China: Fear of its Rise is Fear of Ourselves

A recent Economist article, The dangers of a rising China, leads a 14 page report loosely discussing the dangers posed to the world by China's eclipsing of the USA's international economic and military order.  The article attempts to draw parallels in the power-balance shift between Britain and Germany which led to the first World War, and that between the US and Britain, which is seen to have been peaceful.  Alternatively positive and negative outlooks are presented as The Economist offers its superficial analysis and weak solutions, but as to how to foster peace between the People's Republic of China and the West, the article does offer one shining and perhaps accidental insight.    

San Fran Olympic Torch Rally by tomnono

The parallels drawn between the hegemonic shifts of the 20th century at first appear credible.  Indeed, the competitive quest for empire and economic primacy on the European continent and elsewhere was the cause for the British-German arms race, ultimately which manifested in the orgiastic violence of the Great War which saw 16 million deaths and 21 million wounded, civilian and military.  This pessimistic view is countered with the absurd assertion that "Unlike the 19th-century European powers, it (China) is not looking to amass new colonies."  If colonialism was a method of expropriating the wealth of and creating markets in foreign lands, then China will surely remain at odds with the West on this basis, as both compete as Germany and Britain once did; in Asia, Africa and Latin America, employing trade agreements, capital and cooperation with corruption, as well as providing economic and military advisors to grease the wheels of neocolonialism; that which is the demonstrable policy of both the West and of China.

The Economist also looks hopefully to the main hegemonic shift of the 20th century, that from British to American.  This is ironic, since it was the devastating global conflagration of World War 2 which dismembered the British Empire and broke the British people's will to maintain it.  The British homeland itself was left in ruins, and thereby a hegemonic shift was a defacto result.  Thus it was war that ushered in the shift of global power, eventually in favor of the US.  However, the American global order was not immediately secured, but only itself born out of a further 40 years of global militaristic/economic expansion; major US wars in Korea and Vietnam; the Soviet war in Afghanistan; the littany of military actions across the third world; and a Nuclear standoff with Soviet Russia.  That this hegemonic shift "went well" as The Economist puts it, seems in the light of history preposterous.

What The Economist's hopeful bias will not permit in its report is a recognition that economic, technological and social structures are infinitely different than at any time in history, thus such a shift as it would happen today or in the future is without any useful precedent.  To start, the previous examples involve competing powers sharing in European heritage, culture and languages, and a similarity of social ethics, aspirations, and global outlook.  In the case of China, these are much different.  Not only are there vast differences in all these catergories between China and the West, but Chinese Nationalism is keenly aware of its recent history as a colonial subject of the West, and sees the economic and political elites in the US as the inheritors of that imperialist know-how and infrastructure.

Chinese Nationalism looks upon its long-time enemy Japan, perhaps correctly, as simultaneously a base for the projection of American military and economic power, and an unapologetic beligerrent whose political class still absolves and honors as heroes the Imperial Army Generals and Soldiers who committed the occupation of China and the rape of Nanking.  Offerings by Japanese Prime Ministers, most recently in 2009 by Taro Aso, at the Yasukuni Shrine and War Memorial where recognised war criminals are honored, have created tremendous popular backlashes in China.  China sees itself surrounded by the American military and its proxies in the pacific, with the US Navy sitting in South Korean and Taiwanese waters within shooting distance of the Chinese coast.  Such a situation could only be hypothetically balanced in size and proximity by China's occupying Cuba, the Bahamas and the Canadian Province of Nova Scotia with 70,000 troops and therein installing and equipping dozens of Naval, Air-Force, and Army bases to the tune of billions of dollars. This is to say nothing of the demonstrated willingness of the US to apply its military resources in China's neighborhood, such as in the Korean War and the holocaustal Vietnam War wherein millions died.  These both took place within living Chinese memory.  Taking place now: "The US Navy has begun to deploy more forces in the Pacific," The Economist reports.

A brief study into the history of China's relations with its neighbors and the West reveals fact after fact lending support to the attitude of indignation in China towards the US and Europe.  The Economist article asserts that a number of things will help to ease the transition.  These range from the briefly insightful to the absurd.  It suggests that "America and China need rules for disputes" and "America and China should try to work multilaterally (in Asia)"  But in the absence of demonstrated trust and mutual respect, rules and agreements will be broken, and multilateral discussions and organisations will be but another battlefield for diplomatic and economic clout.  The article comes close to the spirit of the answer to this terrifying question when it posits that "If America wants to bind China to the rules-based liberal order it promotes, it needs to stick to the rules itself."  This is a remarkable admission by the Economist of the US's hypocrisy.

