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The Yuan Goes To Trade
As the U.S. dollar is likely to sink further relative to other currencies, its status as the main monetary exchange medium in world trade will be looked on unfavorably by a lot of trading partners.
The euro has its own trouble and will not take the dollars role either.
I expect a trade weighted bundle of three currencies to be the future monetary exchange medium. For a start one third dollar, one third euro and one third renminbi/yuan with periodical modifications if trade balances deviate between these anchors.
This was futuristic as China until now used the dollar as exchange medium in external trade and tightly coupled the yuan to the dollar. But now the first steps are taken to use the yuan in foreign trade:
BEIJING,
Dec. 25 — The yuan will be used in transactions with neighboring trade partners as part of a pilot project – in what could be the first step on the road to making it an international currency.
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The Guangxi Zhuang autonomous region and Yunnan province will be allowed to use the yuan to settle trade payments with ASEAN (Association of Southeast Asian Nations) members.
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The mainland's trade with Hong Kong, Macao and ASEAN nations has been rising rapidly over the past years to reach $402.7 billion last year, or 20 percent of the mainland's total trade volume.
It is a big move and one of the long term adjustments that will follow from the current crisis.
Although the western media likes to use the failure of the western, amerikan dominated economic system as being the driving force behind the chinese contraction which it isn’t. Then it tries to argue that the inevitable closures of dangerous, polluting and poorly paying businesses was unexpected which is also untrue.
We need to examine the basic premise put forward by western media, that this contraction occurring synchronously with the west’s financial meltdown is bad for China. When the inevitable (in the sense that the Chinese central government had long decided they needed to go) closure of businesses during a global recession may in fact be a good thing.
Certainly better than the businesses closing down during a boom allowing manufacturing share to be lost to sweatshops opening in India and other countries more prepared to wear the pollution and waste that China’s central government has decided is too high a price. In a recession when corporations are notoriously reluctant to increase capital expenditure, staying put and continuing to manufacture out of China despite an increase in running costs may be the only viable option.
Er… yes, a major fall in demand for Chinese exports is bad for China. If the government did want to shut down profitable businesses or industries, it’s obviously worse to do it during a recession: other “good” businesses are shutting down as well, hurting growth and increasing unemployment, while the workers and physical plant will not be rapidly re-employed as they would be during a boom. Closure of businesses is only a good thing in the sense that overcapacity exists, and needs to be cut back. This process is necessary but hardly encouraging for China’s short-term growth prospects.
As to your claims that the recession is part of some grand design by China’s central planners, that’s just something you’ve conjured up, with no basis in fact. China has been attempting to restrain excess growth for some time – but the speed and depth of the global crisis has obviously caught them flatfooted, along with just about everyone else. They went through the same roller-coaster we saw in every other country, lurching in the space of a few months from worries about runaway inflation to worries about anemic growth. This is why interest rates are going down rather than up, why the yuan is being held down, and why export rebates are being raised rather than cut. But don’t believe me – take it from the horse’s mouth.
China’s central government is concerned that provincial government’s unhealthy relationship with the businesses in their area has previously allowed corrupt situations to fester to the point where social unrest has become ‘uncomfortable’. The recent closures portrayed in western media as being a potential cause of social unrest are seen by central government as necessary to prevent social unrest.
Nonsense. To fight corruption you put people in jail (or execute them, in China). You don’t tell bosses to lock the doors and skip town, inciting a riot when workers show up the next morning to collect their paychecks. Firing workers, shuttering businesses, and reducing economic activity is a very strange way of preventing social unrest. I have no idea whether serious unrest is a real possibility, seems pretty unlikely, but it is definitely more likely when the economy is doing poorly. Quite obviously, the Chinese government wants to see low unemployment and strong economic growth, as do policymakers in just about every country.
So the real question is who is a better judge of what is likely to occur in Chinese communities. The Chinese government with access and input into the opinions held across the breadth of China, particularly in the ‘economic development zones’ – or western media with limited understanding of what it is they are observing and a history of portraying all change in China in the worst possible light?
Demand for Chinese exports will fall regardless of public opinion. The question is what the Chinese government will do about it, and how other countries will react.
Posted by: Matt | Dec 26 2008 10:25 utc | 13
Hmm I see ‘matt’ didn’t disappoint. It must be easy to sell the lies of empire to those such as he who are plainly incapable of thinking clearly from one point to the next.
For example when I made the point about the Chinese government having a better idea of what tensions are in communities and whether Chinese citizens are likely to tolerate the changes to labour laws than some passing western journalist, he responded with some blather about demand for Chinese products falling.
