The Dollar’s Not Almighty Anymore: Facing a Free Fall in China?

By; Dave Llindorff

Shanghai — I was talking yesterday with the chief financial officer of a US-based drug firm that operates here in China, producing for the Chinese market, and got an up-close look at how bad things are for what used to be called the Almighty Dollar.

The company in question, a joint venture between a very profitable U.S. drug company and a local Chinese company, is quite profitable itself.

The guy was explaining to me that his firm needed to add another factory, because the one they had was running full-tilt and couldn’t keep up with demand. That might sound like a simple problem, and one that most enterprises would be happy to confront, but the shrinking US dollar, and concerns in China about inflation, complicate things.

You would think that it would be a simple matter of the parent company’s sending over the $50 million or so that it would cost to build the new plant and that would be that, but it turns out that the dollar is falling so fast against the Renminbi (RMB), the Chinese local currency, that no contractors or other vendors necessary for setting up a new facility are willing to accept it as payment. That means the company has to try and come up with the construction costs in local currency.

I won’t go into the arcane machinations that involves, except to say that because Chinese financial authorities and the country’s central bank, the People’s Bank of China (PBOC), aren’t letting local banks or foreign-owned banks with offices in China lend money without going through a tough approval process, the outcome of which is iffy, and they are setting interest rates at 6.5% for those loans they do approve, which is a pretty stiff rate to have to live with.

The important point here is that the dollar is being viewed here in China the way people in the U.S. have typically viewed Mexican pesos or Chinese RMB.

(The dollar doesn’t buy as many RMB as it used to, and now nobody even wants it in China)

I remember back when I was a Fulbright professor at this city’s elite Fudan University, back in 1991-92, people wanted dollars so badly that you had to be crazy to go to a bank to change them at the official rate of about 8 RMB to the dollar. Practically anyone you met, even strangers on the street, were willing to swap you their RMB bills at a rate of 9 or even 10 RMB to the dollar. I had an American friend who told me he was riding his bike into the city, and was on a crowded street packed solid with slowly moving bicyclists when everyone was forced to press to the side to allow a bus to pass. His bike ran up against a neighboring cyclist and the handlebar cut a gash in the man’s wrist, apparently severing a small artery, which began gushing blood. My friend, who like me spoke Chinese, began apologizing profusely, and was getting off his bike to offer help when the man began asking, “Change money? Change money?”

Today, if you’ve got dollars nobody wants them, but I’ve been told that if you have RMB, you will find the reverse situation, with just about everyone having dollars they are stuck with that they’re desperate to unload at way above the official exchange rate of 6.35 RMB to the dollar.

That should tell us Americans all we need to know about what is being done to our own economy and to our standard of living. According to Business Week magazine, Americans will spend about $1.7 trillion on consumer goods, including gasoline and oil, this year. More than half of this amount is imported, meaning that we Americans are spending about $1 trillion a year on imported goods. As the dollar sinks — and it’s sinking because of the deliberate policies of the government and the Federal Reserve Bank — the cost of those goods rises (actually the costs of many other goods, seemingly locally produced, also rises because so many of the components–for example the parts that go into a supposedly US-made car–are imported from abroad).

For most of those goods — particularly oil and gas, but in fact most others too, from computers to televisions to small fuel-efficient cars to clothing — there are no domestic substitutes, because other deliberate government policies, such as the latest international trade pact President Obama and Congressional Democrats and Republicans reached with South Korea, have pushed or driven manufacturing overseas, effectively de-industrializing the United States. So we Americans have little choice but to pay more for the products we want or need. Either that or we cut back on our standard of living.

This is happening of course in a time of 20+ percent unemployment or underemployment, when wages are being hammered by greedy employers taking advantage of the desperate desire for jobs, and of the severely weakened labor union movement.

No wonder Americans are taking to the streets to protest Wall Street, and the bought-and-paid elected officials who have been stripping the economy like a demolition crew in a condemned building before the arrival of the wrecking ball!

Meanwhile, here in China, where the country has been vacuuming up American dollars like an Orick TV commercial, people, at least in the big cities like Beijing and Shanghai, are looking incredibly well off. HuaiHai Road, a major east-west thoroughfare I remember from as late as 1996 as having been a drab street lined with dismal-looking noodle shops and stores selling shoddy tools and drab, poorly made clothing for the local market, and street vendors selling produce, is lined with top-of-the-line fashion stores thronged by women seeking the latest look and restaurants that charge almost New York prices.