Moreso, such is a tacit recognition that the current Empire must lead by example and act under the principles that it can only hope China will abide by once it overtakes the seat of global power.  The US must do much more to value economic equality, education and democracy at home, and respect the sovereignty and human rights of those abroad.  It must do more to promote freedom and peace for all nations; Not attempt to impose them as a pretext to military intervention in places such as Iraq and Afghanistan.  The US must make difficult decisions as to how to unwind the relationship between its military and its economy; these are understood in China and other quarters as so entwined that the US must perpetuate conflict and imperialism in order to survive.  China will never see in the US plutocracy a credible partner in any undertaking, but only a group of self-serving aristocrats guided by the ethics of capitalism, greed and consolidation.  It may be possible to avoid a conventional military conflict between China and the US during this great hegemonic shift if the US recognises China's military and economic clout and begins to bargain away its stack of chips in Taiwan, the South China Sea, Japan, Korea etc.  But such is likely to promote the further moulding of China into a militarist/imperialist economy whereby all of the fears of an opaque and unaccountable Chinese world leadership will be realised. Such will not lead to any type of greater peace.

The only chance for a true and peaceful resolution of the conflicting interests of China and the US to come about is by a change in those very interests:  Away from militaristic/economic dominion and global paternalism which sows discord, misery and disenfranchisement everywhere; toward finally abiding by the principles which the people of the West have always espoused: Peace, human rights and equality of opportunity for everyone everywhere.  Continued posturing by the US as the world's indomitable military and economic power requires China to assert itself globally through economic control of resources and military capability.  A graduation by the West to a higher moral ground; by a recognition of reality and a genuine redress of the ills of its own and society abroad, through education and democratic change; only these changes can compell lasting peace and inspire in China the changes it requires to be a more just and accountable world power. 


Read the Economist Article:
http://www.economist.com/node/17629709

Read more about it:
http://www.taipeitimes.com/News/editorials/archives/2010/09/27/2003483897
http://www.opendemocracy.net/democracy-china/nationalism_3456.jsp

Switzerland: Swiss Franc -ly Under Attack

Separate reports this week in the Swiss newspaper Neue Zuericher Zeitung (NZZ) are highlighting the difficult choices Switzerland, and by extension other nations, are facing in the continued onslaught of effective currency devaluation by US and Eurozone officials. The Greenback and the Euro have fallen significantly against the Franc and other currencies in the past years as their governments and central banks have created a glut of supply; by loosening monetary policy, lowering interest rates and creating massive amounts of new debt to bail out ailing banks, businesses and governments.   The choices for nations such as Switzerland are clear:  Reduce living standards and income values through inflation, or see a massive outflow of jobs and industry from their borders. 

Swiss Banknotes by kalleboo

The Swiss National Bank (SNB) has announced losses of 8.5bil Swiss Francs in the first 3 quarters of 2010, resulting from their foreign exchange interventions intended to curb the effect of the inflating Euro and Greenback on their economy.  These losses stem from the SNB's massive selling of Swiss Francs and purchasing of Euros in order to simultaneously increase market supply of Swiss Francs to lower it's exchange rate; and increase competition in the Euro-dollar market to help support/increase its value.  Despite these efforts and the losses thereof, the Eur/Chf (Euro/Swiss Franc) exchange rate has fallen from late 2007 highs of 1.68 to current levels of 1.25.  This has had a severe effect on Swiss industry, most of whom must repatriate sales made in the Eurozone in order to book profits.  This peak to trough fall represents a loss to Swiss exporters of 0.43 Chf in every dollar they earn, or roughly 0.25 in aggregate terms.

Such extreme cuts to profits have Swiss industry chiefs remarking that in current conditions they cannot consider new hiring or expanding production in Switzerland, and making controversial threats to move jobs out of Switzerland and into the Eurozone, where wages have dropped along with the Euro relative to the Swiss Franc.  Retailers are also complaining that more and more Swiss shoppers are travelling the short distance to make their purchases accross the border, which is not far from any point in the small landlocked Alpine country.  The tourism industry is also feeling the pinch, as it is more expensive for Europeans to buy Francs.  Some doubt the long term viability of small and mid-sized businesses in Switzerland if the Franc's value to the Euro cannot be stabilised above 1.30.  The NZZ this week specifically quoted Georges Hayek, chief of Swatch-Group and Hans Hess, president of Swissmem, an association representing the mechanical and electrical engineering industry, as calling for government intervention in this regard.

