I have to give it to them, the Chinese are damn clever.
When I say this, I am referring to the mainland Chinese government, of course, not to say the Taiwanese or Chinese in general aren’t clever, but the government of Mainland China is currently taking the cake. This was illustrated to me today when I was made aware of China’s response to a political struggle which is going on right now between China and the United States.
To say a trade deficit is forming between the US and China is a bit of an understatement, with the Chinese having chosen to maintain the exchange rate of their currency at roughly 1/8th of the American dollar. If this was natural, that is one thing, but it’s not the natural rate, it’s being artificially forced to stay at that rate by the government of China in order to promote trade. This way, products made in China are almost always cheaper than the competition and of course businesses have flocked to China to have their products and services provided by the Chinese. This has resulted the aforementioned trade deficit, with the Chinese corporations raking in the cash for the past decade or so as Americans (and Canadians) happily outsource everything to China. Money is flowing out of North America like a sieve, and a lot of it’s going right to China.
To Free Market economists, that’s a normal and natural thing, and many think that this flow of Cash to China will only help it to become a Free Market economy of it’s own and promote democracy. Not only that, but American corporations have started to move into China, and American companies are providing products and services to China as well since the Chinese now have the money to pay them for certain specialized things the Chinese can’t do themselves (yet). The Chinese are also now taking their income and investing it heavily worldwide in various companies, again a wise and normal way to improve their fortunes.
This isn’t new: the Japanese did pretty much the same thing during the 1970’s and 1980’s which is where their great bubble economy and prosperity they are known for came from. There are a few differences however, BIG differences which need to be understood and taken into account. When the Japanese (who also used the fixed dollar-yen trick when they needed a steady income) did this they did it with the simple goal of making themselves rich. Japan, and specifically the Japanese companies which were doing this did it independently with only limited government backing.
Now here’s where the nasty stuff starts.
China’s major corporations are NOT independent of the government because of the nature of the Chinese economy. The companies making all that stuff for Wal-Mart like cheap clothes and maple leaf pins are actually owned by the Chinese Red Army, and as a result by default their CEOs answer to the leaders of the Chinese government. So, when a Chinese corporation decides to say, buy IBM’s PC production business, it’s not just another corporation buying that piece of Americana, it’s the Chinese government which is buying it.
Long story short, the Chinese are slowly buying into North America’s economic system, something the free marketing Americans are happily taking the cash to let them do, and in doing so they are getting control of an ever growing piece of the American economy. Once they have a big enough piece of the American economy under their control (and remember this isn’t the most stable or healthy economy in the world) they will basically be able to say “either you do what we like, or else we pull out and collapse your economy”. China will at that point be able to dictate policy to the United States, and at the slightest whim be in a position to remind the US who is holding their leash.
China is not Japan, Japan (and Saudi Arabia, another heavy investor) was a country which wanted to just do business, and so having Japan own enough of America to collapse it was no big deal because it wasn’t in their best interests to do so economically or politically. But, China is different, if the Chinese government (much like the Saudis) feels like pulling $90 Trillion or so worth of business (to pick a random number) out of the US economy and take the hit to their own economy they can, could and will do it. Remember China is led by a very small elite who do what they think is in the best interests of their country and care very little about the common people.
Case in point, let’s go back to the above dispute over the exchange rate between American and Chinese money. The Americans are demanding the Chinese change the exchange rate to one more favorable to the Americans (or at least a little fairer). The response from China, and this is 100% true:
“If you force us to do this, we’ll flood you with 100 million poor Chinese immigrants and collapse your country and economy.”
They are actually willing to use immigrants (if you can call them that) as a weapon of political and economic warfare! They don’t have enough of the American economy to threaten direct economic attack yet, so they are going to use people as a weapon instead. It’s like everyone in Mexico making a run for the border at the same time. Not only couldn’t the US stop it, it would make the American economy fold like a house of cards.
Of course, the Mexicans could pull this off because they’re joined by land to the US, one does wonder how the Chinese would ever manage to get 100 Million refugees to America’s shores without the Americans stopping them….Still, I have to hand it to them, when your opponent’s economy is so weak, why bother to fight militarily anymore?
Oh! And those American corporations going into China, they’re doing whatever the Chinese government tells them to do. Like Yahoo China censoring the hell out of it’s search Engine, and helping to create a giant country-wide version of Net-Nanny to prevent political discussion and anything else which might be considered “troublesome” or “unwholesome” from reaching the public. The gold rule is that whoever has the gold makes the rules, and from where I stand, it’s pretty obvious China is well on it’s way to holding a whole lotta gold.