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Is Chinese Currency Manipulation a Bad Thing?

One of the most striking features of the last two Presidential Debates was the rather strident, bipartisan China-bashing. While it’s relatively easy (and quite popular) to bash the Yellow Man for his purported economic misdeeds, I think the topic requires thoughtful consideration and a little more attention than either candidate appears to be giving it.

Currency manipulation came up a lot in the debate. Apparently, the Chinese are deliberately under-valuing their currency (shocking, I know). First, I think it’s useful to gain a basic understanding of how the Chinese yuan operates. For the last 20 years or so (the exact date eludes me), the Chinese government has maintained what is known as a “peg” on the US Dollar. So, as the dollar appreciates in value (becomes “stronger”), so does the yuan. As the dollar depreciates (“weakens”), the yuan also depreciates. This ensures a fixed exchange rate between the yuan and the dollar and theoretically eliminates some of the currency risk between the US and China. So, if an American wants to invest in China (or a Chinese in America), he can be reasonably sure that the value of his currency holdings won’t change over time and, in theory, this makes it easier to conduct business in both countries. This is in contrast to something like the Euro, which maintains a floating exchange rate. So, the value of the Euro via the Dollar changes daily. The Chinese government sets the value of the peg (currently set at about 6.3 yuan to the Dollar) and actively trades in the currency markets to maintain that value. Every now and then the government may opt to change the spot of the peg (they are currently allowing for some appreciation), but this is the only time you see any real change in the value of the yuan. Pegs are nothing new and nothing unique to Communist governments. The US Dollar was pegged to gold until Nixon severed the peg in the 1970’s. So, that’s how the yuan works.

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The yuan is generally believed to be valued at about 20% less than what it would be were the government to allow the value to float. This is the heart of the currency manipulation concerns. So, what does this mean? All else being equal, something priced in yuan whould be cheaper than something priced in dollars. But of course, everything else isn’t equal. People like to claim that China’s economic competitiveness is due largely to its intervention in the currency markets. However, there are other domestic factors that make China a hot-bed for manufacturing and industrial growth. One of the largest is labor costs. A recent report by the Bureau of Labor Statistics indicates that when compared to the United States, labor costs in China are 97% lower. In other words, if an employer pays an American $10/hour to do a job (make iPhones or something), he can pay a Chinese worker $0.30/hour to do the same job. Clearly, the employer is going to produce his goods in China. With such extreme differences in labor costs, a little currency manipulation isn’t going to change the equation much. There are other factors that make China a desirable place for businesses to set up shop (i.e. its rather lax attitude towards regulation and enforcement among others), but I think labor costs are key. With such low labor costs, even if the yuan traded at a “fair” valuation, China would still be the cheaper place to do business.

This then raises the question, what is the effect of the manipulation of the yuan on the average consumer? The answer is that the consumer gets a discount every time he walks into Wal-Mart, courtesy of the People’s Republic. So, on the consumer side, he can buy more things (things made in China, that is) for less money. Not too much to complain about there. Labor, of course, will complain about Chinese price advantages driving jobs overseas, but the fact of the matter is that those jobs were probably headed overseas anyway. Technically, I suppose this is a form of government welfare, with the PRC indirectly subsidizing American purchases of Chinese products. Conservatives generally take issue with any form of government subsidy, but is it really my place to complain if a foreign government wants to give me a subsidy? Really, instead of getting all over China for undervaluing their currency, we should be thanking them.

It looks impressive until you realize she’s only holding about $150.

Let’s also not pass over the sheer hypocrisy of the China-bashers. When the Chairman of the Federal Reserve is promising to pump $85 billion per month into the money supply indefinitely (thereby devaluing the dollar), it’s a little brazen for the federal government to get its nose out of joint over China’s effectively doing the same thing. Indeed, while the yuan has appreciated about 24% against the dollar since 2005, the Federal Reserve has spent the last four years printing off as many dollars as they can. The peg will help mitigate some of the effect of this unprecedented currency-printing on trade between the US and China, but for other American trading partners (Europe, for instance), the FED is effectively slashing the value of the dollar.