However, such government intervention would in all cases amount to a rapid inflation of the Swiss currency.  This would cause prices of goods to rise generally, affecting the value and purchasing power of all Swiss incomes, from wage-earners to business owners to pensioners.  The Swiss authorities thus face a double-edged sword:  To take action is to lower living standards for all Swiss residents and cut the value of savings; to hold firm is to risk a general flight of industry and jobs and support a loss of value in local stock market investments.  In all cases jobs, savings and investments are threatened.  This dilemma is at the root of the murmurrings of currency war surrounding the G20 meetings in Seoul, which saw the US and Europe insisting that China allow the yuan to rise, and China along with Brasil, Korea and a host of other nations from across the globe complaining of the ill-effects to their economies caused by the effective devaluatoin of the Euro and Dollar by Western central banking authorities. 

Just as the European central bank (ECB) was forced to bail out Greece and Ireland by helping to create new money, and is currently fighting to prop up the Portuguese national budget with bond purchases, so are Federal authorities in the US now facing calls to bail out hopelessly indebted states and municipalities.  The Wall Street Journal reports that Federal Reserve chairman Bernanke has scuttled such talk by pointing out that new rules under the Dodd-Frank laws enacted by the federal government last year limit the fed`s ability to intervene should states or municipalities go into default/bankruptcy.  Such issues in Europe and America will, regardless of how they are addressed, create more instability in foreign exchange markets, to the detriment of economies outside their borders; from first world economies such as Switzerland, Canada and Japan, down to China, Brasil, India and all others dependent on the global economic model. 

Read more:

German Language Sources:
http://www.nzz.ch/nachrichten/wirtschaft/aktuell/tiefer_euro_gefaehrdet_wohlstand_1.8958738.html
http://www.nzz.ch/nachrichten/politik/schweiz/schweiz_nationalbank_verlust_85_milliarden_franken_2010_1.8356119.html

Other English Language Reports on the Swiss Franc and US Debt:
http://online.wsj.com/article/SB10001424052748704739504576067602380461160.html
http://online.wsj.com/article/BT-CO-20101112-701368.html
http://www.swissinfo.ch/eng/specials/swiss_franc/Strong_franc_continues_to_haunt_Swiss_economy.html?cid=17955460

Peas in a Water Pod: China, India and Bangladesh; Atlanta, Alabama and Florida

Two Economist articles of recent publication draw attention to the imminent threat that the availability of water, or the lack thereof, poses to social, political and economic stability.  A Himalayan rivalry, Aug 21; and Chattahoochee blues, Sept 18; describe current and potential disputes on both domestic and international levels. 

In discussing the extremely complex nature of relations between India and China, A Himalayan rivalry briefly describes the recent Sino-Indian war which saw China attacking India while the USSR and USA were preoccupied with the 1962 October Cuban missile crisis, with China occupying disputed areas in Arunachal and Kashmir for roughly a month before peace and withdrawal.  The long border between the two countries was, in 1962, a demarcation with no real geographical, historical or even official basis after more than a century of gerrymandering by the British and Russian empires competing for control of central Asia.  To a great extent it remains so today, and its obscurity mirrors the current relationship of the two giants, whose trade has increased from “$270m in 1990” to an expected “$60 billion this year,”  yet whose militaries still manoeuvre along the borders; China making “huge improvements... in its border infrastructure, enabling a far swifter mobilisation of Chinese troops there,” and India announcing “last year that it would deploy another 60,000 troops to Arunachal,” a border province at the eastern end of India, most of which is claimed by China as “Chinese South Tibet.” 

