China pushes its economic leverage

Chinese woman working on laptop

The rise of China and its impact on economies all over the world isn’t a new story, but this overview in the New York Times is worth reading. The tone is one of looking at the downside of China’s economic empire and the unwillingness of desperate partners like European nations to assert themselves. But there is an upside, as China can provide much needed capital to struggling countries, and this also gives China a huge stake in stability around the world. There are certainly concerns on issues like the environment and human rights, but one needs to look at the big picture as well. Fortunately, President Obama’s foreign policy is aimed at engaging but also containing China, and he has been willing to use our own leverage in this relationship.

More Apple audits in China

Apple is ramping up audits of factories in China.

Apple has told a prominent Chinese environmental activist that it will soon launch independent environmental audits of at least two suppliers’ factories in China, the activist said.

The audits come as Apple faces mounting criticism about toxic pollution and factory injuries at overseas suppliers’ factories. The environmental reviews would be separate from an independent probe of working conditions at the China factories of Apple suppliers, including Foxconn Technology, that began last week.

Ma Jun, founder of The Institute of Environmental and Public Affairs, told USA TODAY Monday in a phone interview that Apple agreed to the independent audits in late January in response to two reports that IPE and other environmental groups released last year documenting hazardous waste leaks and the use of toxic chemicals at suspected Apple suppliers.

Apple’s image has taken a beating with the problems at Foxconn, so let’s see if this is a new trend.

U.S. won’t cite China as currency manipulator

China undervalues its currency in order to gain competitive advantage around the world. Everyone understands that and it needs to change, but the question in the United State is how to effectively change it. The Obama administration is taking the gradual approach:

The Obama administration on Tuesday declined to label China a currency manipulator after seeing recent increases in the value of the yuan compared to the dollar.

The decision angered some manufacturing groups, which have accused Beijing of artificially holding down the value of its currency to gain trade advantages. A cheaper yuan makes Chinese goods less expensive when they are shipped to the United States. It also makes U.S. goods more expensive in China. Both could increase the U.S. trade deficit with China, which is on pace to hit a record high this year.

The Treasury Department said the yuan has appreciated 12 percent against the dollar in the past 18 months, after adjusting for inflation. In addition, the department said in a semi-annual report that China promised at two high-level meetings last month to make the yuan’s exchange rate more flexible.

Still, yuan is “substantially undervalued” and its appreciation “is insufficient and more progress is needed,” the report noted. The department will “press for policy changes that yield greater exchange rate flexibility” and “level the playing field.”

This will likely end up being a campaign issue as Mitt Romney and other GOP candidates are hammering Obama over China. But progress is being made.

U.S. should increase Chinese tourism

Tom Friedman writes often about China, and his latest column addresses current hot issues like currency valuation, manufacturing and trade. But this paragraph grabbed my attention:

But we also need to stop thinking that a middle class can be sustained only by factory jobs. Thirty years ago, Hong Kong was a manufacturing center. Now its economy is 97 percent services. It has adjusted so well that this year the Hong Kong government is giving a bonus of $775 to each of its residents. One reason is that Hong Kong has transformed itself into a huge tourist center that last year received 36 million visitors — 23 million from China. Their hotel stays, dining and jewelry purchases are driving prosperity here. The U.S. Commerce Department says 801,000 Mainland Chinese visited the U.S. last year, adding $5 billion to the U.S. economy. More Chinese want to come, but, for security reasons, visas are hard to obtain. If we let in as many Chinese tourists as Hong Kong, it would inject more than $115 billion into what is a highly unionized U.S. hotel, restaurant, gaming and tourism industry.

The United States needs to get beyond some of the over-zealous security restrictions imposed after 9/11 and let as many Chinese and other tourists come visit as possible. Tourism has helped to sustain Europe for years, and the U.S. needs to take advantage of this as well.

Bob Dylan in China

Bob Dylan was at the Worker’s Gymnasium in Beijing on April 6th, but there was a ton of controversy relating to his concerts in China. Dylan recently came out with a scathing statement denying that there was any censorship of his songs or lyrics during his performances.

Gary Locke will be new U.S. ambassador to China

Many are interpreting this move as another push by the Obama administration to push China on trade.

President Barack Obama has chosen Commerce Secretary Gary Locke to succeed Jon Huntsman as U.S. ambassador to China – signaling a more focused White House effort to press Asia’s emerging economic superpower on trade issues, according to administration officials.