So, Chinese manipulation of the yuan isn’t quite so bad as people make it out to be. In all likelihood, it works out to be a kind of economic “stimulus” (if I may dare to use the word). It makes Chinese products a little bit cheaper, which allows consumers and businesses to buy more goods for less money. While there are some legitimate concerns about job losses, such concerns are overblown in light of China’s sharply lower labor costs and the FED’s Quantitative Easing program (look up Competitive Devaluation). There are some areas of legitimate concern in Sino-American relations. Threatening China with a trade war over its currency manipulation is a little ridiculous.

Of Princes and Pawns

I have been fairly intrigued by the actions of the Cardinal Archbishop of New York, Timothy Dolan. As one of the “princes of the Church” and as the ostensible face of the Catholic Church in America (in his capacity as President of the United States Conference of Catholic Bishops), he possesses a certain level of moral gravitas. Indeed, one should hope that a man of his standing would have a rather thorough understanding of Catholic social teaching. This makes his concurrent decision to both sue the federal government for “a violation of personal civil rights” and his decisions to invite the aforementioned civil rights abuser to the Al Smith Dinner and to provide the closing benediction at the Democratic National Convention quite perplexing.

To deal with the dinner first, the Cardinal argues, in a response to critics, that the Al Smith Dinner is nothing more than an opportunity to engage in civilized dialogue. He quips, “If I only sat down with people who agreed with me, and I with them, or with those who were saints, I’d be taking all my meals alone.” I find this explanation less than fulfilling, and it indicates that Dolan misses the point that his critics are making. The Al Smith Dinner is not merely Tim and the Gang grabbing a couple beers after work with their IRS auditor. It’s a national event that will be broadcast to the entire country and is a very public Church function. What kind of message will it send when people see the man who has been crusading against the HHS mandate all summer yucking it up with the creator of that mandate? And what about the people who spent the better part of the summer fasting and praying for an end to that mandate because “[their] right to live out [their] faith is being threatened“? They will think that the Church isn’t serious. They will think it’s merely a bunch of blowhards running around scaring people, but at the end of the day, it’s no big deal. They will think their leaders are a bunch of hypocrites, invoking everyone to fast and pray, while they go out and party.

Now, there’s something to be said for engaging the opposition. But granting your opponent a very large microphone against the backdrop of your organization while you sue him for voiding your right to self-determination is a bridge too far. The good Cardinal is naive indeed, if he thinks that Obama won’t use that opportunity as a major PR stunt. Obama could say something along the lines of, “They were suing me, but look at this picture of us laughing together. We’re all good now. They were just kidding about the whole First Amendment thing.” If the Cardinal’s Fortnight for Freedom shtick was intended to unearth the dangers of the HHS mandate, the Al Smith Dinner will only serve to bury them.

A similar argument can be made for the Cardinal’s appearance at the DNC this week, except that the contradictions are much more glaringly obvious. The Cardinal will give the final benediction at something that will have spent nearly a week celebrating abortion and the sexual revolution. Considering that abortion is the one policy that the American Church has consistently and vigorously opposed, Dolan’s capstone performance for the DNC is quite odd indeed. Coupled with the Al Smith Dinner, if his goal is to completely eliminate any moral legitimacy that the Church still has in the eyes of the public, he is well on his way to doing so.

Of course the burning question is “Why?” What could be motivating the Cardinal to act in such a manner? In my opinion, and this problem is by no means unique to churchmen, I think that proximity to power and influence can cause serious degradation in one’s moral fiber. When you spend a good portion of your day hanging out with Presidents, and congressmen, and Senators, you may encounter a lot of opposition to your views. You want to be liked. You don’t want people to think poorly of you. And you definitely don’t want to be called names. So, you capitulate. If Cardinal Dolan refused to invite Obama to the Al Smith Dinner, he, himself, would be inviting all kinds of partisan criticism. In the process, he would probably alienate himself from those in power. He would risk severing his very valuable connections with the White House and other agencies of the government. A drink from the chalice of power is very intoxicating, and once tasted, difficult to forgo. Of course, this sort of unholy alliance between the church and the government is hardly new (cf. Martin Luther), but it tends to have a corrupting influence on both entities (cf. most of Western history).