Yarlung Tsangpo River, Tibet - by Fighting Irish 1977

Arunachal is not only a new home to 60,000 Indian troops, but also a province through which the Brahmaputra River flows; from Tibet to Bangladesh and into the Indian ocean; sustaining millions of Indians and Bangladeshis.   According to The Economist, “China appears to have reasserted its demand for most of India’s far north-eastern state,” (Arunachal) having made diplomatic mischief with citizenship and visas for Arunachalis and by objecting to Asian Development Bank loans to India “on the basis that some of the money was earmarked for irrigation schemes in Arunachal.”  Whether or not China will have Arunachal remains to be seen; however, China will have its water.  A possible motivation for the objection to the above mentioned financing of irrigation projects in India is that should China begin diverting water from the Brahmaputra, the impact would be much more measurable in its effects on agriculture and industry, thereby strengthening India’s claims of damages against China. 

The Economist reports that one dam is being built on the Brahmaputra, or the Yarlung Tsangpo River as it is known in Tibet, however the Zangmu dam is actually only one of a few that China has apparently already announced publicly.  Considering China’s penchant for great works of engineering as in the Three-Gorges-Dam, its long term view in policy matters, its demonstrated willingness to divert waters as in the ‘South-North Water Transfer Project, and as China prefers in matters most sensitive to announce their intentions and projects near or at completion as a fait-accompli; many in India and Bangladesh surmise that with the infrastructure already being put into place, a gradual if not sudden diversion of the waters that feed the Brahmaputra River is an inevitability, in light of China’s already apparent problem of feeding and watering its 1.34 billion inhabitants.  Many sources show a litany of dams currently under construction and in planning stages along the Yarlung, well beyond what is publicly admitted by Chinese officials and media.    

Aspects of the Brahmaputra/Yarlung situation are paralleled in the south-eastern US as described in Chattahoochee blues, where local water utilities are illegally supplying the growing Greater Atlanta area with more and more water from Lake Lanier, itself created by the construction of the Buford dam on the Chattahoochee river in 1956; a dam originally intended primarily to supply power.  Downstream farms, industry and communities in Georgia and Alabama want to ensure their own adequate supply of water; as do communities, environmentalists and oyster farms in Florida; where fresh water from the Chattahoochee empties into the Apalachicola river, sustaining the watershed and floodplain which feeds the complex ecosystem of forests and marshes and the special balance of fresh and salt water where the river meets the gulf of Mexico. 

 Federal courts have been forced through a process of lawsuits into a position where it must take sides in a dispute which it understands cannot be fairly resolved, as there is plainly not enough water to satisfy the overall demand, if not need.  Their decision has been to defer to the judgement of Congress or to a negotiated solution between the parties, with the caveat that should neither process produce a decision by 2012, local water suppliers in greater Atlanta will (still) no longer be able to legally use Lake Lanier as a source of water.  While the court recognises this outcome as a “Draconian result”, the status-quo being already one of illegal removal of water from Lake Lanier, watchers will await what Draconian measures the authorities will employ to stop Atlanta from supplying itself with water from the lake, if any. 

There seems to be a precedent forming both on domestic as well as international levels that is one of first-come, first-served.  Furthermore, if nations fail to properly resolve and manage their own internal water-resource problems and allow their populations to deprive each other and suffer thereof, there seems little hope that any agreement internationally as to the equitable and sustainable distribution of water is possible.   

The Economist; A Himalayan rivalry: 

http://www.economist.com/node/16843717

The Economist; Chattahoochee blues:

http://www.economist.com/node/17043462

More on the Brahmaputra/Yarlung River: 

http://tibetanplateau.blogspot.com/2010/04/india-poorly-informed-about-chinese.html

East eats West?

This week's Economist magazine's headlining articles and cover-page, 'Buying up the world- The coming wave of Chinese takeovers' highlight the process and nature of foreign takeovers by Chinese firms.  The piece offers surprisingly little discussion or speculation as to China's deeper motivations and timing in its recent takeover bids for large multinational companies, or as to the reasoning of other governments and critics who would resist the emerging trend before concluding that rejecting China's advances would "be a disservice to future generations." 

There is something absurd about the reasoning in these articles, which do point out the "opaque and arbitrary" nature of authority within large Chinese companies, and which do briefly note that takeover bids are most often made on companies working in strategic resource sectors; but which base their conclusions on speculation that Chinese firms will "bring new energy and capital to flagging companies around the world," that "Chinese companies will have to adapt" and that its investments in the global economy will help to make China's interests "increasingly aligned with the rest of the world's."  That the Economist can readily admit to not understanding the motivations and interests of "opaque" Chinese government and authority but then predict its evolution is a failure of logic and a cause for concern should policy makers around the world find agreement with this thesis.

