Myths and legends about China: Who harms the cheap yuan

Not a day goes by that there is no news in the media about how bad the Chinese government is because it is said to underestimate its yuan. But how is it really?

US dollars and Chinese yuan
US dollars and Chinese yuan

I don't know if the yuan is really undervalued. I don't even know how to find out. But most of all, I don't care. For the purposes of this discussion, however, we will assume that this is the case.

The exchange rate should correspond to the fact that it does not matter whether you buy a laptop in China or the USA, it should cost the same. So the course should be an exact ratio. That this is not the case even for currencies where no intervention is carried out (eg koruna vs. euro) is due to the fact that you cannot buy and transport all goods across half the world, where you can conveniently sell them due to a bad exchange rate.

Try to imagine how you would probably transport a restaurant from Beijing to New York with service and a view…

You may be wondering how it is possible to weaken such a currency. Money is a commodity like any other, let's just say goods like any other. The currency becomes more expensive (appreciates, revalues, strengthens), when there is a lot of interest in it and people buy it. On the contrary, the currency becomes cheaper (depreciates, devalues, weakens) when there is no interest in it and people sell it. So when a Chinese bank wants to weaken its yuan, it simply starts buying dollars en masse. It has the advantage of yuan can't run out of it because she just always prints as many as she wants.

So we just invented it perpetuum mobile? Can we weaken the currency indefinitely and no one will notice anything? Not at all. When there are many yuan rolling around the world, traders will notice their goods selling for yuan and raising prices. It's called that inflation. Inflation must go hand in hand with this monetary policy. Nothing happy for the Chinese.

But for us?

So if the yuan is undervalued and instead of three crowns should cost four crowns, can it hurt us in any way? Can it hurt you if a ticket to Beijing costs 15 thousand crowns instead of twenty? Can it hurt you that a Lenovo laptop costs nine instead of twelve thousand? Of course not.

Low prices are a blessing. Or do any of you think that the more expensive the goods, the better off it will be? Remember how you went to Vienna and Germany after the revolution and you didn't even bother to pay for something and instead of eating in a restaurant you ate between bread and steak wrapped in paper? And today you go there, have a bratwurst and a beer and how nice you are. The mark (now known as the euro) weakened against the koruna. It did not harm the Czechs and it could not harm it.

You wonder how the manufacturers will come to that. Easy. We are not in Futuramato be destined for one profession. If the Czechs cannot compete on price in the laptop sector (because - and quite logically - they do not want to fly wires in a few bucks), they must find a sector in which the Chinese are not enough for the Czechs yet. For example, the Chinese cannot make Czech food or write books in Czech at all. After all, I haven't heard that Czechs can make laptops, so cheap imports of laptops don't hurt anyone for a moment.

But let's go even further and imagine that laptops would be free somewhere in the world. Just such a laptop treasure. You would come there and get Lenovo embroidered. Of course, a few companies would have to close their business, there is nothing they can do. As in the past, tinkers, grooms, chimney sweeps, royal clowns, turntable and telegraph manufacturers or lamp (CRT) monitors had to close their trades. They have been replaced by people who make better or cheaper products, most often both at the same time. (Compare the prices of LCD monitors with the prices of CRT monitors.)

Or perhaps you would find it logical to introduce duty on laptops for free? Or put diplomatic pressure on the laptop treasurer to make laptops more expensive? Shit, huh?

Or maybe you think so The company Slunce sro competes unfairly with manufacturers of candles and lamps? But how to impose a duty on the sun? After all, we must save the employment of lighting manufacturers. Well, let's get all the windows up, after all. All words are useless, already in 1845 it was written by Frédéric Bastiat and no one will ever surpass him, it is a real glimpse of pure genius… And now please pay attention to what I write: More than 150 years after the writing of this work, which must also be understood by illiteracy of the type of European official, the European Union has introduced customs duties on candles from China because they are said to be unfairly competing with European ones. No shit.

Tedy Cheap imports are a thing beneficial to any economy. And what about exports?

Export is a cargo

Please remember this sentence: Export is a load !!!

But it's in the formula, man! Consumption + investment + government spending + exports - imports = GDP, every little kid knows that, so what are you doing here? Yes, they taught you that right. But they no longer told you that the quantities in this equation do not have a causal relationship, but a mutual one. You should definitely emphasize to you at school that you can't enlarge the right side of this equation by raising one component to the left at a time. The only way is to find the treasure.

