, one out of two would be doing good. Nearly 200,000 Taiwanese flew back from the mainland, where they were working to vote in the election. Uncounted thousands even flew from the San Francisco Bay Area to vote. Since Ma won by more than 800,000 votes, the oversea returnees can't be said to spell the difference.

But we can say, they went back to Taiwan to vote because they cared. We have not seen such voter concern and passion in the US for many elections. Just the opposite is happening. We are inundated with negative lies and deliberate distortions funded by the rich to the point that we no longer give a damn. For decades America has not been a democracy of the people but has become corrupted by highest bidders.

Time to Hold US Congress Accountable

When I was starting out in my career, one of my bosses had a favorite saying," Your next pay increase becomes effective when you are." I think it's time we hold our Congress accountable using this logic.

One of the viral email that I received gave me the idea for this blog. According to this email, Warren Buffett, in a recent interview with CNBC, offers his solution to the debt ceiling: "I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election."

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971...before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took 1 year or less to become the law of the land...all because of public pressure. This is one idea that really should be passed around.

Let's call it the Congressional Reform Act of 2012:

1. No Tenure/No Pension. A Congressman collects a salary while in office and receives no pay when they are out of office.

2. Congress (past, present & future) participates in Social Security. All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen are void effective 1/1/12. The American people did not make this contract with Congressmen. Congressmen made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

Whether Mr. Buffett actually voiced the ideas above doesn't matter to me. The ideas stated in this email have merit in their own right irrespective of who gets credit for originating them. I have already seen an op-ed in a major daily that essentially presented the same view (without acknowledging possible role by Buffett).

We need to hold Congress accountable and if there is enough ground swell in favor of such a movement, we may then begin to institute some real change.

Autumn in Jiuzhaogou， 九寨沟

The natural scenic beauty of Jiuzhaigou was not "discovered" until modern times. The Tibetans that reside in the nine villages of this "Y" shape valley knew about its breath taking scenery, of course, but this valley is located in such a remote northwest corner of Sichuan that it was unknown to the Chinese in ancient times. For this, today's visitors are blessed with the total absence of man-made edifices and calligraphy carved into rocks. All one sees is mountains, and strings of mirror smooth lakes connected by cascades, water falls and running stream.


To visit Jiuzhaigou during the autumn foliage colors is to take a out of the world journey. The serenity and beauty literally takes ones breath away. Most of the fall color comes from the oily pine tree, a pine tree that is not evergreen and the color change only lasts about two weeks. Thanks to the advice of Dragon Delight, our tour operator, we were in Jiuzhaigou in the last week of October and witnessed the peak of nature's display.

The Chinese authorities deserved all the kudos for taking the most ecologically friendly route in developing this valley into a tourist attraction. Some examples of their green policy: Only park operated buses are allowed inside the park. Visitors are allowed to walk only on designated walkways. Hundreds of miles of footpath were constructed out of wooden boardwalk. The wooden planks were grooved to improve slip resistance. Plenty of rest pavilions, toilets and trash receptacles dotted along the parthways. Unlike toilets in many other parts of China, these toilets were oder free and even featured water less urinals.

On our first day, our group of 12 rented our own park operated minibus and driver. It was a particularly crowded day and by renting our own vehicle, we could skip around various stops and alight where it was least crowded and avoided the jostling crowd. The next day, a few of us went into the park on our own. We got off the park bus about mid way and walked downhill, following the path along the strand of lakes. It was a magical walk to be savored especially for the time when we've become too old to tour again.
The town of Jiuzhaigou came into existence because of the park. There are now a large assorment of hotels to choose from. There are however only two 5-star hotels in the area. The Sheraton is within walking distance to the entrance of the park. The Intercontinental is more than half hour drive from the entrance. The feeling of staying in the latter is more like staying in a self-contained integrated resort because of its isolated location.

To get there: There are direct flights from many of China's major cities to JiuHuang airport. Or, fly to Chengdu and connect from there. You can also drive from Chengdu but that would be a long ride requiring a very long day.

Review of US China Bilateral Relations for 2012

US China bilateral relations had an up and down year and most indications point to more of same or worse for 2012, a presidential election year in the US. I have written an analysis exclusively for China-US Focus which can be read in full at their website.

One of the most contentious issues bedeviling the bilateral relations has been the proper value of the Renminbi and its alleged impact on the placement of manufacturing jobs, i.e., whether jobs have fled the US because an undervalued yuan.

My chat friends have called attention to a series of articles that would shed light and dispell much of the confusion surrounding this subject.

A professor of economics from Tokyo presented a careful deconstruction of the cost of an iPhone (3G) designed in the US and made in China. The value added in China in assemblying the iPhone was $6.50 out of a total export price of $179. The difference between China's value add and the export price represents the cost of bill of material consisted of parts and components purchased from Germany, Japan, Korea and the US. In calculating the trade deficit, the entire $179 is credited to China's account and not just 3.6% of the total.

Another analysis revealed that Apple captured 58.5% of the profit from each iPhone sold while China's share of the profit was 1.8%. In other words, for every dollar China made on the iPhone, Apple made $32.50. Both authors went on to say that with more than 60% margin, Apple could afford to make a little less and have the iPhone made in the US but choose to have it assembled in China to maximize its profit.