I can’t understand what the fuck that leap in logic is meant to show, but given that China’s central planners have shifted the economic focus for the next few years on to domestic growth, it is reasonable to assume that contractions in export markets aren’t their number one priority.
That is too say they understand that which so many capitalist leaders fail to comprehend, that a nation which exports more than it imports for an extended period will eventually end up impoverished, so have decided that the bulk of Chinese industry will focus on servicing domestic markets for the next while (this decision had also been made long before amerikan banks went tits up, dragging most other western banks with them).
China’s economy has expanded to the point it has reached sufficient momentum to keep itself moving, independent of what is happening with exports.
Doubtless I will be told that I made that up too, just like I was told I ‘made up’ the notion that China’s leadership have carefully planned the changes to labour laws. That China’s slow but painstakingly thorough executive decision-making only takes so long because the pols are like amerikan pols, too busy lying to the citizens to bother to get properly across issues (getting across issues is what the experts hired by lobbyists are expected to do, not the sleek, combed-over buffoons in congress) much less having time for analysis and development of policy.
I suggest Matt actually goes and watches what a mid level politician or technocrat in China actually does 24/7, before that pol or technocrat decides to support a new law that will fundamentally change the relationship between employer and employee right across China’s huge workforce.
As is stated in this abstract of a paper entitled China’s New Labour Contract Law: Responding to the Growing Complexity of Labour Relations in the PRC ( a joint work of the University of Melbourne and Anhui University in Hefei, People’s Republic of China):
China’s new Labour Contract Law is the most significant reform to the law of employment relations in more than a decade. Its final form emerged following highly contentious debates over the terms of earlier drafts – debates involving not only a range of Chinese actors, but also international business lobbyists and labour organisations. The Law as enacted represents a compromise between the competing demands of these many interest groups.
This was no legislating on the hoof- I worked with a young chap from the PRC in Canberra back in the mid 90’s he was studying the policy our department (Dept of Employment, Education and Training) was working to then. The object was to look all around the world at the best and worst labour markets, the most unregulated, the most heavily regulated, the best and the worst regulated, and then implement the most suitable model for the PRC.
The Chinese technocrats were well aware of the impact these changes would have on the labour market in the short term, and there is no doubt that many of the foreign corporaions now pushing tales of China’s alleged employment woes are the same corporations which tried to pressure the Chinese technocrats into adopting a more laissez faire (ie unregulated) labour market.
Many greedheads got pissed off . More short term selfish western thinking. They imagined they could persuade the powers that be in China that there was a shared interest in having a system which favoured foreign corporations ahead of Chinese workers. From High Beam research:
Workforce management executives with responsibilities for operations in China have six months to comply with the nation’s proposed new Labor Contracts Law, a set of sweeping reforms in employment regulations and unionization now in the final stages of approval and scheduled to become effective January 1. Under the new law, employers will be required to offer employment contracts to all workers and to comply with much tighter restrictions on dismissals and layoffs and to provide more severance pay. In addition, the new law promotes unionization and, perhaps most important, provides for industrywide agreements in some sectors.
Of course China isn’t an exercise in perfection but it amazes me that allegedly intelligent westerners can think that China’s engagement with capitalism would mean that the society would adopt western capitalist ethos holus bolus, that they would go “Oh we’ve been completely wrong about everything we’ve done the past 5000 years, we’ll just adopt the crazy government by economic fashion-trend system of amerika. After all they have been around over two hundred years. They say they are the richest nation ever, even though they can’t pay their bills. What is the current fashion? Neo-lib for a couple more seasons? That’s right! No union representation, throw OHS out the window. Then that’s what we will do too!”
Now that would get those citizens at the bottom of the heap in China rioting. They have been promised a share. They were long told that rather than a western style ‘trickle down’ as soon as China could afford it, the leadership would pro-actively move to ensure the benefits of this leap forward did reach the masses.
As I wrote above, Chinese authorities were well aware that this would cause a short term labour market contraction, and they planned for that and will deal with issues as they arise.
Oh fuck I’m gonna be talking in circles, no matter what any of us who have actually considered what it is that China is trying to achieve, say, those who prefer to get their ideas about what goes on in ‘furren’ nations from the same source as they get the lies about what their own pols are up to, will always consider China to be some black-hearted beast.
A beast that can have all the waste and excess these self deluded fools refuse to see in their own backyard, loaded onto it, and then used as a scapegoat for the deplorable condition western economies are in thanks the greed of those who ensure the fools are kept deluded.
Posted by: Debs is dead | Dec 27 2008 10:57 utc | 19
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