The Coming U.S. Export Boom
As we see the writing on the wall, CHINA will re evaluate their RMB relatively soon, we just don’t know how soon. In fact China (the People’s Bank) went so far as to claim in it’s statement that “the basis for a large-scale appreciation of the RMB exchange rate does NOT exist”. (Are they still smoking Opium ?) Don’t forget even with all of this surging growth in China, they are still at best 50% unemployed. A slight dichotomy to say the least. That is because there is all of those hundreds of millions of former government subsidized farmers still out of work. Behind the veil of prosperity lies the seeds of a real cultural revolution. A society abandoned by it’s self serving (another word for communism-socialism) government long ago.
So if the RMB goes to say 5 per $1.00, what happens to that percentage of the existing employed that gets their walking papers in the urban communities where all of the factories will be shut down and moved into central China, where they are moving anyways ?
I would say China has quite a delicate time bomb on their hands. But they will eventually figure out how to create more jobs while inspiring their own half a billion middle class (with a savings rate of 34%) to spend more once their currency gets strengthened, and feel like the wealthy people they so desire to become. (Mao Tse Tung would be turning in his grave) when that happens get ready for an emergence of a new world superpower.
But an even larger factor holding China back is the People’s Bank , the very body behind China’s exchange rate policy, is currently stuck in U.S. Treasury bonds to the tune of $2 trillion. Although China would love to create a new wave of appreciation in the Euro, Gold, Steel, etc and get a better return on their reserves, they have their hands tied to a sluggish recession in the U.S., which is the backbone of the China economy. You take away the power of the American consumer that borrows and borrows so it can spend and spend, you break the back of China’s biggest customer.
So with the Obama administration and other world superpowers pushing hard on China and calling it a “currency manipulator”, the most obvious reason China has made it’s recent overtures to re evaluation is to inspire goodwill ahead of the upcoming G-20 Summit.
So bottom line here is that China is continuing to be very shrewd with buying time to see where they can move some of their reserves, inspire confidence in with the “ Old Money Club”, wait for the U.S. to get stronger, deal with this Oil spill and eventually move one step closer to being the guys running the show.
In the meantime us Americans need to think what do we have, or what can we produce that China will if not right now, eventually need ? Because deep down inside the Chinese admire and want to emulate our backbone of honor, pride , integrity and ingenuity that is ingrained in the people of this great country while China’s honor is all about “saving face”.
Devin T. Burke
CEO, Universal Cargo Management