Will China stop pegging the Dollar ? (that is the RMB to the Dollar)

iluv2fish

luf2004

We are all not economists, and even the economists would not be able to answer the question - what is the correct rate between $ and RMB.

But, think about it in this way - if China keep undervalued RMB for long time, meanwhile China takes the same rate to buy, what would happen? OR make it simpler in this way - China sells in low prices while buys in high prices, what would happen to this country? Yes, bankruptcy. But China isn't bankrupt, instead, the economy is booming.

When you look at China, you have to keep in mind that this is not a single country, this is a group of countries, which consist of rich east coast provinces and poor west provinces, also many central provinces in between. The population in this country is moving from poor to rich, the economy booming is spreading from rich to poor.

If you have a chance to look at the east coast provinces, you would find that this part of China is as developed as developed countries in many ways but the salary is still much lower than developed nations. Why? Very simple – the poor new comers keep coming, and the competition from poor provinces keep coming without barriers.

The developed nation always keep the door shut to the poor people from poor nations and set as many barriers as they can to keep the competition away when they became developed, but in China, none of the developed province can shut the door or set a barrier. It is a bad thing to those already lived there and had the advantage in the rich provinces but it is a good news to the poor population, also a good thing to entire country – keep the entire country full of energy and competitive.

In last 15 years, the retail prices in China actually keeps dropping, why? Very simple - 15 years ago, most people were still not part of the market economy, but now most of them are. For example, the price of fresh fish was 20-30RMB per kg 15 years ago, but now it is only 4-10, why? Simple, because much more people have fish farms now than 15 years ago.

Even right now, still hundred of millions of Chinese are still not, or no chance to be part of the market economy, for example, many poor farmers are actually only growing what they eat, but contribute to market nothing or very little. China economy in past 15 years was about motivate population into the economy. It is successful but still many of the entire population have not invilved in the economy yet.

It will take long time to motivate entire population into market economy, meanwhile, the prices of goods, services would still keep low by those new comers. This is obviously a good news for whom want to buy cheap, also a bad news to whom want to keep their jobs from competitions.

This is all about market competitiveness – if China is not able to peg US$, China would  have to drop this policy, no mater you concern it or not. If China is able to peg US$, it means the current rate is about correct.

Simple, isn't it?

You just feel the bitterness of the competition from China recent few years, we, those who live in richer coastal areas in China, have dealt with this bitterness long time ago - many of my friends, class mates have lost their jobs to the poor new comers from other part of the country. Fair or unfair? well, nobody born for rich and nobody born for poor, that is fair enough.

iluv2fish

I hear you and validate what you are saying. Now let me come from the other side of the coin.

The world economy Floats. When exports are high the currency goes high and then the importee will have a chance in the future to export because not his currency goes low. It is like a see-saw. We work competitively against each other but we work with each other to keep the system working for the entire world.

Yes poor countries can peg the $ because poor countries need help to get started. It is sort of like being on welfare. Once they are, as you put it, " a booming economy" they have to unpeg and be part of the world system. China will not do it. China will not go broke and for a while they will not be as "booming of an economy" but the see-saw is needed for all parties. Don't the Chinese understand that by flooding the markets with cheap products from under paid workers (from a world standard) that China is causing the demise of the whole system?

If the EU is to go under or into a depression what will happen to China?
All the jobs that will be lost in China because the EU can not buy any more products.

It will not go this far. The rest of the world will impose quotas. The way the world see's it is that if China will not be rational to WTO rules then the rest of the world will also ignore WTO rules and impose a quota system. No one really wants to do this but China is not being reasonable.

It's time to get off the welfare system and stand on your own two feet China. Float your boat like the rest of the world does.

greendragon

...it has nothing to do with American or European Union "narrow" self interest concerns.

China has yet to develop in "depth and width" the financial system. Malaysia, Thailand are also moving in same direction while Japan, Hong Kong, Korea, Taiwan and Singapore are almost ready for the so called "Big Bang" of a NEW MIDDLE KINGDOM era.

It is us that call the "shots", not the American media.

Wake up to reality Mr. Fish!

Look at the geo politics - European is seeking a share of bio-fuel supply!

Brussels
29th May 2005
Jedi News.

European Union will  "liberalized their vegetable oil market" to ensure ASEAN oil seeds will go to European markets and not only China and India! Palm oil seeds are one of the most productive in the world....it is said, that up to 10 tonnes per hectare yield is possible...

and 30 million hectare of such could possibly produce a lot of bio-diesel.....the new "Oil sheikh" could well include ASEAN!

Imagine 300 million tonnes of palm oil - with 200 million tonnes used as bio-fuel = 3.5 mbd equivalent...on 0.3M km2 or less than 5% of the forest in ASEAN....South Vietnam, Borneo, Thailand...are all rich resources....

China has its own land in Hainan, Yunnan, Guangxi - could well add up to another 30 million hectares....but its fuel demand could far outstrip its own capability. China could have up to 400 million vehicles on it highways by 2050.

ha ha ha ha ha (i just made my own news!)


Master Yoda
Jedi Council

New Middle Kingdom

sleepye

<<It's time to get off the welfare system and stand on your own two feet China. Float your boat like the rest of the world does.>>

I guess this seesaw game between the States and China will last for a long time.

RMB reevaluation? Let's waiting for...

luf2004

iluv2fish

I understand your feeling from your side.

I grow up in one of the most industrialized provinces in China. Many years ago, I felt the same way as you do right now. The only difference is we were not much richer than the poor guys in poor provinces.

I know close to nothing about economy, what I want to say here in last post is – when you look at China, keep in mind she is not a single country, she is a mixture of many different countries.

What happening in entire world is the economy boom and technologies are transferring from rich countries to poor countries. That is how global economy keep booming.

The same thing is happening within China – booming is transferring from rich provinces to poor provinces. Here you may have to realize that one single province maybe much bigger than an entire country.

I don’t agree pegging US$ is a “welfare”. It is funny that the entire world only remember China gains from pegging policy but forgot China lost a lot by the same policy when China kept the pegging policy to pull other Asian countries out of the crisis in 1997, 98, and 99.

My understanding is, pegging policy is only a method to keep Chinese currency stable and trustful in global trade, it doesn’t connect to “gain” or “lose” automatically, it appears both “gain” and “lose”.

If RMB is seriously undervalued, then it means China buys in high price and sells in low price. Nobody can keep doing business in this way, it will bankrupt.

iluv2fish

I am right there with you Luf but let抯 take a look at the basics. THE RMB IS UNDER VALUED. What does this mean?

To me it keeps the salaries low so exports can be kept flowing. China can produce products lower than anyone else by keeping salaries low then who can compete with them?

Now this thought about multiple countries inside of China....please cut me a break. I am still trying to figure out "One China two systems".

Do you disagree that China is making money? Then why not spread the wealth to the Chinese people in the form of raises so they can afford what they produce? This will in turn make it so other countries will be able to export to China. China wants to all their way. This is a good practice if China was on here own like in the past but now China is part of the WTO.

Here is a pretty simple question...what is the Chinese government doing with all the money?