As a great man once said, “Our leaders today have decided it is more important to be popular, to say and do what is easy, and say yes rather than to say no, when no is what’s required.” Cardinal Dolan, it seems, would rather be popular.

Hoplophobia

Those who imagine themselves the cultural elites frequently resort to diagnosing their opponents with a variety disorders in order to explain the reasons for their disagreement. After all, when you’re a smart, Ivy League-educated egg-head, the only reason someone would disagree with you is if there is something wrong with him that affects his ability to think rationally. So, those who argue for traditional marriage are homophobic. Those who support enforcement of federal immigration laws are xenophobic. And so it goes. Yet, there is one area where these self-proclaimed shrinks fail to recognize a phobia of their own: Guns.

Hoplophobia, according to Wikipedia, is the “fear of weapons” or the “fear of armed citizens.” There is no better term to define the media’s (and much of the political establishment’s) reaction to the events in Denver this weekend. It didn’t take long before members of Congress, the media, and scores of other people began calling for new gun control laws. The country was simply ablaze with the story. While truly tragic, a car crash in Texas that same weekend, which actually managed to kill more people than the shooter in Colorado, generated almost no publicity (even as a report came out indicating that traffic deaths have increased 13.5% this year). Yet, no one is talking about banning cars (or illegal immigration for that matter). So, what gives?

I think the reaction largely has to do with people’s fear of guns. Some people are simply scared to death of them and would prefer not to have anything to do with them. This would explain why such things as the Federal Assault Weapons Ban (which effectively outlawed “scary” guns) remain popular in some circles. However, these hoplophobes ignore some rather crucial bits of information. First, the movie theater in Aurora was already a gun-free zone. Indeed, many of the places where these mass shootings occur are “gun-free” zones. Virginia Tech, Columbine, and most of the other high-profile shootings of the last 20 years were all gun-free zones. It turns out that these places were gun-free zones for everyone except the guy with the gun. Additionally, the hoplophobes also ignore many of the incidents where an armed citizen saved the day. Naturally, these incidents aren’t reported by the media, because… well, nothing happened. All anyone hears about guns is how much harm they cause. No one ever hears about the number of lives they save.

Hoplophobes ought to work to overcome their fear. It’s unknown what effect (if any) the presence of an armed citizen in the movie theater would have made. But how many times are we told that if some program or policy or law can save (or improve) just one life, it’s worth doing (that’s why we have ObamaCare, right?)? While such a fear of guns is certainly understandable, that doesn’t make it any more rational. Guns are merely a tool, and attempting to ban or restrict their use will not prevent bad things from happening. If you ban guns, people will simply find more creative ways to kill each other. The fact of the matter is that there’s evil in the world, and that is one thing you cannot legislate away.

Drumming, Ringing, and Chinese Catholics

Matteo Ricci, in the front courtyard

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Today, I went to go visit the Nantang Cathedral (technically that’s redundant, as “tang” is the word for “cathedral”, but eh). It was originally founded by (interestingly, not “saint”) Matteo Ricci, a Jesuit and one of the first missionaries allowed outside Macau. The “South Cathedral” is the oldest church in Beijing, originally built in 1605. However a series of earthquakes and the Boxer Rebellion destroyed several earlier versions of the church. So, the foundation is really all that’s left of the original church. The Mass was well-attended, but there were some oddities. There was a team of people (as in about half a dozen) with CCTV video cameras wandering around the church throughout the whole Mass, and they appeared to be trying to film everyone in the building. It was quite odd, as it there didn’t appear to be any important church officials (archbishops, cardinals, etc.) present, and the cameramen went to great lengths to film people in the pews (that is, until they suddenly left). Then there was the little kid who, in between running around the back of the church, ran up to his brother (sitting next to me) and started yelling at him that they had to leave (or they’d die) because he’d seen some PSB (Public Security Bureau) goon out back. The whole thing was weird. It’s worth noting that Nantang is one of the state-sanctioned churches. I actually discovered that the bishop who oversees it is one of the few approved by both the Chinese Catholic Patriotic Association (i.e. the government) and the Vatican.

