China Prepared for Currency War

China has announced that it would be unhealthy for everyone if the US was to continue its currency war against China. Chinese Premier Wen Jiabao spoke to European businesses and governments warning them not to follow the United States’ effort to force China to revaluate its currency. The recent push by the US is intended to help its economy recover, while having negative effects on China’s.

China’s recent efforts to recover from the global economic recession has been more effective than bourgeois economist have expected. However their efforts were predicted by Marxist economists. China instituted a kind of policy of allowing workers to push to increase their wages. This is allowing workers to start purchasing some of the commodities they produce. This has allowed their economy to grow and recover from the recession, if faster than they expected. An effort to slow growth is necessary to prevent credit bubbles and other such side effects of quick growth.

According to experts, “the Chinese economy continued to surge by 9.6 percent in the third quarter, down slightly from the second quarter growth rate of 10.3 percent.”

While the US has been pushing China is increase the value of its currency, Wen Jiabao responded:

“Should the yuan appreciate by 20 to 40 percent, as demanded by some people, a large number of Chinese export enterprises will go bankrupt, the workers will lose their jobs and the migrant workers will have to go back to the countryside, making it hard for society to remain stable,”

If the US has its way in increasing its currency it would harm the Chinese economy a great deal. The Premier reminded the world and the US specifically how important the Chinese economy is:

“China contributed about 50 percent of the global economic growth in 2009. It is a huge market with great potential for many enterprises. Once again, I would like to tell our friends in the industrial and business community candidly: Don’t pressure China on the appreciation of the Chinese yuan.”

The problem is that Chinese exporters don’t have decent profit margins. If they increase costs by even a little, customers can easily move manufacturing to Vietnam which is even cheaper than China. Vietnam has made itself more open to US business interests since the US has started “advanced negotiations” with Hanoi to sell nuclear fuel and technology. This deal would enable Vietnam to enrich its own uranium to produce fuel for its power reactors.

An increase in the value of the Chinese currency would increase operating costs thus making profit margins of export manufacturers too thin to continue producing. This drop in manufacturing will cause many urban workers and migrant workers to become unemployed. A sudden increase in unemployment would accelerate the already growing social tensions. The situation has the potential to be explosive.

Chinese economist Dee Woo in the Wall Street Journal explained China’s position: “Yes, a strong yuan would help the Chinese economy be less labour intensive and more capital intensive, which would move China up the international economic food chain. But China hasn’t found a model better able to absorb its abundance of employment seekers than labour-intensive production.”

In my opinion this would be a disaster for the Chinese economy. Taking a country as large as China (any country for that matter) and convert its economy to a “capital intensive” economy would cause all the problems the US is currently facing.

If the social situation in China worsens, it could have disastrous effects on the world. Workers are already beginning to stage massive strikes for better wages in the automobile and electronics fields. If workers were to united in larger numbers, there is no telling how reactionary and repressive the Chinese government could become.