By Patrick T. Nohrden
Note: This article was written in 2004. Since then, world political and financial situations have changed.
When you go to the polls this November, or anytime in the foreseeable future, do not vote without thinking about China. You may think it absurd for me to talk to you about China in the context of the American voting process. But do not forget about what happened eight years ago during the 1996 American presidential election campaign. The Democratic National Party was caught taking millions of dollars in contributions from various Chinese front companies who were engaged in the importation of high technology into China. Of particular concern was the sale of certain rocket technology to China during Clinton’s administration to China. A short time later, China launched its first manned space flight.
America’s recent love affair with China is a scary thing. Despite America having given China “favored nation status,” which supposedly makes trade between the two countries easier and cheaper, opens up China to American entrepreneurs and tourists, and establishes cultural ties between the two countries, China does not consider itself a friend of the United States. Consider the content of the Chinese People’s Liberation Army’s war manual entitled Unrestricted Warfare. According to the authors of that book, Colonels Qiao Liang and Wang Xiangsui of the PLA, Chinese military planners believe that terrorism is just one of the many tools at the hands of nations and their terrorist allies to wage total war against the United States.
These PLA colonels were treated as heroes in China after September 11, 2001, the date of the infamous attack on the World Trade Center and the Pentagon. The reason is that the plan in their book, which parallels that of the actual event, proved effective. The book points out that America is China’s primary enemy and explains how such acts of terror by a weak nation can destroy America. Strategies in the book call for using computers, smuggling illegal immigrants, manipulating stock markets, influencing the media, and using weapons of mass destruction against America.
Therefore, when one of the major political parties accepts massive contributions from China, one should consider this when voting. Every American has a duty to help protect America from its enemies, and your actions are not merely limited to your vote. There are other things you can do to help America survive against the destructive plans of its enemies. Our enemies are not just al Quaeda, the Taliban, Osama Bin Laden, and the many Arab terrorist organizations whose only purpose in life is to destroy America. Our enemies are less noticeable, stronger, and more incipient. One of those enemies is China.
It is common knowledge that America has a huge trade deficit with China, with Chinese imports surpassing American exports to China by billions of dollars. That deficit is only getting bigger. China is the world’s center for the manufacture of cheap goods. Shoes, garments, textiles, furniture, household decorations, and sundry other goods are manufactured cheaply in China and shipped to America where much of it is sold at discount stores and as high-ticket name brand items alike. Such brands as Polo, Tommy Bahama, Uomo, Septwolves, Playboy, and others sport the “Made in China” tag. In fact, all sports shoes are made in China, including the more famous labels of Nike, Adidas, Puma, and Reebok.
Now, China is entering the market with steel, iron, automobiles, and durable goods. One Chinese company, Haier, has set up manufacturing facilities in South Carolina and has its North America headquarters in New York. Haier has ventured so far into the foreign market that it has even purchased a famous Australian professional basketball team, the Capital Shakers. Without a doubt, China has entered the mainstream market economy and is now the fastest developing economy in the world.
Let us not forget that twenty years ago, China was just toying with the idea of developing a market economy, “opening up” to use their phrase. The Chinese economy was dismal. People were poor, and the government could not afford to fill potholes in roads, let alone pay the pensions of the millions of people who retire every year. All business enterprises were state owned. Some were profitable, many were not. To ease the financial burden of running its communist government, China instituted its “Redundancy Program,” the official policy of cutting loose its state-owned enterprises that were not turning a profit. Those businesses, many of them factories, now had new owners. Typically, the new owners were the same government officials who decided that the factories were “redundant.”
So now, there are many privately owned business enterprises in China, many of them owned by government officials, their friends, or their relatives. These factories started turning out products like never before. Instead of government employees working in the factories, the workers were private employees. They are paid by the piece, rather than the monthly salary that they previously enjoyed. So they are very productive. They must be, because if they do not produce enough products, they will not be able to feed their families. The average factory worker in China producing goods for export usually makes about 400 RMB per month, or $48.37 per month.
Many Chinese entrepreneurs are getting rich, especially those who have an export license. Without an export license, you will go to jail for exporting products from China. To get an export license, you must apply to the designated agency for the province in which you live, the official there having the discretion to issue the licenses. This discretion is naturally an avenue for corruption. The license fee may only be 500 RMB, but you might have to slip 20,000 RMB into the back pocket of the official issuing the license. However, if you are already a government official, such an under-the-table fee may not be required.
The average person will never get an export license. The Chinese government has stated recently that it does not like the fact that its citizens can get rich while others remain poor, as it is against the tenets of communism, but that the government will allow certain individuals, who it trusts, to get rich as a way of generating import revenue for the country, because it is good for China. These individuals have proven themselves to be valuable citizens of China, which means that they are either members of the Chinese People’s Communist Party, a high-ranking government official (which requires membership in the Party), or rich enough to be able to pay the appropriate bribe.
