Schemes and scams unravel, usually badly. China has been manipulating its currency, causing economic imbalances on a scale the world has rarely if ever before seen. The consequences are causing inflation problems inside China. One way or another this is going to adjust and China has to find a way to keep it from exploding.
Chinese people are feeling the inflation. This segment yesterday on Marketplace, for example,
Wang's 39. He assembles furniture at a warehouse for $500 a month. Half of that goes to rent for a bed in a crowded room; the other half to his family. But lately, he's set more aside to cover the rising cost of food. Rapid inflation makes him wonder what how he can go on.
Yesterday on the PBS Newshour, a segment Amid Hu's U.S. Visit, How Do China's Youth View Rest of World?, talking with Chinese students,
(Note, if the video isn't working you can watch it here.)
"When others see China, they see, oh, 8 percent per year, but when the Chinese see itself, they see unemployment, they see inflation, they see the rising costs of households."
Paul Krugman today, in China Goes to Nixon, lays it out,
In fact, Chinese currency policy is a lose-lose proposition, simultaneously depressing employment here and producing an overheated, inflation-prone economy in China itself.
One way to think about what’s happening is that inflation is the market’s way of undoing currency manipulation. China has been using a weak currency to keep its wages and prices low in dollar terms; market forces have responded by pushing those wages and prices up, eroding that artificial competitive advantage. Some estimates I’ve heard suggest that at current rates of inflation, Chinese undervaluation could be gone in two or three years — not soon enough, but sooner than many expected.
China’s leaders are, however, trying to prevent this outcome, not just to protect exporters’ interest, but because inflation is even more unpopular in China than it is elsewhere. One big reason is that China already in effect exploits its citizens through financial repression (other kinds, too, but that’s not relevant here). Interest rates on bank deposits are limited to just 2.75 percent, which is below the official inflation rate — and it’s widely believed that China’s true inflation rate is substantially higher than its government admits.
Rapidly rising prices, even if matched by wage increases, will make this exploitation much worse. It’s no wonder that the Chinese public is angry about inflation, and that China’s leaders want to stop it.
China's currency scheme is unraveling and China's government is trying to manage the internal pressures. But for who? Interests in China that have become wealthy use their increased wealth and power to influence policy to keep the good stuff flowing their way by keeping restrictions on imports. American multinationals use their wealth and power to push for lower wages.
Our government is supposed to be a countervailing power that speaks for We, the People and American workers. So our government should be pushing for China to stop restricting imports, stop manipulating currency and open up freedoms for Chinese workers to bargain for higher wages. The way to do this is to ask Chine nicely (done this, decades...), send them sternly worded letters (done this, no effect), demand changes (done this, no effect) and finally impose sanctions that restrict the imports into our markets until we have a level playing field.
