Who's really working the system to their advantage?
'What is also true is that China has been very aggressive in gaming the trading system to its advantage.'
US President Barack Obama
SCMP, October 7
I have always been of the view that in matters of finance and economics Barack Obama distinguishes himself with a matchless talent for looking thoughtfully into the middle distance ... and little else.
To whose advantage, Sir?
On the day before the president made this remark Apple came out with its latest iPhone. This China-made device is a guaranteed success because, however high Apple's prices may be relative to those of its competitors, they are still jaw-droppingly low compared to what anything conceivably similar would have taken out of the customer's pocket 20 years earlier.
Look at the evidence of the chart. The price of toys in the United States is now barely a quarter of what it was 14 years ago relative to per capita income. Other consumer gadgetry shows the same trend, but toys will do for iPhones as I see no distinction to make other than that children play with toys at home and adults play with them on the MTR.
What has happened here is a revolution in consumer goods. I remember mulling for weeks over the purchase of my first stereo system in the 1970s. I wouldn't trouble with that sort of thing for more than a minute now. I may not even need to go to an ATM to top up the cash in my wallet.
And who has wrought this miracle for me?
The answer, most prominently, is millions of industrial serfs in China, working the skin off their bones every day for barely enough pay to cover the cost of a decent meal when the day's work is over. They have conferred this new horn of plenty on the developed world and little share of it do they get for their labours.
Thus my question to Mr Obama. Who is really the winner here?
If he then wishes to say that the owners of these industrial enterprises have taken the rewards I shall agree with him and pose him another question. Just who do you think the owners of these enterprises are, sir? Let me tell you. The figures show that more than half of China's exports come from foreign-invested enterprises. You can safely regard most of the rest as foreign-controlled through sales contracts. When Wal-Mart Stores buys from you Wal-Mart owns you. In other words, Americans are the most prominent beneficiaries of this miracle not only as consumers but as owners.
Of course, it is actually Mr Obama's complaint that America suffers from a trade imbalance with China and he wants it rectified.
Being a lawyer by trade, however, he is unable to understand that these things are always rectified in the balance of payments. China has a surplus of US dollars on hand because it sells more goods and services to the US than it buys from the US. It therefore returns this money to the US by investing it in the US, most prominently in US government debt securities.
We now have a US president who would desperately like to keep US interest rates low to stimulate a US economy that is getting a little tired of being prodded. It will no longer get up and walk so easily at the White House's command.
But who does more to help Mr Obama continue applying this prod by forcing interest rates down to an unnaturally low level for an unnaturally long time? Who has pumped an average of US$200 billion a year in fresh money into US financial instruments for the past five years and thus taken the pressure for higher interest rates off Mr Obama's shoulders?
Why, that would be China. What a surprise.
But in one year it will be election time again in the US and Mr Obama cannot afford to be portrayed as soft on evildoers who destroy American jobs. He must speak up. China is gaming the system.
Yes, well, I do indeed smell something a little gamey here.