With the fact clear that Google is coming out of the Chinese market sooner than the financial birdwatchers have forecasted there lays a dense fog on Sino American relationship on what is to happen next. With 400 million Chinese markets still under the assumption that Google is being pushed out of the country because of its vulgar and explicit sexual content the far outcry of heavy censorship is going to affect both Google and Chinese economy as a whole.
With America not in favour of any of what China is pertaining to do and its policies tightening around the dragon’s neck what is next in line is the new bipartisan bill to curb Chinese made imports in the US. China long since mid 2008 kept a constant Yuan to dollar value pegged at a number 6.83 which is causing a lot of problems. With the great slump in the American market and no remuneration for internal American producer from the government due to lack of fund the internal produced goods are not at all competitive in the market.
Chinese goods are highly competitive in the market owing to their cheapness. This cheapness comes from the undervalued Yuan which China has no interest of changing. China hold seventy percent of its foreign reserves in the American treasury Bills hence forth is able to command a constant currency ratio.
Being a communist regime what it does it forcibly brings down the standard of living of the people and dictates their low standard of living there by converting the solid gains and selling the products into foreign exchange reserves. Hence forth it has been able to generate reserves to the tune of ten times what it had in 2003 in the last seven years.
On the other side of the world where that American economy is trying to fight the biggest slump it is being pestered by the Chinese policies which include this constant pegging to the dollar. Internal production is vandalised because of the non competitive China driven market. Only if the China re values its currency and rises it against the dollar then only the internal market would become competitive.
Recently two bills have been brought up in American Congress for the same and most probably would pass. Both of them are pointed to pressurize China to rethink over its decision to increase the value of Yuan against the dollar. First of all there was the Job Bill that is focused at proving new entities with subsidies for opening new business and simultaneously there is this Bipartisan Bill wherein the Republicans and Democrats both are saying to increases taxes on imports from whatever is brought from China.
The consequence of the bipartisan bill is going to be single fold. First of all due to sudden rise in the prices of Chinese goods in the American market the American made internal goods might become competitive in the market and this would give boost internal producers. This bill is going to pressurise the Chinese government to rethink its proposal to continue with its constant pegging on the Dollar or draw a midway with the American counterparts. What is clear that America would not risk the possibility of job creation through this hence it is in favour of increasing the prices of Chinese goods?
But the other part of the story remains that with interest level at near zero and no plan of the American government to alter it is it the right time to bring a costly expensive market to the American consumer. American consumer knows what consumption is but with the slump and whatever small amount of jobs being created would it be viable to introduce this inflationary change.
The situation on the other side of the Atlantic is equivalently gruesome. With Chinese export driven funda there is another country that still stands on the green fields but is feeling the heat of being green. Germany is another mass exporter for whom a constant cheap foreign export is likelihood and the only means of sustenance.
People talk about the rise of the G2 or Chimerica, people talk about the rise of Chindia but now the people are talking about the Chermany, a composite of the world’s biggest net exporters: China, with a forecast current account surplus of $291bn this year and Germany, with a forecast surplus of $187bn.
A just question how America can curtail the hands that feed it. Whatever new bills it applies in the end the situation would revert back to it as controlling the consumption is not a means neither is bring a catapult change in its internal market production. Why is America not thinking that it has no internal market left and if it has to compete with China it will have to do it right from the scratch?
More to come.......
Posts
