Comments on the News

Lip synching is no mortal sin, although it can be deceptive and unethical. Through no fault of her own, Lin Miaoke was tabbed to give a phony rendition of “Paean to the Motherland” during the spectacular opening ceremony for the Beijing Olympic Games ten days ago. Poor little Yang Peiyi , who thrilled the vast global audience with her voice, was heard but not seen, turning a traditional child rearing maxim on its head.

This is not an earthshaking episode in international entertainment history; nothing like the infamous wardrobe malfunction, let’s admit. But it does tell us a lot abut the Chinese system. Astoundingly, this was a high-level political decision in China. The Politburo – the highest body of the Chinese Communist Party -- intervened with Chen Qigang, the musical director of the opening night extravaganza, to make clear that getting cute little Miaoke on TV was, as he told the media, a “matter of national interest.”

That’s like the national committee of one of our major parties “suggesting” to the networks who should sing the national anthem at next year’s Superbowl. That’s a matter of “national interest”? Any network eager to recoup its investment in the event will of course make that decision on its own without regard to the wishes of the government or any political party.

That hypothetical comparison might suggest two important lessons to be learned from an otherwise inconsequential blip. First and most obvious, the Chinese Communist Party still tries to micromanage its vast and complex country. Not just the economy or news coverage, but which little girl scores higher on its cuteness scale. You don’t have to be a Westerner to see the ridiculous excess in that. The second lesson is more subtle. If Beijing goes too far in asserting the national interest, Washington stops way short of what’s needed. On this side of the Pacific, the “national interest” seems to begin and end with national and homeland security.

I’m happy to let the networks decide who shall sing the anthem while I’m still in the kitchen getting ready for kick-off, but I’m eager to see someone in Washington accept responsibility for defining the American national interest in economic terms. Somewhere between the excesses in Beijing and the deficiencies in Washington lies a happy medium that would serve each country far better.

Charles Blum

Labels: China, national interest

Knee-jerk critics of the WTO might have overlooked an intriguing exchange that took place in Geneva on June 11. If I understand it correctly, the China flipped and the US flopped.

The exchange arose in the course of the annual trade policy review of the United States conducted this week. China challenged the US to explain the “causal link between dollar depreciation and food price hike, and possibly global wide inflation,” according to a text used by the Chinese representative at the June 11 session.

The US took an obdurate stance in response. First, the dollar exchange rate is “wholly market determined.” China didn’t challenge this.

Second, the USTR-led delegation would not comment on activities of the Federal Reserve, referring the Chinese to the Fed’s Web site. The Chinese understandably found this irritating. The spokesman carped: “it has been the practice of the Review Mechanism that leading agency of a Member would coordinate with and seek response from all other relevant authorities, including those in charge of monetary policies.” That seems not only reasonable but essential to any sort of meaningful policy discussion.

Third, China says the US took the position that “international discussion of these topics would occur in the IMF and the WTO is not the appropriate forum to discuss the US monetary policy.” On this point, the Chinese took great umbrage. They noted that “a continuous depreciation of the US dollar … would obviously affect economy and trade of other [WTO] Members, particularly the developing ones.”

Recalling our comment on Steve Hanke’s analysis of the dollar/rice nexus, that point seems entirely fair. But then the Chinese unloaded on the American “double standard,” noting that at last month’s review of Chinese trade policies, the US had insisted repeatedly on tying to draw China into a defense of its currency policy. The US position, he chided, seemed to be that the “WTO is an appropriate forum to discuss monetary policies of other Members including China, but not of the US.” Ouch!

The WTO’s predecessor was sometimes derided as the Gentlemen’s Agreement to Talk and Talk. The Trade Policy Review Mechanism is one of the best features of the Uruguay Round reforms of the GATT. It forces each country to expose itself periodically to world public opinion. That’s not legally binding, of course, but it does have its uses.

