Traveling the World

Since the late 1970s, America has been partners in crime with China. They slowly (or quickly, depending on who’s speaking) moved all factories overseas to the once sleeping giant. As our workers lost their jobs and China gained them, the owners of those companies became corporate fat-cats who remained in the US and ignored the problems on the eastern front. America was doing business with a country that had many issues we won’t discuss here, yet it overlooked these in exchange for the amazing profits.

Now that it’s happy with the amount of money it’s pocketed over these last three decades, America feels bad about keeping the Chinese people a bit in the dark, and as a result is trying to clear it’s conscience by pressuring Hu Jintao and the other current Party leaders to remove the peg which keeps the Yuan firmly fixed in place at 6.82-6.88 RMB per USD. Doing this has immense consequences, and these are what they are:

The article says the US Federal Reserve believes the true value of the RMB is 40% more, which would mean the new exchange rate should be 4.09 RMB per USD. Here’s an example: I am currently making about 10,000RMB a month, valued at $1500. If the new rate were to kick in, I’d now be earning $2440 without doing anything differently. I don’t have much money saved, but I’m a foreigner so my case is different. For different reasons, it’s understood that it’s quite difficult for Chinese people to leave China, so many people save every cent they earn so they can afford to leave later in life.

Let’s say person A has 200,000 RMB saved at an exchange rate of 6.85 thus giving them almost $30,000. However when the new rate kicks in, they’d now have almost $50,000. You can see how this would immediately change their position in life (in terms of being able to leave the country). Now everyone in China would be like person A, in that they suddenly have much more money to use towards the global economy, which might cause issues for the local economy.

As a result of this, the cost for manufacturing would drastically increase only in the sense that it used to cost $0.10 to make something, when now because of the new rate it would cost $0.75. This would force companies to either raise their prices, stop producing, or move to another developing country like India. To do this would mean millions of factory workers would lose their jobs thus increasing unemployment rates to high levels.

As China is very communal and family oriented, it would put immense pressure on family members and local and federal governments to take care of the newly unemployed on a permanent basis since the removal of factories means there’s no new source of work for these laborers. Since they can’t afford to continue living in the cities, they would be forced to return to their villages and push China in a backwards trend from before the time of the economic explosion, thus slowing their expansion to a crawl.

For those people not directly affected by the closing of factories, the new-found increase in wealth would make the citizens feel the government should make new concessions like added freedoms and maybe even wage increases. Even though the labor force would be drastically reduced by the factories closing, everyone else would be unable to see wage increases because the money needed to provide the increase in wages came from those companies that are no longer using the Chinese labor force to manufacture their goods. In the end, those not directly affected would become directly affected by the change in the cost and standard of living. Everything would cost more, from the small bowl of noodles to the 150sq.m house you just purchased.

It’s my strong opinion that the increase requested/demanded by the US government would wholly uproot the system in place within China, and strongly recommend no changes be made at this time. If the government does go ahead with it, I believe the only way to successfully do it is to gradually increase the currency’s value so that by two or three years from now when the global economy is in a much better position, it would actually help the world, rather than right now when it would hurt everyone.

What are your opinions? Let me know by leaving a comment below!