"Snow opens fire against China's cheap exports"
I have some new thoughts on this subject. Earlier I contended that this was mostly hollow pre-election posturing on the part of both major political parties, or veiled threats to keep China within the dollar bloc. Now I am beginning to believe that U.S. ruling groups are really serious about this, and it is a ploy to weaken China's banking system and economic enterprises so that they will fall into the grubby mitts of Wall Street and the Fortune 500. The U.S. and the CCP have jointly ensnared China into a mode of "development" that depends on external demand for assembled consumer goods in general and a strong dollar in particular. My guess is that a segment of the U.S. elite, insofar as they have any kind of long-range strategy at all, believes that China will not be able to cope with the need for a sudden readjustment in its mode of "development," and then the U.S. vultures will swoop down for the kill. Whiplash, if you will.
In their fevered imaginations, perhaps the forecasted sequence of events goes something like this: a drastic revaluation of the yuan compounds China's excess capacity problem, China's shaky state-owned banks see their balance sheets deteriorate, and central government pump-priming cannot come to the rescue because Beijing's fiscal capacity is already strained by massive physical infrastructure spending and declining customs revenues. Allowed to set up branch operations in China per the rules and regs of the WTO, Western finance capital either bails out the nearly insolvent state-owned banks on its terms, or simply muscles them aside, gaining partial or total control of the vast amount of savings contained within their vaults. The same logic would apply to scores of Chinese "cadre capitalist" firms in the productive sector and the TNC's. Eyeballing those public, public-private, and private companies endowed with state-of-the-art plant and equipment but compromised by prevailing conditions of overinvestment, the TNC's offer cash flow injections in exchange for majority ownership (50-percent-plus-one joint ventures) and managerial authority.
But in a host of ways it seems like an extremely risky posture for the U.S. to take. First, China could threaten to retaliate by shifting a bigger portion of its currency reserves to non-dollar denominated liquid assets. While a significant yuan revaluation would to some degree alleviate the U.S. merchandise trade deficit, the effect of this on the balance of payments deficit would be more than nullified if China's central bank ceased purchasing U.S. Treasury notes, Wall Street securities, etc. Second, even if China does not diversify where its currency reserves are stashed, a decline in the rate of its export growth or the raw value of its exports means less revenues ultimately invested in the aforementioned dollar-denominated T-bills, bonds, and stocks. Third, if bank failures, enterprise shut-downs, and slower economic growth translates into intensified mass upheaval and even open political revolt (or regional disintegration, for that matter), in the short-to-medium term China will not be a "socially stable" platform for the shenanigans of U.S. TNB's and TNC's; in the medium-to-long term there may be regime change in a radical nationalist direction that will make the CCP look like accomodationist neo-liberals by comparison.
John Gulick
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