China Targets American Jobs—Again
On Saturday, Wen Jiabao said China will try to export its way out of its current economic troubles. The country’s premier suggested technical fixes, such as faster payment of tax rebates, but he did not refer to depreciation of the national currency, the renminbi.
That’s a rather large omission considering the circumstances. Why? Because his primary plan, evident over the course of the last several months, has been to force down the value of the currency to make Chinese products cheaper on global markets.
Some analysts believe the yuan, as the renminbi is informally known, is undervalued by as much as 40 percent against the dollar. That’s possible, but we do not know the market value of the Chinese currency. The People’s Bank of China, the country’s central bank, essentially fixes the value of the yuan by buying and selling currencies so that it stays within a predetermined band. The renminbi has depreciated against the dollar by about 1 percent this year after it climbed—due to Washington’s pressure—4.7 percent in 2011.
In short, Beijing is doubling down on its mercantilist approach to global commerce. And it’s not hard to see why.
The Chinese economy is slumping. Official statistics tell us the country is expanding in the high single digits—7.8 percent growth in the first half of this year—but in reality the economy has flatlined. The most reliable indicator of Chinese economic activity, the production of electricity, has increased an average of less than 1.2 percent in the April-July period. Because the growth of electricity historically outpaces the growth of the economy, it’s evident China cannot be growing faster than zero.
Zero growth? That startling assessment is not only possible; it may even be on the high side. On Thursday, HSBC released its closely watched Flash Purchasing Managers’ Index for this month. The index plummeted, making it clear that August will be the tenth straight month when the critical manufacturing sector in China contracted.