Instead of fleets of bicycles, or even the motor scooters that throng streets in much of Asia, Shanghai’s streets are filled with new cars, many of them costly Toyotas, BMWs and Mercedes sedans. Of course the wealth gap in China is enormous — roughly what it has become of late in the U.S. — but even the working class here, at least in the cities, feels generally better off, because of where they’ve come from, while we in the U.S. are seeing ourselves sink.

All those dollars (and euros) pouring into China, and especially into cities like Shanghai and Guangzhou in the south, are also being put to use raising the standard of living in other more collective ways. Friends of mine here in Shanghai who used to live in cramped one or at best two-room bare concrete walled and floored flats, often with no bath and a shared community kitchen, are today ensconced in four-room apartments, nicely appointed, with tiled full bathrooms, spacious kitchens, and wood parquet floors. When they travel into the center of town, instead of riding a bike for two hours, they hop on a modern subway–part of a city-wide system completed in some 15 years’ time that now rivals the Paris Metro or the London tube, only with all glistening new stations and cars. There’s even a mag-lev segment to take people to the airport.

Schools have also received a tremendous amount of funding, from grade school through college. I could barely recognize Fudan’s modern campus with its towering new buildings and surrounding well-groomed parks and campus grounds.

I don’t want to overstate China’s progress. This country and its people face huge challenges. The environment has been raped and in many parts continues to be raped, there are beggars sleeping on the sidewalks, prostitutes proposition foreigners even on the better streets of Shanghai, and the air in this city, while perhaps a bit cleaner than I remembered, has me coughing and clearing my burning throat constantly after only a week here. It also continues to be a police state.

But the point is that despite all that, this remains a country that is improving the lot of its citizens, while the U.S. is clearly moving in the opposite direction. More importantly the impoverishing of Americans is happening, clearly, by design, as U.S. politicians act not in the interests of the many, but of the 1% who own them.

China’s political system is at least as corrupt as the U.S. system, but what is different is that the Chinese elite has a healthy fear of the wrath of the public. The violent risings of the Chinese masses, in the revolution that installed the Communist Party, and in the Cultural Revolution of the late 1960s and early ‘70s, the peaceful but determined 1989 Tiananmen protests and the growing wave of rural and urban unrest by peasants, workers and even over-taxed shopowners, have all made rulers here acutely aware that they can only cling to power if they keep trying to improve broader living standards for the majority.

Just this week, for example, a mob of hundreds of angry shop-owners and residents of Zhili, a town near Huzhou in Zhejiang Province, rioted over extortionate tax collections by local officials, overturning and burning several police cars and reportedly injuring some police officers and local officials — this according to local published news reports. Such events are not uncommon and serve to keep officials on their toes.

In the U.S. there is, or at least for decades has been, no such fear in the hearts of America’s ruling elite and their craven politician servants.

Perhaps with the advent of the Occupation Movement sweeping the country, this will change, though it remains to be seen whether a purely peaceful protest movement, with demonstrators passively accepting mass arrests by local police, will create enough fear in those avaricious hearts to bring an end to the current economic and political system of oligarchy, greed and exploitation that characterizes today’s United States.

*Dave Lindorff is a Philadelphia-based journalist and columnist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now available in paperback). He runs his blog: thiscan’tbehappening

The above article was posted at his SITE under a different title.

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Comments

  • S U Turkman  On October 31, 2011 at 5:46 am

    Well, Chinese may think, Dollar is about to crash but all Export Oriented countries including China does not want it to crash otherwise, China would not have bought $ 1.1 trillion worth of US Treasury Bills and Bonds. China even wants Euro to be strengthened and is offering Loan to Greece, Italy etc.

    • Parvez Amin  On October 31, 2011 at 6:47 am

      Some Chinese I know say that if they call in the debt owed by the US, they will not accept easily printed paper currency and will want to be paid in gold. Has Fort Knox got that much gold? My impression is that only a small percentage of the US Dollar currency in circulation is backed by gold. Also the Federal Reserve Bank in the US is a private bank and a poor decision by the Fed could wreck the US economy.

      • S U Turkman  On November 1, 2011 at 7:10 am

        There is no International Law to force USA pay for imports in Gold and actually there is no country in the world that can do this except for the major Gold Producers of the world, S. Africa and Russia. If you convert Pak Currency Flow with Gold in State Bank, Pak Rupee would be worth $ 0.001.