Meanwhile, China is fast producing some of the richest people in the world, millionaires who flock to Las Vegas in private jets with suitcases full of cash. Those that are making them rich, the factory workers, are earning an average of $48 per month, will never see Las Vegas or any other city outside of their home province, and are lucky enough if they have running water in their home. They will never own a car, their children will never attend a university, and they will never vote for their own president.
We must not forget that many successful businesses in China are still state-owned enterprises. Despite the fact that the business’s name has a commercial ring to it, it is still likely owned by the Chinese government. Therefore, all the profits made by these companies is money that goes directly to the government. The managers of the business, who work for a percentage of the profit, do rather well, so well that they can drive BMW’s and Lincoln Navigators, but the bulk of the money made by that business goes right to the Chinese government. And the bulk of that money is United States Dollars.
America complains about the trade deficit. Who cares? What difference does it make that we buy cheap products from China and China does not buy our products? It makes a lot of difference. One particular reason a trade deficit is bad is because of the flow of cash. For every dollar’s worth of Chinese products sold in America where there is no corresponding American product sold in China, one of our dollars is in China. With the billions of dollars every year in trade deficit, those billions of dollars are leaving America and where they are placed in Chinese banks. Chinese banks are bulging with America dollars. As any economist can tell you, the more money that is taken out of circulation, the more likely you will have domestic economic woes. Our spending power decreases and inflation increases. The cost of living goes up, and there is less money to pay for it. More importantly, there is less money available for our own development, for building hospitals, paying for our defense, for treating our sick and injured, and for funding retirement plans.
China has a simple response to our complaints about the trade deficit: “Sell us your high technology.” Although China has acquired much high technology from America in the past, especially during the Clinton Administration, it is lagging far behind America’s technical capabilities. China will not feel comfortable until it is at a par with America.
It is just about impossible to sell anything American in China. Not that the Chinese would not like to own quality American goods, but the cost of those goods is so far out of the average Chinese budget it would be ridiculous to even think about it. Part of the reason American goods cost so much in China is that China charges very high import tariffs. However, as China is now a member of the World Trade Organization (WTO), many of these tariffs are supposed to come down. Coffee for example, had a combined tax of 53% (import and value added taxes), of which 38% was import tax. After the first of the year, in accordance with WTO regulations, that tax was supposed to drop to 10%. It is hard to tell whether that new tax has been imposed, because the cost of coffee has not changed.
Although coffee is grown in small quantities in the provinces of Hainan and Yunnan, it is a distinctly non-Chinese product. China is where tea comes from. China promotes the sale of tea while discouraging the consumption of coffee. There is an oft-broadcast documentary produced in some northern European country and dubbed in Chinese that plays on Chinese television. This documentary talks of the ails associated with the consumption of caffeine. It talks about coffee as the source of caffeine. Of course, in the country that originally produced the documentary, coffee is preferred over tea and carbonated products. The documentary gives you the false impression that coffee, not tea, is harmful, although some tea has more caffeine than coffee. Many Chinese believe that coffee is bad for you, but tea is good for you.
American goods will probably cost more naturally, because of the cost of producing them and shipping them to China. But the primary reason why American goods are so expensive in China is due to China’s currency policy. The RMB, or Yuan, is always pegged at 8.27 to the U.S. Dollar. It does not matter if the Dollar goes up or down against the Pound Sterling, against the Euro, against the Japanese Yuan, against the Australian Dollar, and so on. The cost of RMB will always be the same in U.S. Dollars. The American government has asked China to change its policy several times, but China decries our efforts as attempting to meddle with internal Chinese policy. The truth of the matter is that by fixing the RMB to the U.S. Dollar, China is purposely interfering with American currency policy.
By fixing the RMB to the U.S. Dollar, the cost of Chinese goods to America will always be cheap; whereas the cost of America goods in China will always be high. The cost of Chinese goods sold in Australia, Europe, Africa, and elsewhere in the world will go up and down, as the currencies of those countries change in value against the dollar. The cost of those countries goods in China will likewise go up and down. But Chinese goods to America will always stay low, and American goods will always stay high.
America is officially the target of China’s economic development program. Unfortunately, China’s policy to undercut the American economy has a serious economic backlash for the average Chinese citizen by promoting poverty. The average urban dweller in China earns about 500 RMB per month, which is only about $60.46 U.S. This would be even more dismal if most things in China were not as cheap as they are. The average taxi ride in the smaller cities of China cost about 61 cents. A ride in a bus will cost 12 cents. Rent for a two-bedroom apartment, outside of Beijing and Shanghai, might be about $35.00, or slightly more than half of the average annual income. But the same apartment in Shanghai might cost $300.00, nearly five times the average annual income.
Most things that cost one RMB will still cost one RMB if the value of the dollar changes against world currencies. However, because the value of the RMB is always the same against the dollar, the cost of American goods and services sold in China will always be the same–very high. It also means that Chinese goods will always be cheap–in America. It also guarantees that few Chinese people will ever be able to afford to travel outside of China, as they will never be able to save the money it takes for such activities. Consider that if the average Chinese urban dweller were able to save twenty percent of his income, after ten years he would have saved 12,000 RMB, or $1,451 U.S. That is just about enough for two round trip tickets to Los Angeles, but leaves nothing for the cost of getting to the airport in China, for a hotel stay, to eat, etc. To work ten years just to buy the airplane tickets really means that there will be few Chinese tourists in America.
