RatcliffeBlog - Mitch Thinking Out Loud

China: Don't look for relief,...

China: Don't look for relief, just a Snow job

U.S. Secretary of the Treasury John Snow is headed to Beijing to work on his balancing act, asking the Chinese to let the yuan float against the dollar and other concessions to compensate for the country's rising trade surplus with the United States. Don't look for success as much as an offer to defray the impact in the form of more Chinse purchases of U.S. Treasury bonds--this, in effect, allows us to pay interest to get the surplus reduced.

Bush and Snow: Looking where the U.S. economy is going - down
Source: U.S. Department of Treasury Web site

The Treasury press release devotes the following to the description of his mission in China:

Secretary Snow will then travel to Beijing to meet with the Chinese leadership and their top economic officials as well as representatives from the business community and private economists.  Secretary Snow will discuss a broad range of issues important to the country's economic relationship with the United States, including liberalization and reform of the financial sector, trade, and exchange rate issues.

The New York Times reports that "China's economy now is more open to foreign investment than Japan's was then, and multinational companies like Dell and Wal-Mart influence China's low-cost production as big employers and purchasers." While it is true the Chinese economy is much more open than it was, these companies have small market shares and face fierce competition from domestic companies. In PCs, for example, domestic-made PCs account for 56 percent of all Chinese PC purchases. Further, the tarriffs that prevent the use of foreign-manufactured parts in technology products need to be reduced; lowering the subsidies to Chinese exporters (think of it as bonuses for success) is not enough, because other countries need to have the ability to provide components to Chinese manufacturers on an even footing.

While the administration is at it, it should pay attention to the fact that China increased its educational spending by 24 percent last year. Twenty-four percent.