The same case can be made about Apple's latest "insanely great" product, the iPad. China's value added is about $8 out of $499 cost of the product. Apple's share of the cost for design and marketing is about $150. Ironically because the iPad sells for a higher price inside China, Apple makes even more money for the iPad made in China and sold in China and it doesn't even show up in trade statistics--except of course for those made in America parts and components that were imported by China to put into the iPads.

Basically iPads make in China and sold in America inflates the trade deficit while iPads sold in China reduces the actual deficit by the amount of made in America parts put into the iPad. This is not a new story. When Zhu Rongji was premier and was asked about the trade deficit, he pointed out then that a pair of Nike sneakers that retail for over $100 in the US contained only a couple of dollars of value added from China.

Maybe Congress and the watchdogs of Washington can be fooled by derivatives and home mortgage swaps, but it doesn't take advanced degrees in rocket science to understand that trade deficits are greatly exaggerated. Politicians are not stupid enough to not understand, they just don't want to.

As agent for change, Obama is a disappointment

President Obama ran on the promise that he represents the agent for change and as president he would do things differently. So far he has delivered mostly more of same.

Banks that were too big to fail under the previous adminstration continues to be too big to fail.

Wars too costly to fight has lingered and America continues to bleed.

Most recently, Obama has joined the chorus that blamed the US economic woes on an undervalued Renminbi, as if a sudden valuation would solve his problems at home. Fact of the matter is that the US has been printing greenbacks faster than China could keep up with, even if they wanted to.



Last week a column written by a former military person in NYT proposed that Obama approach China with the offer to swap American disengagement of Taiwan for the American debt China is holding. The logic behind this piece is that if the US leaves the room, then the two parties across the Taiwan Strait would natually sit down and negotiate a peaceful settlement.

This is certainly a bold and provocative idea that stands no chance of getting Obama's attention. He has to date shown no inclination to make any bold and thus potentially risky moves.

There you go again, Senator Schumer

Dear Senator Chuck Schumer and your esteemed colleagues, to quote a famous US President, “There you go again.” Since nothing else was working very well coming out of Congress, it was mighty clever of you to beat up on China again. It might even convince your constituents that you are doing something to right the floundering US economy.

It’s hard to know if you have any other ideas about what ails our country but you sure know to put the hurt on China by calling them currency manipulator. You started to accuse them of currency manipulation when the renminbi was 8.3 to a dollar. Somehow you figured that yuan was 40% undervalued. Now that the exchange rate is 6.3 to a dollar, or nearly 30% appreciation since China took the yuan off the peg, you believe that the yuan is still 40% undervalued. That’s the kind of dogged insight we admire in our elected officials.

It looks like you didn’t let House Speaker, Congressman Jim Boehner, in on your joke. He simply dismissed your attempt to brand China a currency manipulator as “not the way to go.” Apparently Mr. Speaker believed there are more urgent matters to deal with. But congratulations to you because this means there won’t be any downside consequences such as a trade war and you get to jerk China’s chain for free.

Has it occurred to you that the one manipulating the currency is our very own Fed, weakening the dollar by design? Paying off our massive debt with dollars of declining value is so clever on the part of our Fed, don’t you think?

As for China taking jobs away from America, you should have talks with the major multinationals headquartered in your home state. Ask them why they are sitting on the sidelines with their billions of cash and not investing at home to create new jobs.

Maybe they will tell you that the wage rate and cost of doing business in New York is just too high. Maybe they will say that the incompetence and impotence of Congress evokes so much uncertainty of the future that they are afraid to invest.

Actually China is losing jobs too. Many of the low-end, labor intensive jobs such as in textile and shoes are leaving China. Faced with economic reality, the Chinese companies in the labor intensive industries are taking the lead and locating their plants in nearby lower cost countries such as Bangladesh, Cambodia, Myanmar and Vietnam.

No way, of course, that such low paying jobs could hope to come back to America—does water flow uphill—but Chinese companies sitting on ample cash reserve would like to invest in America to take advantage of certain comparative advantages available here. As you probably know, investments of virtually any kind are good for the local economy because they really do create jobs.

However, Chinese investments face such a dauntingly hostile reception in America, thanks in no small part to creatively fanciful objections from members of Congress. As a revered member of this august body, you really can help stimulate the US economy by becoming more welcoming of direct investments from China.

Up to now, American multinationals have been the major beneficiary of trade surplus enjoyed by China. That’s because most of the inputs that goes into their plants in China are from the outside and most the profits earned when exported from China though credited to China's account ended up in the bottom line of the multinationals.

But, dear Senator, that’s about to change. Native Chinese companies, not foreign invested enterprises, have learned to move up the value chain and make products with better profit margins that are not as labor intensive. They may not be making products that can directly compete with an iPad or Tesla yet, but they can make price attractive products to sell in less demanding markets.

The Chinese companies will learn from their experience selling lower end products just as Toyota had and Hyundai had with lemons before they became fierce competitors that almost put GM out of business. The Chinese companies can count on endless supply of well trained and highly motivated graduates to fill their ranks and they can count on a government that supports their goal of becoming global companies.

Dear Senator, with all due respects, you should be concerned about the future of America but calling China the currency manipulator isn’t going to fix the problem.
____________________

An edited version ran in New America Media on Oct 14 and Global Times and on the China-US Focus blog.

See my response to video interview on RT.com.