When you go to work, you balance your physical (or intellectual) activities and import money. Do any of you really think that if you export more, then work more, but will receive less money, that it will be better? If you have a lot of imports for few exports, that's only good for you.

And what is true in the small, applies in the larger (for companies) and also applies in the largest - ie also for aggregates such as GDP. After all, to say that the USA and China trade together is pure nonsense. They trade together Rich Texan and Jet Li and it doesn't matter that one of them is located in Texas and the other in Beijing. After all, nothing would have changed in their business if Jet Li had moved to Hollywood. Or do you think that by crossing borders, money acquires a magical feature that we economists do not see?

To say that cheap imports hurt you is the same as saying that it hurts you when you buy meat from a butcher. If your dad kills your dad, you pay him and the money stays in the family and you get the best in the world. That must be better, right? I see? Do you see that something isn't playing here?

Because cheap imports do not harm us, as we have convincingly shown today, so let the Chinese do what they want with the yuan, if the population tolerates them (ie central bankers are not yet swinging on candelabras). And let us be glad that we still have the Czech koruna, because the bankers at the CNB are sensible and would never oppose something like this.

The original article was published on author's blog.

0 comments

  1. … .. I thought this was a discussion forum, but I guess I was wrong. # 13 - is probably enchanted by simple food, smoking "goodies" and skyscrapers. However, this is not enough to create values ​​in my understanding. Maybe that's why he doesn't want to talk to us - it's a shame.

  2. What you wrote here could perhaps only apply in the futuristic future of a completely open and free world. At the moment, however, the world is ruled by strong men - rulers, whom we allow to make our money almost without restriction and control. And they abuse it for their own purposes, of course wrapped in the appropriate demagogic pomp. Example China: The state, controlled by the Communist Party and the apparatchiks, has allowed several thousand companies to open factories in economic zones. The EU and the Americans immediately transferred production (as well as the relevant know-how) to their Chinese branches and trained people there. These "trainees" immediately, with the consent (and probably also a subsidy) of their comrades, immediately placed their Chinese company next to the "Western". No payment for patents, no payment for training, no necessary health and safety permits, no demanding investments to protect the living. environment and about hundreds of other costs began to produce - the result of unequal conditions - a super-affordable product !!! Not to mention the cost of personnel, because in the given poverty that prevails there, the battle for labor is great, but also regulated by permits to immigrate to the economic sphere - comrades. Imagine how much "dishonest money" the state will earn in this way. (not to mention corruption, arbitrariness of authorities, extortion, etc.). For about 15 years, it was enough for a huge amount of consumer goods to be produced ONLY in China. Also, due to the cheap currency with which they support exports, they became the largest "owner" of the USD. Of course, like any investor, they have invested and bought money: for example, deposits of raw materials - of course by the comradesian method - with financial and military support from African rulers. Or by buying technology centers in the USA and Europe, which will close the circle of development - investment - production, but vice versa.
    And now the main problem begins: Political control - if a normal democratic and rules-respecting state did this, there would, of course, be pressure from the domestic population to redistribute wealth, which is not the case with China. The comrades decide where the money goes. Under the slogans of the magnification of Greater China, they form a layer of the very rich (but only theirs - over whom they have power) and the vast rest of the amazingly poor. And the rest of the world, which in the future will have to come to terms either with the dictates of a few Chinese comrades (see, for example, the current world situation in precious metals mining) or at the cost of huge investment and consequent disproportionate price increase to move production to quieter parts of the world. to Europe and the USA. We probably can't even imagine what it would cost and what tremors it would cause.
    The world has taken this situation very far, it is now difficult to save, the pressure to increase China's exports and increase its domestic consumption is only a partial solution (according to some authors, for example, increasing domestic consumption in China is very dangerous - there will be enormous pressure on and thus on prices,
    (food, energy, raw materials…), which will ultimately be paid for by Europe and the USA.
    So it is necessary to put pressure on China to realize the course, because its artificial reduction does not benefit the country's citizenship and economy, but a few comrades who will gain unhealthy influence worldwide. And they will use it too, I have no illusions about it.

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