Let’s compare that to a graph vs. The Euro.
http://www.x-rates.com/d/CNY/EUR/graph120.html
The US dollar has made a comeback in the last month, but from this time last year to a month ago, PRC exports became significantly cheaper against their Eastern European competitors for almost 11 months. As a side note shortly after the dollar started this comeback last month, high ranking officials in the PBoC were trying to talk down the dollar again, saying that it was inevitable that it would slide.

I looked at that UBS analysis and found a lot of it lacking or just plain sophistry, like looking at figures on trade vs. GDP and talking about exports, which are only part of the trade figures. (How many US tax dollars went indirectly to UBS via AIG to bail out their bad analysis?)

As for the employment numbers, how could you overlook the caveat in the report. “”"official data do not include rural migrants”"” And the official stats state that about a third of all industrial manufacturing employees were in exports. The vast majority of the folks who are working in Guangdong, Fukien and Zhejiang in factories will not officially be working in export industries but still classified as rural farmers. So that 10% figure of yours is ludicrous.

But I’ll humour you for a second. Let’s do a rough calculation. 1.4 million jobs mentioned by Krugman = x% of PRC working population
PRC population ~= 1.3billion
Haven’t hit the aging bomb yet and one child policy still in force, so guess that at least 50% of that 1.3 billion are in the work force. 1.3 million is 0.1% of 1.3 billion, so 1.3 million is 0.2% of PRC workforce. So Krugman’s 1.4 million jobs lost in the US is merely a blip on the radar for the CCP, who are stuck with massive unemployment among new university grads.

As for the difference in the added value, the CCP has repeatedly done its best via mercantilist policies to force production of the inputs to the mainland. See the WTO loss on Auto Parts for example, though by the time the WTO ruling came out the damage was done as COOs had transferred production to the mainland to cope with the illegal impediments to trade.

And this continues to be a problem in the consumer electronics market and bodes even worse for the production of components in places like Taiwan, Korea, Malaysia and Japan. see for example the flood of stories of hard drives and mobile phone components being smuggled in to the mainland from HK due to mercantilist policies on the mainland that pursue having the production actually being transferred from Taiwan or Malaysia to the PRC.

1. Are you suggesting we should hold China responsible for the dollar’s decline? Regardless, the RMB has appreciated against the Euro and the JPY, and nearly 80% against a major competitor in the Mexican Peso! That’s huge is it not?!?

2. “Because PRC middle class wealth is based upon the increasing poverty of HK and Taiwanese (and US and EU) blue collar workers.”

Less than 10% of Chinese workers are employed in export-related industries. (http://www.allroadsleadtochina.com/reports/prc_270907.pdf) Although China’s export to GDP ratio was recently about 40%, in added value terms it is only about 10% So where is the other 30% going? Just a “precious few” in HK?

My primary argument is that Krugman should account for that extra value, and the benefits that the trade relationship provide US companies (75% of which are in China to sell, not buy), before calling it predatory. Otherwise he is like a kid refusing to take his medicine — we all know it tastes bad.

18% increase in a company’s supply costs over 3 years is glacially slooooooow. Especially if you factor in the amount the mainland’s competitors in Japan, Korea, Taiwan, SE Asia and the EU for example have suffered due to the slide in the dollar and the CCP’s de facto policy of a US dollar peg, government-fiat pricing on energy inputs, and reimplementation of VAT export rebates. Try 18% in a couple of weeks due to oil price increases or a dollar slide due to Chinese-planted stories about dropping petro dollars.

As for providing stability, especially globally., you might as well have cut and pasted the rest of the story from China Daily. The country that’s been hurt hardest during the economic downturn is Taiwan? Why? Because PRC middle class wealth is based upon the increasing poverty of HK and Taiwanese (and US and EU) blue collar workers. There might be a precious few in HK and Taiwan, who’ve become fabulously wealthy via transferring jobs to the mainland, but these few have hollowed out their nation’s economies producing the world’s highest GINI co-efficient in the world in HK.

1. You’re absolutely right. But my point re: pegged currency was not that there isn’t any government control, but rather that it is a fluid position that may change under varying circumstances. Most all contries control monetary supply, some more than others, but we shouldn’t view China’s controls as as a static policy impervious to economic conditions. I am betting that we will see more appreciation in 2010, but who knows…

2. I think we can agree that an 18% real increase in a company’s supply costs over three years is not slow. If that loss wouldn’t significantly hurt your margins or business, then I have just one question — are you hiring?