A steady accumulation of bonds and hard currency in all denominations, especially of its largest rivals in the US and Euro-zone, coupled with a well timed and targeted increase in the rate of takeover of global means of production and access to raw materials represents an obvious, well planned, forward looking and ongoing effort to supplant Western hegemony in favor of an ill-defined future global order over which a preeminent China presides.

This is the Chinese mission according to Chinese leaders and state-owned news outlets, as discussed in a 2008 CSIS report which states among other things: "The PRC-owned Hong Kong daily Wen Wei Po opined that the elevation of the “harmonious world” theory in the congress work report indicates that Hu (Jintao) is “assuming an even more important role in international affairs that is, as ‘formulator, participant and defender of world order,’ in order push the entire world toward harmony.”  Other such thinking among leading Chinese thinkers is evident in Zhao Tingyang’s The Tianxia System: The Philosophy for the World Institution (2005) and Liu Mingfu’s book The China Dream: Great Power Thinking and Strategic Positioning of China in the Post-American Age (2010).  All of these sources are united in their assumption that a Chinese eclipse of Western economic power is inevitable, though they may differ on their view of that post-ecliptic world.  Without knowing the truth about China's aims, the West should be wary of allowing a monolithic foreign government access to its strategic resources and internal economies.  

The Economist article gives further evidence that China's entry into global capitalism is not motivated by the usual basic greed and desires of Western investors when it reports that "Natural-resources firms can become captive suppliers to China, rather than selling on the open market... Westerners realised their new objective was to maximise production, not profits" and "Chinese firms... risk political fallout if they fail.  Their sense of mission makes them 'transparent', says one European executive."  That China's is a long term view is undeniable in the context that they would forgo immediate profit by selling to the highest bid on the market in favor of repatriating newly exploited resources. 

Western economic domination of the world reached its zenith in the 20th century, when according to this weeks Economist articles "Britain owned 45% of the world's FDI (Foreign Direct Investment) in 1914; America's share peaked at 50% in 1967."  It is undeniable that, in competition and in concert, Western powers used their public institutions and militaries to further their economic-imperial goals, making the 20th century the bloodiest and most warlike known to history.  Entire continents were subjugated and looted in the pursuit of profit and 'civilisation',- including China, and large parts of Central and South America, Asia and Africa remain captive to the national and corporate institutions which have inherited that legacy.  While the West so often points out China's human rights abuses and excesses of power, the Chinese are always quick to point out the hypocrisy of such criticisms, as it did in its recent report on the US's human rights record published in the China-daily; a startling and credible list of very recent abuses.  If there are any worries among people in the West as to the waning of Western power in favor of Chinese influence, it should perhaps not be in lament of a lost golden age of economic and military triumph, but in fear that the emerging power in China, accountable to no one and secretive in their aims and motivations, will as it hijacks a global economic system which promotes greed and consolidation of power, look upon and treat the West in the same manner that the West has China and the rest of the world.  


Read the Economist reports and other related articles here:

The Economist:
http://www.economist.com/node/17463473
http://www.economist.com/node/17460954

Regarding Chinese policy and statements about US human rights abuses:
http://csis.org/files/media/csis/pubs/080129_murphydecoding.pdf
http://www.chinadaily.com.cn/china/2010-03/12/content_9582218.htm

Regarding takeovers:
http://news.bbc.co.uk/2/hi/7967604.stm
http://www.cbc.ca/money/story/2010/11/03/potash-ottawa-review.html 
http://www.thetrumpet.com/?q=6336.4792.0.0

Seoul G20: Perplexing Conclusion, Clear Result

The conclusion of the most recent G20 summit in Seoul last Friday, hailed as a success for political reasons by attending politicians, was punctuated with the following agreed upon statement: "Uneven growth and widening imbalances are fueling the temptation to diverge from global solutions into uncoordinated action... uncoordinated policy actions will only lead to worse outcomes for all."  In other words, 'while we agree in principal that it is best to agree, we disagree.'  I can only imagine that, if only the leaders of nations in times past, who with the specter of wars and economic strife looming before them, had been privy to such wisdom, things would have turned out exactly the same...