After that rather odd encounter with Chinese spirituality, I went to Houhai to visit the Bell and Drum Towers. These are actually two separate towers which were used during the Yuan, Ming, and Qing Dynasties to sound the time. The Bell Tower houses a huge bell (about 40 feet top to bottom), which goes by the title “King of Bells.” The Drum Tower houses a hall filled with large drums (approximately 10 feet in diameter). Every hour, a team of drummers comes out to play the drums. I’ve included two clips of the performance below. Because the towers are fairly tall, you can also get a nice view of the surrounding area. The towers are actually built on a straight line with the center of the Forbidden City. The weather was a bit overcast, but I could still sort of make out the tops of some of the Forbidden City’s buildings. There were also several hutongs at the base of the towers, so you could also get an aerial view of some of those.

Policing and the Night Life

A police officer's uniform (1960's-1970's)

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Yesterday, I took a tour of the Beijing Police Museum, which recounts the history of Beijing’s Municipal Police Department (which operates under the eerily-named Public Security Bureau). Entering the museum was an interesting experience. As a student, I got in free (even using my UNC credentials). In the course of explaining my student ID to the front guard, I discovered that he was a fan of UNC’s basketball team. So, we got along quite swimmingly.

The museum was pretty interesting. It was small compared to some of Beijing’s other museums, but considering it focused exclusively on the Beijing Police Department, it was fairly comprehensive. The first floor contained a broad history of the department: its establishment in the late Qing; its different forms under imperial, Nationalist, and Communist rule (including its total destruction during the Cultural Revolution); and its more recent history through the 2008 Olympics. Some of the more interesting exhibits focused on the Communists’ efforts to root out remaining Nationalist elements in the capital after 1949. Apparently, they were still capturing Nationalist spies and radio sets well into the 1950’s. It’s been a fairly popular technique for the police to require “confessions” out of dissidents shortly before they’re executed. So, they had several of these confessions from prominent Nationalist rabble-rousers on display. Some of them were quite lengthy, running for two or three pages. The history of the department during the Cultural Revolution was also interesting. Several thousand of the department’s officers and commanders ended up getting purged in the course of the Revolution (with about 100 or so being executed), effectively eliminating the police force as a functioning entity.

The second floor covered some of the more ancient history of Chinese law enforcement. However, they also displayed some modern tools and methods. There were several different exhibits on various (grisly) crimes committed in Beijing in the last twenty years or so. The exhibits mainly covered murders and kidnappings, but there was a drug case thrown in too. They had the criminals’ weapons, bags, drugs, etc. all on display, along with pictures of the victorious team of detectives who brought the criminal to justice. Apparently, the Chinese can be quite nasty to each other. There was also a display on the Chinese prison system, which emphasized the Communists’ departure from simple imprisonment (used during the imperial era) in favor of “re-education through labor.” The Communists have something of a unique approach to criminal justice. In addition to the whole labor re-education thing, I’ve also read accounts where, upon release, the ex-con gets the bill for the cost of his imprisonment. Maybe California should consider something similar.

The third floor covered traffic enforcement and fire-fighting (which also falls under the responsibilities of the police department). There was also a memorial to Beijing’s officers killed in the line of duty. Judging from the plagues on some of the displays, it appears as if officers killed in the line of duty are designated as “martyrs.” I don’t know if that’s something just lost in translation, but it’s interesting to think about. If you hold up the state as the end all and the be all (as communism does), then logically it makes sense to christen those killed in its defense as martyrs.

That night, I took a tour of Tiananmen Square and the Bird’s Nest. It was a little foggy (or smoggy), but the lights were still pretty impressive. The pictures are included above.

