KATHMANDU, Nepal, 24 September 2016
The yuan is the base unit of Chinese currency, and yuan in the Chinese language means “round object” or “round coin”. It also carries the surreptitious meaning of “beginning”, perhaps facetiously describing the way in which China has handled the Yuan to “begin” its road to prosperity.
China kept the Yuan under tight control and undervalued for over two decades to enable its exports to be competitively cheaper in the international market. Due to this manipulation, though unfair, China’s exports surged and reached the formidable figure of $2.7 trillion by 2015, far ahead of US total exports of $1.6 trillion. This trade advantage enabled China to accumulate enormous foreign exchange reserve of $3.2 trillion, which in turn was utilized by it to purchase US treasury bills estimated at $1.241 trillion as of June 2016. By manipulating its holding of dollar reserves and treasury bills, it managed to keep the exchange value of Yuan stable and within the margin dictated by the Chinese government.
On the flip side, such large holding of treasury bills not only made China the largest lender to the US government but also gives it now the power to manipulate even US fiscal policy. It definitely tilted the economic balance of power to China’s favor.
Another factor in the meteoric rise in China’s dominance in foreign trade is its indulgence in unfair trade practices such as subsidy. China has an array of subsidies like tax rebates, cash incentives, lower duties on imported machineries and intermediate inputs, lower tariffs on utility and land rentals, etc, to lower the cost of production of its export industry. Cheap Chinese solar panels drove to bankruptcy the US solar panel maker Solyndra, considered a flagship company for US clean energy development programme. US wheat producers suffered an income loss of $650 million last year due to subsidized Chinese wheat. The US steel industry went into doldrums after China dumped subsidized steel in US market. And so on.
The gross trade advantage accrued by China over the US has wrecked the US manufacturing and industrial base. It is estimated that as much as 34% of US manufacturing has run aground between 1997 and 2016. US manufacturing has lost global competitiveness. The rout has been so severe that the US manufacturing sector has no capacity to absorb any fresh impetus to revive the sluggish economy. It is feared that such impetus would only benefit China via the trade route.
The effect on US employment has been equally devastating. The US lost 21,66,000 jobs due to trade deficit with China during the period 1997 to 2006. Ironically the US government appears to have addressed this problem by drafting youths to fight various wars in the Gulf and elsewhere. They bring back tales of valor and patriotism which atrociously are utilized by the inept US politicians in their election campaigns. In contrast the Chinese youths are becoming millionaires overnight and wallowing in riches.
China with its 1-billion-plus consumers was envisioned and hailed as the El Dorado of the 21st century. Governments of many developed nations including the US courted the Chinese government and kowtowed to them for a slice of the fantasized pie. Business houses and multinationals rushed into China, but on their way in they were virtually mugged by the Chinese government. Hugo Boss lost a trademark infringement case against apparel company BOSSsunwen owned by the Chinese government, Apple is being denied the right to trademark the name iPhone and iTunes, and iMovies has been shut down. All multinationals operating in China have been forced to divulge their technology. Those based in the US are being subjected to frequent cyber thefts, engineered supposedly by the Chinese government. The Chinese government-owned ‘national champions’ have grown based on pirated technology, and these companies are expected to soon undercut the home turf of the multinationals.
China’s domestic market is over-protected through some restrictions or other, censorship is overpowering, and retribution strong for any trade actions and even public expression of grievances. The final nail in the coffin is tightening of controls on capital and profit remittances, and Japanese investors are reported to be screaming silently. In a recent survey, the majority of US businessmen have also expressed dissatisfaction and felt they were not welcome in China. Microsoft, Adobe, Panasonic, Yahoo, and Adidas have already exited China.
China’s investment in the US real estate market has surpassed $300 billion, $17 billion worth commercial estate, $208 billion in mortgage backed securities, and $93 billion in residential real estate. China has emerged as the biggest home buyer in the US. Reasons for such a rush are stated to be the fall in Yuan value, slowdown in Chinese economy, and search for safe offshore assets. However, countries neighbouring China have already experienced such a phase and prefer to call such Chinese settlers the ‘fifth columnists’, part of a Chinese government conspiracy to plant Chinese loyalists in target countries to aid and abet China’s expansionist ambitions. They are the vanguard to establish what the Chinese call the “Guanxi” network whereby influential politicians, intellectuals, and media persons are compromised to work in China’s favor through illegal gratification or otherwise. Australia today presents the shabby fallout of such insidious machinations.
The much-hyped Chinese project OBOR, ‘One Belt, One Road’, carries geo-strategic implications of a Chinese challenge on US supremacy over Europe, so too the South China Seas where the US guarantees freedom of navigation. China has already gained supremacy in trade and investment over the US in South America, which till recently was considered the back yard of the US. It is undertaking mega projects having strategic value like the Nicaragua Canal as an alternative to the US-built Panama Canal, and the Brazil rail to link the Pacific with the Atlantic Ocean.
For the US, times are grim and challenging. Suave American politicians singing “God Bless America” cannot be relied upon to rein in the crafty Chinese. The need of the hour is brazenness, of the type shown by Donald Trump, the one who has the audacity to say “They are a manipulator, grand master level,” and get tough.
About the author
Laden Tshering Samdup is a retired businessman, living in Kathmandu. He has MA (Hons) economics from Birla Institute of Technology and Science from Pilani, Rajasthan, India. He can be reached c/o Boudha Peace School, Phulbari, Kathmandu, Nepal.
More articles by Laden Tshering Samdup on Tibet Sun.