Expecting the Chinese to be Chinese on the yuan
■"Behind Yuan Move, Open Debate and Closed Doors: Two-Year Saga Included Secret and Staged Meetings, Weeks of Quiet Diplomacy," by James T. Areddy, Neil King Jr., Mary Kissel and Jason Dean, Wall Street Journal, 25 July 2005, p. A1.■"Yuan Moves Might Stir Big Ripples: Revaluation May Cause Drop In U.S. Bond, Housing Prices; 'Shot Heard 'Round the World'?" by E.S. Browning, Wall Street Journal, 25 July 2005, p. C1.
■"Classical Theory vs. the Real World," by Amar Bhide and Edmund Phelps, Wall Street Journal, 25 July 2005, p. A14.
■"Yuan's Revaluation May Give Asia a Lift, Aiding Global Growth," by Mary Kissel, Wall Street Journal, July 2005, p. A2.
■"Look to Virginia, Not China," editorial, New York Times, 25 July 2005, p. A22. ■"," by , , July 2005, p. A1.
■"China Suppliers Join in Plan To Rescue Huffy," by Henry Sender, Wall Street Journal, 25 July 2005, p. B1.
First story is simply a fascinating recounting of China's lengthy and amazingly open decision-making process on finally moving to make the yuan convertible.
"Open" may strike you as a very odd term to describe China's decision-making process, because the actual decision was made behind close doors and then even announced behind them (this part of the story is quite fascinating and worth a read). But you have to keep things in perspective: we're talking about a single-party state that's been rather authoritarian (taking the long view) for about . . . uh . . . several thousand years!
So when Chinese leaders invite, as they did in May of last year, a bunch of American economists to debate the issue in front of them, that's a big step.
When the Chinese spend months having their people study Singapore's currency-basket float, that's a big step.
And when the Chinese ask U.S. Treasury officials to get certain big-mouth senators to tone it down for a while so their decision to float the yuan, however tightly, isn't viewed politically as a cave-in to American pressures, that's a BIG step.
Remember as I said in PNM: direction is critical, not degree. Show the direction China is moving in, not the degree to which it remains a single-party state (like American ally Singapore, I might add).
In the short term, Americans and our economy might get some benefits, but they'll be small and insignificant. The threats from a floating yuan are far greater, simply because a floating yuan will push China to synch up its internal economic rule set even faster with the emerging Core economic rule set, and that will make China less dependent on our money as their preferred reserve currency.
Think that doesn't matter to you? Well, speaking as someone paying rent for the next few months, I'm okay with that. But speaking at someone facing a 30-year fixed mortgage, I'm far less sanguine.
As Bhide and Phelps point out in their brilliant op-ed (WSJ, natch), there's nothing wrong with a less developed state like China running a big trade deficit with a more advanced economy like the U.S. It allows them to import lotsa technology in gulps (even to buy our companies) and it keeps the price of money here cheap.
I know, I know, everyone wants to talk about the price of Chinese textiles, but frankly, the price of money is the only price that really matters. When money is cheap, it's easier to grow and live well, and when it's expensive, that gets harder (although a little discipline is always a good thing).
Well, we wished for it and now we're going to get it, and we're going to get it the Chinese way: drawn out in slow motion for as long as possible, with one eye on keeping the Chinese economy rolling and another eye on keeping the "communists" in power (Wonder what Mao would say about a floating yuan? Go ahead and ask him. He adorns half the paper money in China.).
In the end, of course, all that "China said, America said" stuff is insignificant. A more integrated China is better for the global economy as a whole-meaning we all make more money. So the Times is right: get our own economic house in order (primarily by retraining our workers displaced by globalization's myriad competitions) and stop blaming China for any economic distress globalization causes us.
You either get busy globalizing or get busy isolating.
And yeah, it works both ways. Chinese bicycle supply companies are in the process of bailing out American brand Huffy.
I know, I know. The Chinese will soon corner the bike market and then we'll be vulnerable to their pressures and will!
Too late. One-hundred percent of Huffy bikes built last year were assembled in China. The Chinse companies are bailing out Huffy (and picking up a 30% equity) because they fear that if Huffy tanks, there too will go all their American business.
Connectivity is good, but it's complex. It's not easily reduced to catch-phrases and finger-pointing exercises so favored by our least economically sophisticated citizens.
And yes, I'm talking about the Senate.