 

Planes, Tanks, and Automobiles

Out front

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Over the weekend (Sunday, actually) I went to go visit the Military Museum of the Chinese People’s Revolution. It was fairly infested with propaganda, but fairly interesting nonetheless. The first floor contained the Hall of Weapons, where you could go see (literally) dozens of tanks, planes, missiles, cars, etc. used in modern Chinese conflicts. Most of the exhibits tended to focus on the period from 1949 on, but there a few relics from the Republican and Civil War eras. There were also a fair number of American and European machines mixed in with the Chinese and Soviet ones. All of the signs describing everything were in Chinese, but most of the Western tanks and whatnot appeared to have been captured during the Korean War.

Moving up to the second floor, there were several cases of pistols, rifles, missiles, machine guns, etc. that you could gawk at. I kind of liked the spy weapons case, with its pen guns and glove guns and really small guns. They had also split open a few of the missiles, so you could take a peek inside the guts of a few of the missiles. This floor also had a section devoted to what appeared to be famous Chinese marshals and other influential military figures. China being China, people like Marx, Lenin, Deng, and Mao all managed to obtain (several) spots in this gallery. Most of the figures were busts, but there were also a few very large statues. At the end there were several busts that appeared to have very little relationship with Chinese military history. The most striking was the salesman, but maybe he was some sort of defense contractor?

The second floor also contained an exhibit on the Second World War (or as it’s more locally known, the War of Resistance Against Japan). It was pretty interesting. The little signs describing everything were unapologetically pro-Chinese, castigating the Japanese for their hideous war crimes. This was particularly evident in the Nanjing exhibit, where “Japanese” and “slaughter/massacre” were used in just about every description (it also included the skull of one of the Chinese victims- a little creepy). If you knew nothing else about the war, and only read the little placards (which, were also in English) scattered around the exhibit hall, you’d also come away thinking that the Chinese Communist Party pretty much won the war all by itself (while, of course, the Nationalists did everything they could to sabotage the Chinese resistance). Periods of significant Chinese defeats were described as periods of strategic non-advancement, while mention of Western influence in the Pacific theater was scant. The exhibits were very thorough though, containing original copies of memos from the party and military leadership in addition to all kinds of everyday tools used by soldiers in the war. Despite its shortcomings, it was pretty interesting.

The third floor had an exhibit on the modern Chinese military. There were several models of Chinese military equipment (including a nuclear bomb) and all kinds of pictures of the PLA training and saving people and whatnot. This floor also contained a room that held all of the gifts that the PLA has received from foreign governments and militaries. It was quite impressive, as the gifts tended to reflect the culture of the giving country. They had the room broken down into different sections based on continent, so you could wander through the African gifts onto the Asian gifts, etc. In the center of the room was a large, golden globe that was supposed to symbolize world peace or something like that. If you walked through the Hall of Gifts, on the other side of the floor was an exhibit on the European colonization of China. There were various artifacts from the two Opium Wars, the Sino-French War, and other conflicts with the West. Needless to say, the exhibit was not very complementary of 19th century Western foreign policy. There were also several large canons scattered throughout the exhibit, which apparently were used to fend off (mostly British and French) attacks on Chinese forts and ports. They actually one of the canons situated outside the museum by the main entrance, which would seem to indicate that while most Westerners are largely unfamiliar with China’s “century of shame,” it’s still very much on the minds of the military and political leadership.

The final exhibit (on the fourth floor) was on the Korean War, or “The War to Aid Korea and Resist America.” If I remember correctly, I think the Chinese actually sustained more casualties in this war than any of the other countries involved in the conflict (some people place it as high as 1.5 million). It was largely promoted as a war to check American imperialism on the Korean peninsula (which the Japanese have historically used as a staging ground for invasions of China) in addition to promoting international communist brotherhood and other such nonsense (hence the name). The exhibit largely reflected this theme, recounting the heroic efforts of the People’s Volunteer Army to save the Chinese from the imperialistic Americans. They also had a mock tunnel (they do seem to like tunnels) that gave you a glimpse of a soldier’s life in the trenches (so to speak).

I also managed to pick up a model airplane. Except this airplane is made entirely out of spent rifle shells. It’s pretty epic, my only concern is getting it on the airplane.