Obama could make the announcement as soon as Tuesday, a senior administration official said, adding that the president has yet to settle on a list of possible replacements for Locke, a former two-term governor of Washington. Locke’s departure from the cabinet had long been rumored.

Locke, 51, is a third generation Chinese-American with roots in Hong Kong and China’s coastal Guangdong province – and the first person of Chinese ancestry to serve as a U.S. governor. He is fluent in Cantonese and didn’t speak English until he was five years old.

This will be a huge campaign issue, and any progress will help the Obama administration. It will be interesting to see how the Chinese respond.

Robert Samuelson takes on China’s economic tactics

It’s obvious to most people that China isn’t playing fair on global trade, but few people can get to the heart of the problem like Robert Samuelson. He describes how China uses tactics like subsidies, currency manipulation and technology transfer to gain advantage. Then he closes:

It’s important to make several qualifications. First, Americans shouldn’t blame China for all our economic problems, which are mostly homegrown. Indeed, the ferocity of the financial crisis discredited U.S. economic leadership and emboldened China to pursue its narrow interests more aggressively than ever. Second, the point should not be (as Chinese allege) to “contain” China’s growth; the point should be to modify its economic strategy, which is predatory. It comes at others’ expense.

The U.S. response has been mostly carrots — to pretend that sweet reason will convince China to alter its policies. Last week, Presidents Obama and Hu exchanged largely meaningless pledges of “cooperation.” Alan Tonelson of the U.S. Business and Industry Council, a group of manufacturers, says U.S. policy verges on “appeasement.” We need sticks. The practical difficulty is being tougher without triggering a trade war that weakens the global recovery. Still, it’s possible to do something. The Treasury could brand China a currency manipulator, which it clearly is. The administration could move more forcefully against Chinese subsidies. America’s present passivity encourages China’s new world order, with fateful consequences for the United States and everyone else.

I think the current administration is in a bind, as the economic crisis has made it much more difficult to take a hard line with China and risk a trade war. Perhaps President Obama can reset the relationship and alter China’s behavior. If not, he will soon need to get tough with them.

Indonesia plays both sides of US and China rivalry

Here’s an interesting article on Barack Obama’s trip to Indonesia and the issue of how that country straddles its relationship between the United States and China.

Bribery in China

Bribery is a serious problem in China, but BusinessWeek reports that U.S. prosecutors, along with their Chinese counterparts, are stepping up enforcement.

U.S. prosecutors, empowered by the Foreign Corrupt Practices Act of 1977 (FCPA) to investigate allegations of bribery anywhere in the world, have been stepping up their activities in China, where a tradition of gift-giving in business often degenerates into serious graft. The FCPA bans U.S. companies from bribing foreign officials. It also applies to foreign companies like Siemens that list their securities on U.S. exchanges. Companies that violate the FCPA face millions in fines, and executives can go to prison. U.S. authorities have upped the number of bribery cases they pursued to a resolution around the world, from 11 in 2005 to 34 last year, according to Trace International, a nonprofit anti-bribery group based in Annapolis, Md. In a report released June 17, Trace pointed out that China, with 25 cases completed since enactment of the FCPA, fell behind only Iraq and Nigeria for the most international corruption prosecutions. Citing a World Bank estimate that more than $1 trillion in bribes are paid each year, U.S. Attorney General Eric H. Holder Jr. on May 31 called “combating corruption one of the highest priorities of the Department of Justice.”

Chinese prosecutors, meanwhile, are getting more aggressive under their own antibribery laws, says Patrick M. Norton, a partner with Steptoe & Johnson who focuses on international mediation.

Slowly but surely, the game is changing.

China will let its currency slowly appreciate

After months of subtle pressure from the United States and other nations, China has signaled a willingness to adjust its currency policies.

China’s central bank announced on Saturday evening that it would allow greater flexibility in the value of the country’s currency, in the clearest sign yet that China will allow the renminbi to appreciate gradually against the dollar.

The People’s Bank of China said that the Chinese economy was strengthening after the global financial crisis and that it was “desirable to proceed further with reform” of the currency, known as the renminbi or yuan. The announcement comes a week before world leaders gather in Canada for the Group of 20 and Group of 8 summit meetings. A growing number of countries have been calling for China to let the renminbi appreciate, including not just the United States and European nations, but India, Brazil and Singapore in recent weeks.

This is big news. For years China has kept its currency artificially low vs the dollar. Now we might see an adjustment that let’s the market have more of an impact on the value of the currency, which can help with the China/US trade deficit.

Related Posts