“U.S. Treasury Says Chinese Currency Isn’t Manipulated”
A Wall Street Journal article published December 20 titled “U.S. Treasury Says Chinese Currency Isn’t Manipulated” brought into question whether or not the title statement was politically motivated. Judging by the comments quoted from Senators Schumer (D., N.Y.) and Graham (R., S.C) no one could really argue this point. What is not addressed is that China has very little choice in whether or not it manipulates its currency, but when will its needs finally outstrip its abilities to manipulate and what should its economy expect when China can no longer keep it up?
Measuring unemployment in China has always been difficult. In an article for the China Economic Review entitled “What is China’s True Unemployment Rate?” it estimates urban unemployment at 14% in 2002 and continues for many pages trying to frame the answer in appropriate context of assumptions. Current estimates seem to be around nine to ten percent.
As China continues to be sluggish in allowing its currency to float freely, internal pressures will eventually make the point moot. If the exchange rate is kept artificially low, and China continues to control capital movement into and out of the country, forces of inflation will eventually dominate, slowly eroding the price advantages that China’s labor markets enjoy.
Several factors will continue to keep Chinese unemployment high
Several factors will continue to keep Chinese unemployment high. Productivity of Chinese workers is increasing as more and more technology is available to Chinese workers. As the Chinese Yuan increases in value relative to the dollar, Chinese exports become more expensive to residents of other countries reducing demand for those products, as seen by struggling Chinese importers to the U.S. like Walmart (Wall Street Journal article “Hefty Discounting of Flat-Panel TVs Pinches Retailer”, December 20, 2006).
Most of the unemployment figures are stated for urban areas
The biggest unknown factor in unemployment is the influx of rural residents that will eventually move to the cities. In the U.S., this effect happened in the early 1900s, but is just beginning to happen in China. Most of the unemployment figures are stated for urban areas. As the quality of life improves in Chinese cities, more agricultural labor will be attracted to the urban areas, just as the improving economy and quality of life appeal to scientists who are repatriating (see entry “The New Brain Drain”), increasing the labor pool and potential unemployment.
… if it slows too quickly, the unemployment in China will skyrocket
The increase in both productivity and labor pool size has allowed amazing growth in China’s GDP. If China releases control of its currency too quickly, the momentum built up by new entrants into the labor market and other unemployment factors could easily swamp the economy. The question is, does China have enough staying power to control the money long enough to prevent a hard landing? Inflationary pressures could be a reasonable measure to see how effectively China is managing the situation. Inflation helps to slow the economy much as a rising currency valuation does, but if it slows too quickly, the unemployment in China will skyrocket.
A Wall Street Journal article published December 20 titled “U.S. Treasury Says Chinese Currency Isn’t Manipulated” brought into question whether or not the title statement was politically motivated. Judging by the comments quoted from Senators Schumer (D., N.Y.) and Graham (R., S.C) no one could really argue this point. What is not addressed is that China has very little choice in whether or not it manipulates its currency, but when will its needs finally outstrip its abilities to manipulate and what should its economy expect when China can no longer keep it up?
Measuring unemployment in China has always been difficult. In an article for the China Economic Review entitled “What is China’s True Unemployment Rate?” it estimates urban unemployment at 14% in 2002 and continues for many pages trying to frame the answer in appropriate context of assumptions. Current estimates seem to be around nine to ten percent.
As China continues to be sluggish in allowing its currency to float freely, internal pressures will eventually make the point moot. If the exchange rate is kept artificially low, and China continues to control capital movement into and out of the country, forces of inflation will eventually dominate, slowly eroding the price advantages that China’s labor markets enjoy.
Several factors will continue to keep Chinese unemployment high
Several factors will continue to keep Chinese unemployment high. Productivity of Chinese workers is increasing as more and more technology is available to Chinese workers. As the Chinese Yuan increases in value relative to the dollar, Chinese exports become more expensive to residents of other countries reducing demand for those products, as seen by struggling Chinese importers to the U.S. like Walmart (Wall Street Journal article “Hefty Discounting of Flat-Panel TVs Pinches Retailer”, December 20, 2006).
Most of the unemployment figures are stated for urban areas
The biggest unknown factor in unemployment is the influx of rural residents that will eventually move to the cities. In the U.S., this effect happened in the early 1900s, but is just beginning to happen in China. Most of the unemployment figures are stated for urban areas. As the quality of life improves in Chinese cities, more agricultural labor will be attracted to the urban areas, just as the improving economy and quality of life appeal to scientists who are repatriating (see entry “The New Brain Drain”), increasing the labor pool and potential unemployment.
… if it slows too quickly, the unemployment in China will skyrocket
The increase in both productivity and labor pool size has allowed amazing growth in China’s GDP. If China releases control of its currency too quickly, the momentum built up by new entrants into the labor market and other unemployment factors could easily swamp the economy. The question is, does China have enough staying power to control the money long enough to prevent a hard landing? Inflationary pressures could be a reasonable measure to see how effectively China is managing the situation. Inflation helps to slow the economy much as a rising currency valuation does, but if it slows too quickly, the unemployment in China will skyrocket.
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