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Ben Mah wrote:
Obviously, China is not only losing heavily from dollar devaluation, but is subsidizing America to the tune of hundreds of billions of dollars a year. One might ask why does the Chinese government not sell its vast holding of U.S. dollars and spend it on infrastructure projects, health care, and education for the benefit of Chinese citizens at home.
Liang’s response:
Actually, China cannot sell its vast holdings of dollars domestically. That is to say, the Chinese government cannot sell the dollars in China’s domestic banks because this will only pass the dollars into the hands of the Chinese people or Chinese corporations. In other words, the Chinese as a nation would still hold the dollars. And if the Chinese government sold the dollars to other countries or nationals it would most likely not get back yuan but some other currencies. The only way to get rid of the dollars is for the Chinese people or corporations to use the dollars to buy things from some foreign countries or go overseas and spend the money for education, tours, etc. This is why it is so useless for China to hold dollars or any other foreign currencies. And why China must stop exporting so much and begin to reduce the excessive accumulation of dollars or any other foreign currencies. Ultimately, the thing for China to do is to expand the Chinese economy so that the yuan itself will be the primary fiat money for the world. As the biggest country in the world, it is simply impossible and unacceptable for China to hold other countries’ currencies as store of wealth.
Ben Mah wrote:
Unfortunately for China, the selling of dollar will raise the value of its own currency—the Renminbi, making her exports uncompetitive in the world market. As an exporting nation, this is not acceptable for China. Thus, China is forced to buy U.S. Treasury bonds and becomes a creditor to the U.S. government, enabling the U.S. to finance its federal deficit, to conduct war in Iraq and to cut taxes for the wealthy.
Liang’s response:
As I have explained many times the increase in the value of the yuan is not only beneficial but critical to the growth and development of the Chinese economy. I have explained that raising the yuan value by some 20% will have little or no impact on the export of goods made entirely of domestically produce raw materials and domestically owned technologies. This is because other exporting countries will also increase their own currencies or raise the price of their exported goods in terms of dollars. Furthermore, the increase in the intake of dollars per unit of export will offset any losses in the decrease in the number of units exported so that the total amount of dollars earned will actually increase. As to the production cost in terms of dollars of the processed goods using imported high tech parts, there will be no significant increase until the yuan has appreciated by significantly more than 20%. I had explained this in my article titled “Comments on the ‘Lesson of the Japanese currency’”. Furthermore, history has proven that I have been right. Following the increase of the yuan in 2005, several Asian countries had also raised their currencies against the dollar. Since then the total Chinese trade surplus have increased dramatically due mostly to the increased value of the yuan. Therefore, it is not true that appreciation of the yuan will make Chinese exports uncompetitive. Not the least, China must change its regime of foreign trade by phasing out its low tech, labor and resource intensive exports that is destructive to China’s economic development and shift to high tech, capital intensive exports that will make Chinese foreign trade advantageous and complements China’s domestic development.
The reason why China is still continuing with its excessive purchase of dollars is that there is nowhere else to put the dollars. Since dollars are not a legal tender in China, it is simply useless. Therefore, the only way to decrease the intake of dollars is to reduce exports.
Ben Mah wrote:
The major problem of the accumulation of too much export earnings in the form of U.S. Treasury bonds is that they are not available for domestic development, and exporting nations are directly transferring the real wealth to the United States. Trade surplus accumulated by China and other nations become part of the U.S. financial system rather than building up their own economies.
Liang’s response:
The root problem is not the accumulation of dollars or that the dollars cannot be used as legal tender in China. The root problem and the basic harm to China’s domestic development is that too much labor, raw materials, and energy are consumed to make exports for useless dollars while denying these same labor, raw materials, and energy to the domestic development. The reality is that the cheap yuan make products cheap in dollars and affordable to American consumers while making these same products expensive in terms of yuan and unaffordable to the Chinese consumers. This is the basic reason why the Chinese consumer market is stagnant while the exports keep doubling and tripling. And a serious danger is that as the American consumer market finally hit the brick wall, the Chinese economic development has also come to a screeching halt. The current 8% rate of growth is a lie because most of it depends on the huge stimulus package implemented by the CCP government. The real domestic economic development is probably less than 2% which is be frightening to all people who can understand economics in any way. This is exactly what I had predicted and warned about. Unfortunately, most Chinese are still dazzled by the 8% figure and think the CCP is doing some economic miracle.