In spite of ambiguous political statements made in Seoul last week, markets have been remarkably unified in their response.  Since markets closed on the Wednesday (Nov. 10) before the summit began in earnest, every single major US dollar denominated market has fallen.  Several of these markets had been gaining steadily leading up to the G20 summit, but all have dipped in response to the G20's conclusion.  Here is a quick statistical rundown of some of those losses up to the Wednesday Nov. 17 close:

Dow Jones   -350 points (-3.1%);
S&P 500   -40 points (-3.2%);
NYSE Comp.   -259 points (-3.3%)
Crude $/Brl   -6.77 (-7.7%)
Copper $/lb   -0.24 (-6.0%)
Gold $/oz   -62 (-4.4%)
Platinum $/oz   -97 (-5.6%)


Thus, money (or value) is coming out of stock and commodity markets across the board.  Furthermore, Treasuries, both 30yr and 5yr notes, fell 1.5% and 0.9% respectively, during the same period; markets which often gain when stock markets are in turmoil.  Taken in the context of a rise of 1.44 points (+1.9%) during the same period, in the US Dollar Index (USDX) which is a guage of the value of the dollar relative to other world currencies, we can reasonably assume that losses in the value of stocks and commodities are partly, if not mainly, a result of a strengthening US dollar.  This represents deflation.  What is the cause of this deflationary pressure?  It could be that investors have responded to the G20's failure to resolve its differences over state manipulations in currency markets by pulling out of markets and deleveraging, or paying off debts.  The US dollar being a debt-based currency, any net reduction in USD debts effectively reduces the amount of USD in the system, producing deflation. 

Perhaps the dirtiest word in modern economics, many analysts of late, even Fed chief Bernanke, have begun to broach the issue of deflation.  That it is impossible in America has been the misplaced hope of so many bank and fund chiefs.  The Japanese banking crisis of the 1990s has resulted in persistent deflation for over a decade.  The more recent global recession, particularly the crash in the summer of 2008, was a deflationary crash, which saw all markets lose value at break-neck speed after being inflated by Bush's bank bailouts and stimulus spending.  That extra money was un-created nearly as quickly as it was created when it was used by large institutions to pay off debts and deleverage.  So what to expect?  With interest rates already at historical lows and failing to stimulate more borrowing, look for the Federal Reserve to enact more quantitative easing, the modern equivalent of printing money.  This will complete another round in the cycle, and further consternate the US's G20 partners, especially China, who will see it as another salvo in the much denied currency war.  However, if they fail to do so, fear of another credit crunch may trigger another US dollar exodus from markets everywhere, and the global 'double dip' recession will be upon us.  It seems that there is no positive alternative, and no way out of the rabbit hole the US has dug for itself and the rest of us.

Perhaps the only thing keeping the floundering juggernaut of global finance afloat is the placebo effect of the actions of its masters who maintain a public image of confidence and certainty about their actions.  If at any time any major player all at once goes bust or pulls their money off the table, everyone else may just decide to cash in.  It seems since the summit, a few players at least, have decided to pocket at least a few of their chips, just in case.

Currency War?: Truth is the first casualty

In recent days, major news outlets across the world have been reporting on the growing rift, particularily between China and the US, and more generally between 'developped' and 'developping' nations, over currency markets and monetary policy ahead of the G20 meetings in Korea this November.  

The issue not only highlights the growing ability of emerging economies, such as China and Brazil, to stand up to the unbalanced global economic order imposed by European and American institutions, but the nature of the coverage has itself revealed a staggering bias and lack of insight by the Western media and points to an unsurprising but serious misunderstanding in the Western public as to how their economies function and relate to the global economy.

The issue has been politicized in the US for some time now, where people are being made to feel somehow that in a general way China is threatening the welfare of the American economy by holding its currency 'artificially low', causing the hemorraging US trade deficit and the continual loss of American factory jobs.  The intended message to the public is clear when the US Treasury Department's not-yet-released study of whether China manipulates its currency to gain an 'unfair' trade advantage is referred to again and again, while credible statements to the contrary go unnoticed, such as the World Bank and IMF who foresee currency 'tensions', not 'war', and who admit that allowing China's currency to rise will do little to help the balance of trade in the US.  Quite often, the fact that the yuan has already risen against the dollar by 20% since Chinese currency reforms five years ago is completely glossed over, or is noted as insignificant.

Nearly without exception, all Western news outlets decry China's 'intervention' or 'state manipulation' of the value of its own currency, along with other vaguely 'commie' sounding terminologies which are sure to raise the hairs on the back of every red-blooded American. 

