Posts under "News"

Chinese Currency Revaluation (货币升值)

Posted by Steve No Comments
Aug 22 2011

After much anticipation and coupled with foreign and domestic pressure (not to mention the US Debt ceiling fiasco), China is finally poised to begin allowing a “gradual” appreciation of its currency against the U.S. dollar.

Currency revaluation or 货币升值 (huòbìshēngzhí), has been a key issue for China and the rest of the world, as China has sought to keep exports inexpensive, thus stimulating GDP and growth through currency manipulation. Western nations have argued that artificial depreciation of currency (pegging it to a basket of currencies) is harmful in a global economy, as it has taken away competition from other goods produced outside of China.

Yet, it is mainly pressure from within the mainland, caused by inflation or 通长 (tōng zhàng), worker strikes and a housing bubble, that is now precipitating this move to allow a gradual 逐渐的 (zhújiàn de) float against the dollar.After all, years of rampant GDP (国内生产总值 guónèi shēngchǎn zǒngzhí) growth means a rapid rise in cost of living. By keeping the renminbi artificially low, citizens of China were bolstering their exports, but limiting the purchasing power of their wages.

Not all pressure for a gradual currency rise has come from within Chinese borders. For the past decade and a half, the U.S., E.U. and a host of other G20 countries have been pleading with Beijing to revalue its currency. By their logic, manipulating the renminbi to be artificially low takes away jobs from other nations with slightly higher overheads and costs of business, harking on the South Park joke: “They took our jobs!”.

History buffs will note that this is quite similar to what the U.S. and Europe were saying during the 1980′s and early 90′s about Japan and its government-sponsored industries…and we all know how that turned out for Japan’s long term growth. Yet, in terms of the bigger picture (globally), this revaluation will mark a fundamental change in the development of China’s economy, likely allowing the rest of the world to increase exports and hopefully pull itself out of this recession，不景气 (bù jǐng qi), while allowing China to focus inward on a consumer base of 1.4 billion.

Even though the revaluation is supposed to be incremental and over a long period of time, it is an immediate blessing for many Chinese and 老外 living in the country, who have watched as food, housing and services have skyrocketed the last few years. Not only will they be able to purchase more with the same 块, but imports will likely drop in price as they become more competitive, allowing for more foreign goods to be bought within the mainland. For anyone who has bought a less-than-quality good from China, this means more high end products at lower prices.

Still, China holds a huge amount of U.S. debt in the form of T-bonds and U.S. dollar assets (although less now following the US debt ceiling debacle). Naturally, if the renminbi appreciates against the dollar, those reserves will decline slightly in value, hurting government balance sheets. Hopefully for the Chinese government, this will be offset by increases to the dollar’s value (as exports and the US economy improve). The questions still persist: How smoothly can China make the revaluation and transition to a consumer economy? Will they go the way of Japan or will they blossom as a domestic market? Stay tuned.

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The Coast with the Most: Income Inequality (收入不平等)

Posted by Steve 1 Comment
Apr 13 2011

A sculpture from Beijing's 798 Art District typifying social despair.

Much like inflation, housing speculation and unemployment, income inequality is becoming a hot topic issue in China, stoking nationalist sentiment and prompting social movements and protests. For a supposed communist nation (although we know better), such a divide in wealth foments anger and fosters reactionary sentiment.  As income inequality grows, so does the 800 pound gorilla in the room. China can keep it caged, but for how long?

Income inequality or 收入不平等 (shōu rù bù píng déng) can be statistically measured by the Gini coefficient, or the statistical dispersion/discrepancy among income classes. China’s Gini Coefficient is 41.5 and climbing quickly. The US is already at a staggering 45, placing it among the top 1/3 of mostly failed states where money equates into military might and political influence. See the CIA factbook for an entire list. In countries like the U.S. and China, these large margins between the rich and poor (or even the rich and middle class) greatly influence quality of life and standards of living.

In China, financial crunch, similar to what the US, EU and most of the world experienced during the last 3 years, is coming. Anecdotal stories of such are everywhere. Whether it’s a landlord being squeezed on by a corrupt official, a family that forces a breakup of an engagement due to poor “social status” or a factory worker whose family was so indebted that they couldn’t pay for the funeral, China is a polarized nation, filled with rich entrepreneurs and the remaining struggling masses. Now add in a housing bubble that is causing inflation and homelessness, and you have an idea just how hard it is to make it in China.

