Daily Lessons from Life 07 October 2010 - 'Don't force China to appreciate its currency'

"Thu, Oct 07, 2010 China Daily/Asia News Network - 'Don't force China to appreciate its currency'

BRUSSELS - Premier Wen Jiabao on Wednesday urged politicians and business leaders from the European Union (EU) not to force China to appreciate its currency, saying the US dollar, not the Chinese yuan, is to blame for the fluctuation of the euro.

Wen also said the trade imbalance between China and Europe is due to structural reasons and 'should not be politicised'.
Even though the value of the renminbi has increased by 22 per cent since 2005, China's exports to the United States have boosted, he said. He also said that culture is like a bridge that linked people's minds and hearts, and that cultural exchanges do more that political and economoic ones!"

First it was the Yankees that complained. Now it is the EU's turn. Both refused or were unable to look at the mirror and find the main culprits there - themselves! I am no economist. Yet I know that when a nation spent more than it earned and, in fact, financed its consumption through huge debts, its currency should fall! The world's currencies generally do follow this rule except the USA. The reason? It is currently, still, the world reserve currency, since many international trades are done in US$. This allowed the USA Central Bank, aka the Fed, to print as much money as it wants or felt need to! If other nation's central bank is to do that, its currency will depreciate so much and so fast that the nation will go bankrupt!!

Lessons for me are:

1. it is easy to blame someone that oneself!;

2. the BASIC economic model does not work anymore as many intelligent and smart economists, bankers, central bankers, businessmen, and academicians refused to accept that 'growth for growth sake' is simple untenable anymore! The past growth was a result of 'consumption for consimption' sake. The business world learned to produce goods and services that are transient and to induce consumers that they need to have the 'latest, newest, fanciest, technologically most advance, etc' products and services even when the existing ones they are having are GOOD ENOUGH! They are taught that 'good enough is not good enough'!!;

3. why are nations with a weaker currencies still IMPORTING increasingly more expensive EXPORTs from the factory of the world - China? After a depreciation of 22% since 2005, the import into the USA from PRC China is still increasing! i.e. still importing when the same thing or similar thing cost 22% more!! This shows that the consumers are mad or that they recognize a 'cheap' bargain when they see one despite the 22% depreciation in the US$. Yes?

As I have reiterated on many occasions, the huge trade surplus, the gigantic foreign reserve held by China are due to an unhealthy consumption habit by the West. This cannot go on forever. The Chinese in fact MUST never encourage their OWN consumers to consume like the West of the past to so-called boost growth. They need to ensure a steady growth in people consuming responsibly and in a measured manner. They need to balance between the resources required to produce those goods and services that the consumers really need in order NOT to run out of the production capability too early!!

Keep to PRC's unique way of dealing with the pressure to let RMB appreciate. PRC must NOT repeat the mistake of Japan in the early '80s. Period!!