SECOND ARTICLE Chinese strategy behind cheap Yuan Wednesday December 27 2006 07:10 IST By Bharat Jhunjhunwala Border conflict is the major impediment in forging a strong India-China friendship. But there is an economic conflict as well. Low price of the Chinese currency Yuan hits Indias exports. It would be self-evident that no country would like to give away its resources at low prices to foreign consumers as China is doing presently. It is, therefore, necessary to understand Chinas strategy in this regard. The Chinese economy was managed by bureaucrats of the Chinese Communist Party after the Communist Revolution of 1949. Indigenous businessmen were branded as exploiters and sent to rural camps for retraining and declassing. The bureaucrats did not fully understand the logic of money and gradually the Chinese economy became inefficient. In early eighties its leaders decided to modernize the economy but the indigenous business abilities had been largely extinguished. Thus China had no alternative but to invite multinational corporations to establish modern factories just as the helpless single mother opens up her home to attract paying guests. The first preference of the MNCs, of course, was to produce in China for their home markets. Wal Mart sourced goods in China for sale in the US. Thus China unknowingly slipped into an export-led growth paradigm. But truly speaking the Chinese economy is not dependent on exports. There is a need to understand this. America does not have the money to buy Chinese goods.
Thus the Bank of China is buying US Treasury Bills in large quantities and making available funds to the American economy to buy Chinese goods. Chinas position is like the hotel manager who gives credit to the consumer to buy dinner from his hotel. The US consumer is buying Chinese goods with Chinese money. China can give the same loan to another consumer. She could buy bonds issued by Greek or Italian government and encourage them to buy Chinese goods. Or it could place the same money in the hands of its own consumers. Instead of buying US T-Bills of say $100 billion, it could reduce the level of taxes on domestic consumers by that amount and place more purchasing power in the hands of Chinese consumers. Exports are not the key to Chinese economy but only a stratagem to obtain modern manufacturing technologies. Why should China increase consumption of US consumers if it could attain the same objectives by increasing consumption of domestic consumers? It appears this is part of a well-planned strategy to put the noose of foreign debt around the US economy. Just as the village moneylender enslaves the drunkard by giving him credit to buy a bottle of liquor, likewise the Chinese are enslaving the US by giving it credit to buy Chinese goods. The saying in the US is that policies followed by the Bank of China and the Reserve Bank of India are more important for the welfare of the American economy than the policies of US Federal Reserve Board. Indian rulers for the last 2000 years have regularly compromised with foreign invaders like Shakas, Kushanas, Lodhis, Mughals and the British in order to save their skin. Chinese rulers have, in contrast, fought foreign invaders. China single-handedly fought Japanese invaders during the Second World War at the time when Gandhi called on Indians to co-operate with the British in their war effort. China has historically preserved its sovereignty. The purchase of US T-Bills in large amounts should be understood in this background. It is more a part of protecting its sovereignty by gaining an upper hand vis- -vis the United States than economic compulsions. The Reserve Bank of India should develop a joint strategy with the Bank of China to first buy US T-Bills and then sell them in order to create a collapse of the US economy and to secure a multi-polar world order. A healthy person becomes sick if provided with air-conditioned comforts for a month and then suddenly deprived of the same. So also China and India should provide cheap credit to the US and then pull the rug from under their feet. The so-called conflict of interest between India and China in global markets also appears to be overblown. An IMF paper Crouching Tiger, Hidden Dragon: What are the Consequences of Chinas WTO Entry for Indias Trade? concludes that India and China have about 75 per cent dissimilar export products. So the impact of the value of Yuan on Indias exports is likely to be small. __________________________________________________ Do You Yahoo!? Tired of spam? Yahoo! Mail has the best spam protection around http://mail.yahoo.com
