CHINA – UNITED STATES – G20 “There will be a world war over currency”

world | Nov 16, 2010 | By Asia News

Washington – The so-called G-20 Summit opened in Seoul, the capital of South Korea, on 11 November. Expectations for this meeting by the international community were very high, because it was considered as an important opportunity to solve the current economic crisis. Almost all the major news media in the world gave their unanimous pre-summit assessment of the need to solve the issue of the Chinese currency, the renmimbi (yuan). Otherwise, the summit would be considered as a failure.

Renmimbi and labour costs

Why is the renmimbi exchange rate so important? Why is this issue related to the recovery of the global economy? To answer these questions, we need to start from the reasons for the global economic recession. Now we all see the global economic recession started from the economic recession in the United States and Europe. The economic recession in developed countries started from the huge trade deficit year after year. There are many reasons for this huge trade deficit, but two stand out. One is cheap labour; the other is that the Chinese currency renmimbi is far lower than the market price.

Cheap labour causes increased competition. This is acceptable to all. With the accumulation of capital and the increase of skill levels, the labour costs should also gradually increase. Gradually, the whole society would enjoy the fruits of economic growth and the extraordinary competitive advantages would become more balanced. This situation is not only a normal and sustainable development model, but also a model, which is conducive to global economic development.

Brazil, India, and a number of developing countries use this type of development model. Therefore, while their economy develops, their national standard of living also grows, synchronized to expand the domestic market. This development is a positive factor for the economies of these developing countries. We could call this is a win-win development model.

However, this development model also has drawbacks. The disadvantage is that wages increase in synchrony with the economy, which is not favoured for big capitalists to make excess profits, and is not favoured for the growth of billionaires. As a government for the big capitalists using "the few to get rich first" model, the Chinese government under the Chinese Communist Party's leadership took a totally different path: the so-called "China model."

The “China Model”

The "China Model" is to maintain the lowest possible labour costs and not to develop the domestic market, while maintaining economic development. This approach sacrifices the national income of the people in an effort to guarantee the price gap with the international market, and so create the best conditions for the big capitalists. One cannot reach such a goal by simply suppressing the labour movement. That is because the market will automatically adjust the exchange rate along with the economic development, thus resulting in the rise of real wages. That is to say, if the government does not interfere with the rising of the Chinese currency renmimbi, people's real purchasing power will keep rising. The benefits created by economic growth will automatically be delivered to the pockets of every member of society as it balances.

But this way will not only result in the pockets of the big capitalists shrinking, but also make it more difficult to buy major Western enterprises. To unite with the big capitalists in the world in an effort to defend the dictatorial regime of the Chinese Communist Party has become basic national policy of the Communist Party. Thus, the policy of keeping a super-low price for the renmimbi by manipulating the exchange rates comes into play. This is the so-called the "China model." By the way, this policy is not the invention of Jiang Zemin and Hu Jintao, but a policy started all way back in the Deng Xiaoping and Zhao Ziyang era.

Decline of Western economies

This policy of manipulating the price of the renmimbi is very effective. In particular, after China obtained free export rights, or say after it received the so-called most favoured nation treatment, a large number of low-quality goods flooded the developed countries markets with super low prices. As it destroyed the industries of the Western countries, it did not increase export to China, nor create a market for the superior industrial products of the Western countries. Therefore, naturally, the West's economy gradually declined, while financial capital was in constant growth. The result is the characteristic of this global economic crisis: as the money seemed to be growing, the market has been rapidly shrinking. The big capitalists have their wealth and numbers increased, while the number of the poor people is also rapidly growing.

Due to the lobbying of Western big business, the Western politicians have been afraid to talk about this very obvious problem. However, the Western countries are democratic after all and they have freedom of speech, and the ultimate decision-making power rests in the hands of the people. In the past decade, this serious problem has been discussed more and more by the ordinary people and the media, to the extent that the politicians cannot avoid it.

With this year's US mid-term elections as a turning point, the issue of the Chinese currency renmimbi exchange rate resulted in a miserable defeat of the Democratic Party. Finally, the US government felt compelled to address this fundamental issue, which has a serious impact on the global economy. To Western politicians, campaign contributions are important, yet of less importance and less direct than votes. Also, while democracy does not guarantee the selection of the most caring politician, it does ensure that the people can control the politicians, can force the politicians to care more for the people. This is the reason that the Obama administration has to address seriously the renmimbi exchange rate issue. In this situation, the Chinese Communist government's policy of buying the Western big capitalists is not very useful.

Before the mid-term elections in the United States, all sectors expected the defeat of the Democratic Party. After the election, the US government immediately took measures to create a weaker dollar. In the past, the Obama administration has collaborated with the Chinese Communist government like a two-man show. As it faced an increased pressure of public opinion, it continued to send officials to China for negotiations seeming to be very concerned about the renmimbi exchange rate issue. Then, China's Premier Wen Jiabao would pretend to be overbearing, thus the issue did not get solved. The result was that the big capitalists of both China and the United States could continue to make big money, while the ordinary people of both China and the USA have continued to be poor and the global economic recession has continued.

“Third World War”

Now, the American people have forced the Obama administration to choose between campaign contributions and votes. All of a sudden, the US government seems capable of working toward a solution. Indeed, while the renmimbi is under Premier Wen’s control, control of international finance remains in the United States. The control of the Chinese Communist Party really is not as great as they showed in the two-man show. Therefore, as soon as the US government started action, the dollar depreciated immediately. Exports are expected to increase immediately while imports are expected to slow down quickly, and employment should increase rapidly. A sensational French newspaper called it World War III. This time, it is not a nuclear war, but the currency war.

We can already predict the outcome of this war. The still most powerful United States, united with the majority of countries, will defeat the alliance of economic Fascists. These bumptious big capitalists in China are absolutely not an opponent to Western democracy. The G20 meeting is the last negotiation before the war. The United States has laid out the battlefield: there will be an appreciation of the renmimbi if the Chinese government is willing to negotiate; there will also be an appreciation of the renmimbi if it is not willing. However, the consequences of "with negotiation" and "without negotiation" are totally different.

If Chinese government takes the initiative to raise the value of the renmimbi, and opens up China’s domestic market to imports, then the trade war between China and the United States will subside, the global economy will start to recover, and domestic inflation in China will rapidly subside. This trade balance would be of great value, and will not cause any harm not only to China, but also to the world. Of course, the wealth of the big capitalists will shrink, while the gap between the rich and poor will narrow. However, it is very likely that Wen Jiabao will continue to resist this path.

The result of his resistance is that while there will be a world war on currency, countries will also begin to take measures like put up trade barriers. Then China's exports will decrease and its economy will slow down while inflation will continue to rise until people cannot bear it any more. China itself will experience civil strife. When it is no good for the people, will it be good for the Communist Party?

I hope people with breadth of vision inside the Chinese Communist Party will think carefully, with a cool and clear mind. Which is more important, the immediate wealth of the big capitalists or the continued survival of the country?

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