Us Trade Imbalance

[Luke_Wilbur]

Everywhere you look, people are talking about China as the world's next economic superpower. The world's most populous nation is poor, but a growing middle class hungry for technology makes it the largest potential consumer market in the world. And the country's large concentration of universities also makes it a hotbed of technology innovation.

 

I am just worried that America is loosing everything to them. Is anyone scared?

[Human]

All Asian Products comes from California. If the Democrats were really serious about out sourcing, they would have stricter controlls on how there products come into this country.

 

What I found interesting about china's Economy is this; about a year agoc hina held a "Miss Plastic Surgery" contest. (Honest, no kidding here).

 

What that tells me is that there markets is migrating towards a more capitalist system, and YES! I did find it strange that they would have a contest like that.

[Guest Human]

here is an article from the "economic times"

 

 

China to stand firm on yuan-dollar peg

 

AFP [ TUESDAY, NOVEMBER 16, 2004 09:29:17 AM]

 

BEIJING: China will loom large over an Asia-Pacific summit in Chile, with the United States hoping that Beijing will loosen a fixed yuan-dollar link and cool, but not freeze, its red-hot economy.

 

President Hu Jintao will likely reiterate to his Apec partners China's longstanding goal of making its currency fully convertible when they meet in Santiago this weekend. But he is unlikely to set a timetable or detail plans to loosen the peg, citing stability in China's markets as a top priority, diplomats and officials said.

 

They said Hu will also trumpet efforts to cool down an overheated economy to an estimated, and highly enviable, 9.25 per cent growth rate in 2004, while restating the importance of stable domestic and global markets for China to maintain sustainable growth.

 

"China's foreign trade will amount to about $1.1 trillion this year, while the trade imbalance is estimated at less than $10 billion, which is insignificant," vice finance minister Lou Jiwei said last week.

 

"Therefore, China has no need to readjust its forex rate," Lou said in an apparent effort to set the stage for Hu before the Asia-Pacific Economic Cooperation forum summit. The yuan has been pegged in a narrow margin around 8.28 to the dollar for nearly a decade, with many economists expecting China gradually to loosen the peg soon but not to abandon it.

 

Critics, especially the United States, maintain the currency is undervalued and gives China an unfair trade advantage. China has nimbly sidestepped international calls to reform its forex regime since they began in earnest over a year ago, by repeatedly proclaiming its intention to do so.

[Guest IMF]

The China Currency Coalition (CCC) expressed outrage today at the inaccuracy and arrogance of statements of the Deputy Governor of the People's Bank of China accusing the United States of blaming others for its economic difficulties.

 

According to a November 22 Financial Times report entitled China tells US to puts its house in order, Deputy Governor Li Ruogu said, "China's custom is that we never blame others for our own problem. For the past 26 years, we never put pressure or problems on to the world. The US has the reverse attitude, whenever they have a problem, they blame others."

 

"The statement by Li Ruogu underscores China's unwillingness to acknowledge the seriousness of the current situation," said attorney David A. Hartquist who represents the coalition. "Apparently, China believes that minor modifications to the administration of its capital markets are sufficient to exonerate it from its beggar-thy-neighbor policies."

 

The coalition's position is that China's policy of undervaluing its exchange rate undermines not only China's economy but threatens the global financial system. The CCC points to agreement among respected economists that China's exchange rate is undervalued at estimates ranging from 15% to 85%. The coalition estimates that the degree of undervaluation is about 40%.

 

According to the coalition, the undervalued exchange rate effectively subsidizes China's exports and taxes China's imports. Further, it makes investment in China cheap, thus accounting for the continued growth in foreign direct investment in China to an unprecedented level of $53 billion in the first ten months of 2004. China's foreign exchange earnings now are approaching $515 billion, almost $100 billion more than the comparable period last year. As a result, China's inflation rate has increased to over 5% compared to the deflationary period of a few years ago. China's money supply is growing 17% to 20% annually; and China has had to adopt administrative directives prohibiting bank loans to some industries in an unsuccessful effort to cool down the overheated economy.

 

"China must recognize that -- due to the sheer magnitude of its economy -- its policies affect global commerce. China's undervalued exchange rate policy has produced repeated complaints from President Bush, many members of Congress, the International Monetary Fund, Asia Pacific Economic Cooperation (APEC) finance ministers and European leaders," said Hartquist.

 

"China's exchange rate policy in fact places enormous burdens on those currencies that float against the dollar," Hartquist continued. "Whereas the value of the dollar and other major currencies are market determined, the yuan is set by fiat -- fixed at a 8.28 yuan per dollar. So, as the dollar depreciates against other major currencies such as the euro, the yuan also depreciates against those currencies, when it should be appreciating. Thus, other currencies must appreciate more than necessary to compensate for the fixed yuan."

 

Hartquist concluded, "China must take responsibility for creating stable financial conditions instead of forcing other economies to suffer the adjustment costs of China's exchange rate policy."

 

The China Currency Coalition is an alliance of U.S. industrial, service, agricultural, and labor organizations.

 

David A. Hartquist is an international trade partner with the Washington, D.C. law firm Collier Shannon Scott PLLC.

 

For further information, see http://www.chinacurrencycoalition.org or contact Meg Mullery at 202.342.8439 (mmullery@colliershannon.com).