A nation's currency is the lifeblood of its economy, and a government's right to manage and manipulate the value of its own currency is not only necessary for the maintenance of economic stability, but also sovereignty.  Free trading nations such as the US and EU resort to 'open market operations', manipulating interest rates, and lately 'quantitative easing'- the modern-day high-tech equivalent of printing more money.  While China 'pegs' its currency's value against a basket of currencies to maintain its stability in global markets, something that the US and EU do not do, it is the height of hypocrisy for the US and EU to enact major inflationary measures such as quantitative easing to drive down the value of its currency for selfish political and economic reasons, and then call China beligerent and interventionist when it merely allows the value of the yuan to float along with the Euro and greenback.

Western efforts to cheapen the value of US and Euro dollar denominated debts and to make foreign-produced goods more expensive in their domestic markets, to beat back looming deflation, to bailout its financial institutions and to inflate economic data, all by devaluing their currencies, is neo-mercantilism, and an extreme provocation to developping nations dependent on exports, such as China, Brazil, India, Korea, and Thailand to name a few.  Furthermore, Western governments, by lowering lending rates and increasing the supply of money in their domestic markets, have provided impetus to large financial institutions to go overseas to look for opportunities, thereby increasing competition, prices and the value of the domestic currency in those developping nations, as Western capital virtually invades and destabilizes their markets.  To then attempt to dictate how these nations should or should not react to such provocations is the height of arrogance.

The truth is that the US and European economies remain extremely vulnerable to further collapse, and politicians and bureaucrats in these economies remain willing to enact extreme measures to prevent this, or to at least give the appearance to their constituents that they are doing so.  The past few years have seen massive uncertainty and volatility in currency markets because of the banking crisis of 2008 and the Keynesian reaction to it and the recession it caused.  That such uncertainty and volatility would spill over into the relations between the West and its global trading partners is perhaps predictable.  However, painting China's monetary policy as the sponsor of Western economic woes is ridiculous, and does more to damage the accusors's credibility than it does to improve their economic situation.


Read articles on this topic, good and bad, at:

ABC News "China trying to avoid currency war"
http://abcnews.go.com/Business/wireStory?id=11865837

Xinhua News:  "Sword of Damocles dangling over China-US economic ties"
http://news.xinhuanet.com/english2010/indepth/2010-10/16/c_13560709.htm

The Council on Foreign Relations:  "Concerns over currency wars grow"
http://www.cfr.org/about/newsletters/editorial_detail.html?id=2222

The Globe and Mail:  "Averting currency war tops G20 agenda"
http://www.theglobeandmail.com/report-on-business/economy/averting-currency-war-tops-g20-agenda/article1758134/

Arirang News:  "Currency disputes heat up ahead of G20 Seoul summit"
http://www.arirang.co.kr/News/News_View.asp?nseq=108013&code=Ne2&category=2

The News Center:  "Fx tensions mount ahead of Fed's Bernanke"
http://www.moneycontrol.com/news/world-news/fx-tensions-mount-aheadfed%60s-bernanke_491477.html

China squeezes world supply of rare earths

An article about rising prices and China's decision to reduce by 40% their export quota of "rare earth" commodities such as cerium, lanthanum and yttrium, which are used in the manufacturing of flat-screen monitors and aerospace alloys among other things, appeared in the September 4 edition of the Economist.  China "accounts for almost all of the world's production" of rare earths.

The article, entitled 'Digging in', reports that "announcements of rare-earth projects have accelerated in recent months", as "high prices have already begun to propel a supply response elsewhere in the world."

More interestingly, discussing the possible motivations behind China's new export quota on rare earths, the Economist speculates that China is leveraging its virtual monopoly on rare earths in an attempt to control more of the secondary sector production of high end goods which require them. 

While at this time Western markets may be able to absorb the higher costs of these elements and eventually balance and diversify their supply, rare earths can be added to the growing list of commodities, critical to the West's consumption based economies, who's futures are uncertain.  The situation also highlights China's unapologetic pragmatism and self interest as far as the security of the supply of resources to its economy is concerned.  While such self-interested behavior is not exclusive of other powerful nations, might China's willingness to nearly half their exports in rare earths suggest something of the shape of things to come?

Read the Economist article at http://www.economist.com/node/16944034