 

 

 

 

 

 

 

 

A side street in Kashgar's Ouighur district.

This fact is only amplified when you look at a break down of per capita GDP among provinces within China. Coastal provinces such as Zhejiang, Guangdong, Shanghai, Beijing, Shandong and Jiangsu all have staggeringly high GDP’s per capita and much higher average incomes than their inland counterparts. In fact, as you go west, there is a steady decline in average incomes, with periphery provinces like Tibet, Inner Mongolia and Xinjiang earning near half of their coastal-counterparts. As a result, development has faltered due to a lack of highways, railways, local governmental corruption and cultural discrimination in these innermost areas of China.

It’s not a surprise to me that most social conflict (be it ethnic minority riots, protests for housing relocation and demolition, or school attacks) happens in these very locations, where competition is everything and social mobility is a pipe-dream. We read about China’s amazing GDP, but seem to cast a blind eye to the other part of the country that is struggling to keep up. Uneven development leads to social despair, and ultimately, social unrest.

 

Inflation and Interest Rates (通货膨胀跟利率)

Posted by Steve No Comments
Oct 21 2010

If you’ve been following news out of China recently, issues of inflation or 通货膨胀 (tōng huò péng zhàng), have been making most major media network headlines. Just a few days ago, China’s Central Bank,  in an surprise announcement, decided to raise interest rates or 利率 (lì lǜ) by .25 percentage points in an effort to stymie growing inflation. Note here the gramatical pattern for discussing percentages in Chinese where one must first begin with 百分之 (bǎi fēn zhī) followed by a numerical amount to represent the percentage. Literally it translates as “out of one-hundred parts…”. For example 百分之十 equals “10%” in Chinese.

While a .25% increase is rather minute compared to the hikes in interest rates (or cuts) that occur within most dynamic financial market economies (such as the US), this is a big deal for a country with an artificially devalued currency, and strict monetary policy. China’s currency or 货币 (huò bì) has been pegged to a basket of currencies, most notably the US dollar, Euro and Japanese Yen in hopes of making Chinese exports more competetive and cheaper to foreign markets. This policy has led to conflict among political actors and businesses who want a “fair footing” in the global exports game. These are the same clowns that led to the Asian Financial Crisis, so I believe China’s official stance has been “cry me the yangse river” and let us deal with our own sovereignty and financial policy.

Yet in the wake of the growing inflationary concerns (the consumer price index rose 3.6 percent from the previous September!), not to mention foreign pressure from the US and EU, China is now adjusting financial policy for two main reasons:

 First this allows for the Chinese government to bolster domestic markets while simultaneously allowing greater purchasing power (due to increase in value to the Renminbi) for its citizens. The concern here is that the Chinese economy is “overheating” (10.3% GDP or 国内生产总值 (guónèi shēngchǎn zǒngzhí) growth just last quarter and 9.6 in the most recent third quarter) and needs to cool off, allowing for stable development.

Secondly by adjusting interest rates, the CCP is signifying a willingness to eventually revalue their currency and allow it to appreciate or 涨价 (zhàng jià) against other currencies. This is an important step, especially considering the coming CCP, US and EU elections that have nations considering “tit-for-tat” trade embargoes and tariff measures if the Chinese currency doesn’t revalue. This is good not only for China, which is looking to improve its domestic markets, but for the rest of the world as a whole, allowing for greater competitiveness among markets while we pull ourselves out of this recession.

The CCP central bank is expected to continue these slight .25% increases in interest rates in hopes of staving off growing inflation concerns while still promoting GDP growth around 9%. When foreign stock markets openned the day after the  interest rate hike, initially stocks plummetted amid concerns of an increase of the cost of doing business in China and the rippling effects across the global market. Yet in the last few days, markets have rallied, making up the ground lost and even gaining in the short term. Further, the US dollar has gained in value, making Chinese held assets more valuable.