Ben Mah wrote:
Unfortunately, America blocked foreigners from buying control of its banks, oil companies, airlines, defense industry, telecom and technology companies. In this connection, we like to point out that China couldn’t even buy a 100 year-old company like Maytag in America. The take over of Maytag by China, according to our 2008 Nobel Laureate, Prof. Paul Krugman, presents “The Chinese Challenge”. Obviously, Mr. Krugman does not believe in level playing fields, as under the WTO rules, American multinational corporations can rush into China, play the take over game or receive national treatment for foreign direct investment, thereby dominating key sector of the Chinese economy. It looks as if the ghost of Unequal Treaty in the 19th century imposed on China by the Westerner imperial powers reappears once again.
Liang’s response:
This is why I keep advocating that China leaves the WTO and implement a new set of economic policies to protect its domestic economy and encourage the growth and development of domestic companies. Many Chinese argue that China will not be able to trade if it left the WTO. This is nonsense and nothing but propaganda. China had increased its trade all over the world at a very fast rate before it joined the WTO. There is no reason why China cannot continue to increase trade after it left the WTO. There is no reason for America to stop trading with China if China left the WTO for the simple reason that it is mostly in America’s own favor to continue trading with China. Furthermore, China would have a much stronger hand to play if it can negotiate with America outside of the WTO based on China’s strength. China can then be selective in allowing in foreign investment and be able to compel genuine transfer of technologies from American companies who wish to enter the Chinese market. As it is, no real state of the art technologies are being transferred while Chinese partners are quickly bought out by their American partners which led directly to foreign domination of Chinese domestic market. This is a sure recipe of economic disaster in the future. The only hope is that the Chinese people with their huge savings can somehow buy back what the CCP government sold out to the foreigners. But it will be expensive and the money paid to buy back China’s own companies will ultimately leave China to enrich foreigners.
Ben Mah wrote:
Incredibly, many of these companies taken over by foreigners were financed by the Chinese state-banks. The Chinese companies are not only purchased at a fraction of real value, but sometimes they are financed 100% from China’s state banks. Moreover, foreign investments in China were only taxed at half the rate paid by Chinese firms.
The lending of money to buy out national industries is the equivalent of financing foreigner to buy out your own house. Very soon, this stranger, who proclaims to be your friend will kick you out while he still owes money to you, and you will become destitute, while holding a piece of paper called a mortgage, which is depreciating at a very fast rate. In China’s case, this piece paper is called a U.S. Treasury bond, which is also depreciating very fast.
Liang’s response:
Some years ago I gave an example where a stupid house owner sold his house cheaply because he wanted the buyer to upgrade his house. But as soon as the new owner moved in he kicked out the old owner. And even though the new owner subsequently upgraded the house luxuriously it had nothing to do with the old owner. And the only thing the old owner can do is stand outside his erstwhile house and watch the beautiful house which no longer belongs to him. I had hoped that by this example the Chinese would understand the danger of the stupid logic of the CCP who think that it would be beneficial to China to sell its vital economic assets such as banks to foreigners so that the new foreign owners can implement all the new technologies to make them modernized and competitive. The only problem is that the new foreign owners quickly bought out their Chinese partners and reap all the profits of the modernized banks and other assets. Unfortunately, it is very difficult to convince the Chinese people that they would be better off by keeping out the foreigners and implement modernization of the domestic companies by developing China’s own domestic technologies.
In the end, there is no point in condemning Americans or other foreigners. Of course it can be expected that all foreigners will do what they can to exploit China’s economy and dominate China’s politics. All countries will try to exploit and dominate other countries. Even Vietnam is trying to dominate Laos and India is trying to dominate all its neighbors. All governments must do what they can to protect their own internal economies and political sovereignty. It is simply foolish and unrealistic to rely on the goodwill of other foreigners to respect the rights of the Chinese people inside or outside of China. It is suicidal for China to open its doors without restriction to foreigners by joining the WTO under such unfavorable conditions.
In the final analysis, the only way China can grow sustainably is to simultaneously advance its domestic technologies while urbanizing its unemployed or underemployed farmers. And the only way to unleash the initiative and ingenuity of the Chinese people is to implement a fully capitalistic system that rewards initiative and risk with profits. But to implement such a capitalistic system the political system must be changed to democracy that encourages high morality and ethics from the people and compels the government to respect the rights of the people and serve them faithfully.
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