      • Parvez Amin  On November 1, 2011 at 9:57 am

        I am unable to fathom the meaning you intended to convey by your last remark about Pakistan except to label it as an attempt to score a point by speaking meaningless words. Be that as it may, I have read your replies to others on this subject and find them uniformly defending America – not joining a debate to search for reason. I walk away from such debates. Talk to you again soon, on some other subject. We are too obviously on different pages on this one.

  • a m malik  On October 31, 2011 at 6:29 am

    Euro is being supported by China to have a standbye currency in lieu of $s
    am

    • S U Turkman  On November 1, 2011 at 7:12 am

      Not because China wants Euro to become a replacement of Dollar but because China would lose 1/3rd of her exports if Euro crashes. China does not want any major Currency to crash because she is doing great the way things are by earning a lot of Foreign Exchange every year.

    • a m malik  On November 1, 2011 at 11:51 am

      Mr Parvez
      I was about to say what u have said. This man who aka Ghasi ram has the good
      old habit of running down Pakistan or Islam. He was sensed to be a mole of FBI
      and he utters all nonsense he can think of. He mistranslates Quran assuming that no one will be able to know Arabic and hence his lies. He jumps in every concievable discussion poising himself as a great intellectual. Married to a gori when he could not establish himself in Pakistan through his deceipts he returned to USA, and ever since either he is targeting punjabis Vs Urdu speaking or sindhis or the rest fabricating half truths and at times complete lies
      am

      • S U Turkman  On November 1, 2011 at 11:30 pm

        What the hell all this has to do, with what we were discussing here, Anti USA, Anti Non Moslim, Anit Mohajir Racist Bigot?
        Read, what I wrote …!
        What the hell I have written in this conversation that was pro USA, Anti Pakistan or Pro Mohajirs, Nut?

      • a m malik  On November 2, 2011 at 4:46 am

        Yes we are the nuts an bigots – but u r the wizkid. Read carefully what Mr Parvez has mentioned. Old habits are hard to die
        am

  • Minhaj  On October 31, 2011 at 12:55 pm

    Amero and Gold has been purchased in bulk by China expecting the downfall of Dollar.
    Minhaj

    • S U Turkman  On November 1, 2011 at 7:14 am

      China has been purchasing all Metals and Chemicals for a last few years and does not have anything to do with crash of Dollar.

  • Mohammad Chaudhry  On November 1, 2011 at 1:17 am

    While Dave has depicted the situation in China correctly and his comparison with USA is also quite well-founded but I find many columnists and intellectuals like Dave,as Krugman,Friedman and Blow of N.Y.T and Dr.Jim,president Wisdom University who are advocating the cause of OWS through media and seminars/speeches in social and political fora.Just read Jim Garrison’s op-ed in HoffingstonPost,whom I met in luncheon meeting of Rotary Club of Santa Clara in Hilton Great America,ca wherein he was the guest speaker on the same issue,” the threat of changing environment”:
    http://www.huffingtonpost.com/jim-garrison/its-the-weather-not-the-d_b_973922.html
    On the otherside I endorse the social environment in China as I found the same during my visit to Guangzhou,China in 2002 and depicted in my letter in Time,August 2002.However the future will be decided by the timely and sagacious actions taken by the leadership of these titanic powers of today.
    MSC

    • S U Turkman  On November 1, 2011 at 7:17 am

      I do not think, Red Neck Republicans would let Obama turn around US Economy and Dollar may crash later as I had predicted more than a few years ago.

  • Arif Khan  On November 1, 2011 at 1:18 am

    Yasmeen USA wants the the Yuan to be revalued or the $ devaluesd against the Yuan, so that Chinese goods will become EXPENSIVE all over. But China cannot afford to do that because it will put Chinese goods at a disadvantage.. China knows that and will resist. If Dollar freefalls China will lose its price advantage.. I am already seing a lot of even house hold appliances being remade in the USA and the good quality is back… I am also seeing a lot of goods made in Mexico, Italy, Spain and GERMANy here.. replacing the total hold Chinese goods had here earlier…. and as you knowall foods and canned goods and medicines are all Made here.. Just the Cereals made here are a $10 Billion dollar business(World Wide) .. and just the Chiquita ande Dole Bananas are all grown here in Central and South America owned by these two American Giants are Supplied even to Russia and China is a $10 Billion Business (Pine apples are grown inHAWAII) so the the $ is still #1 Currency as the Euro with all its issues cannot replace the $.. and once the Iraq and Afghanistan Wars end by 2014 the wasteage will stop… No Country can fight such long Wars without Economic Collapse Rgds Arif Khan

    • S U Turkman  On November 1, 2011 at 7:23 am

      War has not much to do with it. And China has been appreciating her currency because in the beginning $ used to 8 Yans. When I was in China on a Business Trip earlier this year, it was 6.65 Yuan to a $. Now someone said its 6.35 Yuan. China has been doing this because she does not want Dollar to crash.
      Japan has been doing the same. There used to be 145 Yens in a Dollar. Now only 76 to 78.

