The new old China

I was reading about the Chinese yesterday threatening

that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress

if Congress presses for a yuan devaluation.

Siggy calls it Egg Drop economics, Justin Higgins focuses on China’s oil shortfall, while Thomas Barnett says that “we grow up by surviving crises.” Of course all of them are right: this kind of threat, absurd as it is, is not to be taken lightly.

Then there’s the issue of China’s hazardous exports:

I have to wonder if China’s rather sudden (threatened) currency aggression is related to the vast number of shoddy and downright hazardous items that are being exported from the mainland.

When Indonesia proposed a ban of certain Chinese imports, China reacted with a small-scale trade war, as it had reacted with the US earlier. Panama, the EU, and others are now banning Chinese products.

Do the Chinese see the uproar as overreacting?

After all, they have been under a command economy for longer than most countries in the world, and they probably find no reason to meet high safety standards. Just a quick glance at how the Cherry failed safety tests (airbag? what airbag?) shows that for China, consumer safety issues hold a very low priority indeed. Very very low.

Dymphna mentioned in our most recent podcast together how the Chinese don’t “get” consumer safety; their reaction was to execute the guy in charge of the Chinese Food and Drug Safety Office. It looks like the toy vendors are next.

Does that solve the problem of hazardous goods?

Of course not. But it tells you that the Chinese really are operating under an antiquated mindset. A feudal mindset.

Equally interesting is how the Chinese are buying raw materials companies all over Latin America (I believe it was Siggy who mentioned that during the same podcast). The Spanish empire drove itself to ruin by monopolizing the valuable goods from its provinces though its ill-conceived imperialist and mercantilistic policies.

It is not unreasonable then, to believe that the Chinese still haven’t caught on the fact that wealth can be created by providing highly competitive goods and services in a free trade economy, the way many of its neighbors have.

Now the Chinese are lavishly celebrating next year’s Olympics. You read it right, next year’s. The concrete’s not dry yet on all the new buildings, and they’re celebrating the Olympics already. All the while, they continue to crack down on dissent.

At the same time, they showcase their modernized army. As you can read in that article, the army’s purpose is to serve the Communist Party.

The army, newly modernized while still at the service of the Communist Party, will probably be at hand to prevent vehicular traffic from driving into Beijing for a few months prior to the Olympics. Otherwise the air pollution would not allow any endurance sports to take place in the city.

Be that as it may, if the Chinese believe that the Olympics, and China, will succeed after China uses any kind of ‘nuclear” currency scheme and trade wars, they are even more deluded than I ever expected.

(Note: I didn’t touch on the deleterious effect protectionist policies against China would have on America. Will deal with that topic some other time.)

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