Hutonging It Up

The main courtyard

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The other day, my class took a trip to go visit a Siheyuan and a hutong. The Siheyuan is a small compound that serves as a home for approximately three generations of the same family. It’s walled in on all four sides, with the main buildings occupying the periphery. A courtyard occupies the very center of the siheyuan. There’s usually some trees and whatnot planted in the courtyard, and some places will even have ponds full of goldfish. It was a nice little place, but I thought that it was a bit small, particularly given that you, your parents, and your grandparents are all supposed to live in it together.

There were also several hutongs nearby, so we went to go visit one of those next. They were really little more than city alleys, so I don’t completely understand all of the hype that they get. Some of them are pretty old (as in hundreds of years), but the condition of the people living in them left a lot to be desired. There’s some debate over whether the government’s policy of bull-dozing the hutongs in favor of shopping malls and apartment buildings is a good idea. But I know, that I’d personally rather live in an apartment than in one of the hutongs. We talked to some people who lived in the hutongs and, they seemed to concur with this assessment. They made it quite clear how much they disliked their hutong. Apparently, American-style housing is preferable. Go figure.

 

 

Of Emperors and Revolutionaries

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On Saturday I took a stroll around Tiananmen Square. It has a fairly interesting history, particularly as regards China’s political development in the 20th Century. It was the scene of the birth of the May Fourth Movement in 1919, which kind of got the whole ball rolling as far as Chinese Communism goes. Then, on October 1, 1949, Mao proclaimed the establishment of the People’s Republic of China from the top of Tiananmen Tower (which is now adorned with his portrait). Tiananmen Square was also the site of the 1989 student demonstrations. As a result of this, the place was crawling with members of the local police force, SWAT team, and the PLA (People’s Liberation Army). To visit the top of Tiananmen Tower, you had to undergo a fairly invasive pat-down that would make the TSA proud.

However, it was a fairly interesting place to wander around. I hit the Tower, walked around the Monument to the People’s Heroes (though, they didn’t let you get much closer than about 100 yards away from it), Zheng Yang Gate at the opposite end of the square, and wandered around the outside of the Great Hall of the People (where China’s “Congress” meets). They actually have Mao’s body preserved inside the Mao Zedong Memorial Hall, but apparently visiting is only allowed in the morning. So, I missed that. I also wanted to wander around the inside of the Great Hall of the People, but the building was closed for some sort of official function. But I may try to make a second pass at these places.

I also walked around Zhong Shan Park, which is right next to Tiananmen Square and also contains a memorial to Sun Yat-Sen, who occupies the strange position of being the hero for both the Communists on mainland China and the Nationalists on Taiwan. It was also just a nice place to wander around.

I also made my way out to the Forbidden City on Sunday and will have those pictures up shortly.

Singing in the Rain

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Yesterday it rained… a lot. I’m not sure if this is typical or not, but it was fairly impressive nonetheless. Throughout the city, there are several underground pedestrian walkways, which allow you to walk under an intersection rather than through it (which considering the state of traffic in Beijing, it’s definitely a good idea). Apparently several of them don’t have drains. So, when it rains, they fill up with water. I actually saw one that was filled with about 6 or 7 feet worth of water (and completely impassable as a result). The wonderful people of the Beijing Municipal Government did manage to have the whole thing completely drained (and cleaned) by this afternoon, though. I’m not exactly sure how they did it, but I’m definitely giving them a star in that column. Of course, the whole thing could have been resolved had someone had the presence of mind to put drains in the thing. I guess they’re able to make it work. I’ve posted a few pictures of the view outside my room as the storm started to roll in (at about 4pm).

Last night, I also realized that I had forgotten to bring an umbrella with me. The magnitude of this error was compounded by the fact that when dinner rolled around, I had no food and no umbrella. I got to be quite wet. Apparently, it’s not so easy to buy an umbrella here either, as the department store I went to didn’t have any that weren’t flamboyantly pink and less than $30. It was quite disappointing. I did manage to console myself somewhat by buying a 2L of Coke, but I was still very wet.