  • Sagheer Ahmed  On November 1, 2011 at 1:29 am

    Thank you very much for a very informative article.But it is still powerful in Pakistan.What can happen in Pakistan if one morning we find that dollar has drastically devalued ?OR for that matter what will happen in U.S.A as well.
    Regards
    Sagheer Ahmed

  • S U Turkman  On November 1, 2011 at 7:33 am

    In case of Dollar’s crash,
    .
    * Exporters would not be able to sell much to USA and US Industrialists would immediately start manufacturing the products that were being imported to make money by ending scarcity of those products.
    * It would be a big boost to US Economy. It would be hard to find enough Workers. Immigration would increase to fill those jobs.
    * USA would replace China as the largest Exporter of Products.
    * Presently, 1/3rd of big companies of USA are owned by Foreign Companies or countries. After crash more than half would be owned by Foreigners because Industrialists from all over the world would start building factories in USA to take advantage of Cheap Skilled labor.
    * The in flow of Foreign Capital would make Americans lose control of the country and USA would not have sovereignty left because Foreign Interest would be running USA through their Lobbies instead of Americans so, it would be the end of USA as a Super Independent Power. USA would be ruled by a mixture of Chinese, European, Arab, Russian, Indian, Korean, Taiwanees, etc companies.

  • Rauf  On November 1, 2011 at 11:39 am

    Who knows, one day American Government may also
    face situation like, Tunisia, by the people sick and tired
    of failed policies.
    Rauf

  • Syed Wajahat  On November 1, 2011 at 5:45 pm

    No possibile in USA. The exonomic system is too wealthy. People can be bought and will be bought
    to enact the will of the top 1% of the population. The whole world to day is run by the top 1%
    of the wealthiest. They cause almost all revolutions and wars. Total economic control.

    Syed Wajahat Hussain

    • Mohammad Chaudhry  On November 2, 2011 at 2:30 am

      I think that it’s too simplistic if not like a simpleton to think that in this wold of 21st century,termed as global village with influx of media and I.T tools. How to explain Arab spring, OWS, even demonstration in Israel in this context?
      MSC

  • S U Turkman  On November 1, 2011 at 11:37 pm

    I agree. The World is being run big companies. They are like countries. All Billionaires and their companies are members of Trilateral Commission. Trilateral Commission decides, who would be the next Prime Minister of Japan or U.K. and President of USA.

  • S U Turkman  On November 2, 2011 at 1:39 am

    Mr. Amin, I only stated the facts but I guess, since you are a very emotional person, My last sentence hurt your feelings. I am sorry. I had no idea your feelings would be hurt so badly that you would accuse me in return for scoring points for USA, when I had written, “… actually there is no country in the world that can do this except for the major Gold Producers of the world, S. Africa and Russia”. You say, you do not want to discuss?
    What was there to discuss?

  • Admiral Sirohey  On November 2, 2011 at 6:13 am

    Notwithstanding that the dollar has lost its might and will lose more in a short period ahead.We need to worry that despite $ becoming a loser Pak Rupee still losing relative to that loser.

    IAS

    • S U Turkman  On November 17, 2011 at 11:28 pm

      Admiral,
      I had predicted crash of Dollar in 2011 more than a few years ago. I am surprised it has not crashed so far. Instead, Euro has been falling. At its height a few years ago @ $ 1.55 now its worth $ 1.35. Yuan had started out 8 for a Dollar long time ago but now its 6.35 to a Dollar because of US Pressure. USA wants it to be made a lot more expensive.
      Pakistan would simply just stop pegging Rupee with Dollar if it crashes. Nothing to worry about.

      • a m malik  On November 18, 2011 at 11:01 am

        Admiral must have been impressed by your foresight or vision that Dollar will crash! What other visions have found the way with u?
        am

  • Trent Rezek  On November 13, 2011 at 10:41 pm

    Hey There. I found your blog using msn. This is a very well written article. I will be sure to bookmark it and come back to read more of your useful information. Thanks for the post. I will certainly return.

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