There are many Chinese tourists in America, but they are the one who can afford to buy cars in China. The cheapest Chinese-made cars, the Geely or Xiali, will cost about $11,500 U.S. But the ones who visit America drive BMW’s, Buicks, Audis, and Lexuses, the cost of which in China are well in excess of $80,000 U.S. This might explain why there are only about five million cars in China, which is about 3.5% of the population.
The Chinese people will never be prosperous, no matter how “developed” China becomes. The standard of living of the average Chinese will remain the same. He will never own a car, never live anywhere except in a Marxist style apartment building, never take a vacation outside of China,
If the RMB was a convertible currency, such are most world currencies, it would float with the market. In other words, the value of the RMB would go up and down against all currencies and not remain fixed to the value of the dollar. The things in China that cost one RMB would still cost the same, but the cost of America products would go down and become affordable. Also, the cost of Chinese goods in America may go up, which would help reduce the huge trade deficit.
Were the RMB be a convertible currency, it will be more valuable to the average Chinese worker. His money will be worth more. And because his money is worth more, the money that he invests will be worth more, and he can make more money.
The American government has repeatedly made an issue of the RMB’s value being fixed to the dollar, but the Chinese government scoffs, claiming that America is merely trying to meddle in the internal policies of China. That is intolerable to China. But the fact that China has meddled in the internal affairs of American government is even more egregious, such as it did when it made those large contributions to the DNC in 1996. China was trying to influence the outcome of an American presidential election.
China paints a bad picture of America to the Chinese population. The Chinese media never has anything good to say about America. In China, the people hear about all the bad things and none of the good things. China paints an ugly picture of American foreign policy, calling the war in Iraq Bush’s war for oil. China takes credit for the North Koreans backing down from its nuclear arms program, although it was America, Japan, and South Korea that made all the concessions. China paints a nice picture of presidential nominee Kerry. Of course, Kerry is a Democrat, and China is very much aware of his voting record on American defense.
China does not want America to be a strong military power. China has all Chinese convinced that Americans like war, that we tolerate and encourage crime, that we are mostly unemployed, that we have no compassion for our fellow humans, that we do not like Chinese people, and that we are an evil society. China’s answer to the trade imbalance is for America to sell high technology to China, especially military technology. Likewise, China speaks badly against Israel, whose greatest and closest ally is the United States. The official maps of the world that are authorized for distribution in China do not even show the name “Israel,” but calls it Palestine.
China is not a strong military power, although it has enough people to field a large army. But China is still in the military dark ages, as it lacks the military technology necessary to be much of a threat to even little Taiwan. China touts itself as a peace-loving nation that chooses to resolve all international conflict peacefully through negotiations. That is a position taken by a weak power. China has not choice but to be peaceful, because it would lose any war that in entered into with any major power. The only modern military success that China can claim is its invasion of Tibet. That can hardly be considered a military victory however, as Buddhist lamas will never put up much resistance to tanks.
Nevertheless, China is preparing for future military conflicts, particularly against the United States and Taiwan. In the meanwhile, it will retain its consoling but hostile attitude against America. It will retain currency policies that will ensure the flow of America dollars into the accounts of its government-owned enterprises. It will retain oppressive control over its people to ensure that those that are in power will remain in power. It will continue to repress freedom of religion. It will continue to censor books, movies, newspapers, and other media. And it will ensure that its people never leave. When war comes, the people of China will be incensed against evil America and will willingly fight for its motherland against that evil power. Those who are smart, if they can afford it, will leave. And when the war comes, China will pay for it with America dollars using the military technology that we sold to China during the Clinton administration.
There are a few things that Americans can do to prevent a major military, or even economic, conflict with China. For starters, every American can ensure that America does not have leaders that will give up our national security to China under the guise of “economic cooperation,” such as what occurred during Clinton’s presidency. Another thing that we can do, and what we should do, is to make sure that our money does not go to China. It is simple; if the tag says “Made in China,” do not buy it. Do not worry about putting people out of work in China. You will not do that. China is still the best market for products made in China. The only difference will be that the Chinese will be supporting their own industries and the cost of their goods will necessarily go down for as long as the value of the RMB is fixed to the dollar. If state-owned factories are closed as a result of loss of sales to America, then the employees will start their own businesses. It is not up to America to keep the employees of Chinese state-owned enterprises in their jobs.
Eventually, China will have to reconsider its policies regarding its currency, its state-ownership of business, its upward and lateral mobility of its people, and its style of government. Eventually, China will learn that Americans, not the American government, are in charge of their own country, and that we will not tolerate China’s manipulation of our economic and political systems.
Patrick Nohrden 