In this case, it has helped China abandon its unreasonable position that exchange rates are “internal matters” that “fall within a country’s sovereignty.” Now, perhaps playing to the developing country majority in the WTO, Beijing takes the sounder position that exchange rates do affect commodity prices and trade and as such fall within the purview of the WTO. That is, exchange rates are a trade as well as a monetary issue. The Treasury would be wise to seize on this opening – whether completely sincere or not-- and convene a closed door meeting with China and other countries with undervalued currencies. An acceptable solution can only be found through negotiation. China’s new position has cracked open the door to real progress. Will the US be pragmatic enough to respond positively?

Charles Blum

Labels: China, Currency

In an interesting op ed piece (“The Fed and the Price of Rice”) in today’s Wall Street Journal, Steve Hanke and David Ranson, aptly concluded that the “rice-price problem is a weak dollar problem.” They added: “Until the dollar strengthens, the nominal dollar prices of rice and other commodities will remain elevated.” This is not a new phenomenon, as they deduce from data dating back to 1949.

Meanwhile, Chinese spokesmen are railing against the weak dollar, suggesting that we ought to do something about it. Sun Zhenyu, China’s WTO ambassador, jabbed his American counterparts with these sarcastic words: "We hope the U.S. will not tell us this time as they did in the early 1970s to the Europeans, to say that ‘it is our currency, but it is your problem.’"

Perhaps the ambassador was surprised this morning when share values in Shanghai and Shenzhen fell by more than 8 percent. The steep decline was attributed to investor concerns the rising prices of food and oil, among other worries. Yet China’s cheap renminbi problem only compounds the problems caused by the weak dollar. As the lower greenback pushes commodity prices up, Chinese importers are forced by their government’s currency policy to pay extra RMB for each extra dollar in the international price. Is it any wonder that that China has an inflation problem?

In just two months, someone in Beijing will proclaim: “Let the Games begin.” On currency, the (blame) game is already underway. There is no individual gold medal in this game, however. In the long run, managing the world monetary system is a team sport in which there are only winners or only losers. Debating points are no substitute for real solutions.

Charles Blum

Labels: China, Currency

“We Can’t Live Like This”:

Earth Day Wisdom of a 13-Year Old

One unbearably muggy, smoggy summer day several years ago, I met a young Chinese girl and her father on then brand-new magnetic levitation train that runs to the Shanghai airport, covering 20 miles or so in just eight minutes. “Annie” as she called herself sat down opposite me, so that we shared a large window. She had just finished a summer of English camp and wanted to practice before returning home. So we chatted about her age (13), hometown (Hangzhou), and eventually her life plans. At first she protested my question about what she would do with her adult life, citing her age. When I persisted, she said: “I want to work on the environment,” using a 50 cent word for a newcomer to our language. I asked her why, and she responded gesturing at the filthy air outside the maglev window: “Because we can’t live like this.”

Annie and her dad, a monolingual environmental engineer, drove home several lessons that are quite apt for today, Earth Day. First, it’s just plain wrong, as some like to assert, that the Chinese have no ecological conscience. China is heroically reforesting, cleaning up rivers and streams, and replacing old factories with much less polluting ones.

Second, these efforts by themselves are patently inadequate. The evidence of that is everywhere. From air and water unfit for human consumption to dry river beds across Northern China, even as China plants crops for export. From the Gobi desert advancing on Beijing to airborne mercury spewed from coal-fired power plants falling in the Rockies. We sometimes overlook that the scarcity of safe resources is not a new, but an age-old, problem in Chinese society. What is new is the impact of developments in China on the rest of the world.

Third, there is hope. There’s no lack of money in China. Indeed, it suffers from excess liquidity and credit-creation. Why not devote some of those government financial resources – currently 1.4 trillion dollars and rising daily with China’s current account surplus – to addressing these problems? Scrubbers on every coal-fired power plant. Bag houses on steel-making furnaces. Modern waste water facilities – not just in place but also operating – in China’s top 200 cities. Why not?

But this problem is not only Chinese. All the big polluters – including the US and Europe – need to start taking more urgent and more concerted action. Instead of each one waiting for the other to move first, why can’t we have some big joint effort to clean up scarce water, improve air quality, and reduce carbon emissions. If the 13-year olds understand the need to act and are willing to commit their lives to improving the world they were born into, what’s wrong with the government officials and business leaders?

Charles Blum

Labels: China