It looks like the market “bears” and pessimists need to revalue their own claims about Chinese monetary policy and realize that what’s good for China often is good for the global financial and trade market. After all China is just as intertwined and emeshed in the global financial system as any other large nation-state actors. Is this the begining of a Chinese global financial policy? Stay tuned.

Honda Strikes and Social Discourse

Posted by Steve No Comments
Jun 13 2010

The Honda automobile corporations, 本田 (Běn tián)，has made the headlines in Asian news as a rash of protests 抗议(kàng yì) have threatened to halt production in the mainland. The protesters, which have organized, and are bordering on unionizing, are fighting for an increase in basic wages, living stipends and more bargaining power against the majority foreign owned corporation that is in cahoots with seemingly corrupt local officials. Two days ago, protesters led a march down main street, but were turned away by police in riot gear. Many saw this as a good sign, expecting the workers to receive their doubling in pay come to fruition (on the order of 2,200 renminbi per month). It appeared momentum was gaining for the coalition of workers, until yesterday, when the New York Times published this article, which has stated that Honda is hiring on “scabs” or replacement workers at only an 11% increase to pay.

In the subsequent days following, Honda has been aggressively seeking lower cost workers, with fears that meeting the demands of the strikers will drive the cost of doing business out of China. The question is, whether or not this is a justifiable offense, or just business as usual (as the Honda Corporation tries to mitigate costs and increase profits). From a purely economical standpoint, the wages that Chinese workers are seeking is much, much less than what their Korean or Japanese counter-parts are earning, yet costs of living are much less in China. That being said, inflation and housing costs are sky-rocketing in China, thus preempting the call for better pay. If you’ve seen the working and living conditions in these massive “worker cities”, you know that they are deplorable, which makes me believe that the hold-out are mostly caused by corporate greed, mixed with local government corruption.

What concerns me however, is the fear of voicing an opinion (especially among striker leaders) by being jailed or attacked by local government officials looking to quell what they deem “uprisings”. Many strike organizers have gone into hiding, worried of a reprisal that could lock them away for years at a time, without being formally charged. Like many developed countries that went through their own industrial revolution almost a century ago, unionizing and seeking a fair wage can be a dangerous thing, both physically and economically. Chinese workers don’t want to lose their jobs, but clearly see this as an issue worth fighting for (hopefully without turning to violence).

There is a silver lining in all this, and that is that Chinese citizens are beginning to use grassroots protests and organizations as a mean to influence politics and economics. In a country where most demonstrations are state-run, and often tinged with rampant, government-directed nationalism, the recent spate of protests and strikes is a omen of things to come. Citizens are seeing power among collective bargaining and are seeking outside, independent channels for social discourse. Sure, Honda may end up winning this battle temporarily, but the war for fair living wages will continue on. What happens when the “scabs” start seeking higher wages? What happens when other factories strike? What happens if these pseudo-unions begin talking to other industries and other corporations? The seed has been planted, lets see what it grows into.

Talking about Income Inequality

Posted by Transparent Language 1 Comment
Jun 8 2010

The income gap in China is a topic of frequent discussion, and below are some relevant terms that can help you understand news reports as well as participate in discussions of your own.

Numerous reports of the Foxconn employees leaving their 宿舍 (su4she4 – dormitories) to 跳楼 (tiao4lou2 – jump [from a] building) has raised questions about the working conditions that could lead to 自杀 (zi4sha1 – suicide).  Factory workers aren’t the only people facing this 生活压力 (sheng1huo3ya1li4 – life stress), as the 贫富差距 pin2fu4 cha1ju4 – gap between poor and rich) grows 越来越大 (yue4lai2yue4da4 – getting larger and larger).  Almost everyone I ask talks about the stress of 养家 (yang3jia1 – providing for one’s family) and their fears of 养不起家 (yang3bu4qi3jia1 – being unable to provide for one’s family).  Younger people will work tirelessly at their jobs because they know they have to 养老 (yang2(3)lao3 – take care of [elderly] parents) and will need money.  The stress becomes taxing to the point where people 受不了 (shou4bu4liao3 – cannot take it) or 忍不住 (ren3bu2zhu4 – cannot endure it).  Even those among the 暴发户 (bao4fa1hu4 – new rich) know how fortunate they are to have escaped (if only temporarily) the drag of the rat race.

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