Congratz to those who participated all the way to the end :)

It's been a great semester, Thank you for putting stuffs on this blog !!!

Let's trade.

After reading in class about the trade partners of the US and their effects on the US economy, the question came to mind: how is trade affecting the economy of China? Further research has allowed me to discover several things: that China maintains an illogical foreign exchange mechanism, and holds a loose interpretation of the rules that define their licensing requirements. Using both an official exchange rate and a "swap center" rate, which is influenced highly by the black market, foreign exchange "rates" are not properly measured. The rules that define licensing requirements and inspections are very loosely interpreted, hindering what could potentially be a very profitable financial transaction for the central Chinese government.

Its hindrances have been ignored however as of late, as the failing economies of the European Union have beckoned for the assistance of the Chinese. As China's #1 trading partner, and as the European Union's second-biggest export market, their relationship is a very delicate one. In Spain alone, China owns 43 billion euros ($57.3 billion) in that country's debt — about a fifth of existing Spanish bonds. My question is, if China keeps on loaning its money out to countries in need, what happens when their pockets are emptied? There is no assurance that they will be paid back in full by the countries that they lend to. Much like the credit card companies (and the World Bank) enjoy lending out money in hopes of having a high payout, the risk is large for the lender as well.

I suppose that the LA Times' reasoning works out though:

"Liu Baocheng, a professor at the University of International Business and Economics in Beijing, said China's vows to help Europe could "win favorable opinions of the Chinese government's image and Chinese companies."

"China wants to show it is doing its part to stabilize the global economy and help partners in difficult times," he said. "They think the current financial difficulties experienced by EU countries will be over. The risk is not that high."

Helping yourself by helping others, seems a little selfish. But that's exactly how the world works. And apparently how China functioned in the past.

Source

Source

What are the problems in labor shortages and high export costs?

In 2005, the workers and people in China demand more high wages and better economic working conditions. The workers do not want any boring factory work that gives only few dollars per hours and the wages raised almost 50% which affects a big part for China economic. This started happened at Guangdong and Fujian which people wanted to live a better life.

These problems first issued in "The New York Times" in April 2006, in this article. The writer said that the wages are rising because there are more educated people than people and almost every young people went to college. Later "The New York Times" issued another article in August 2007 which they said the rising of wages is accelerating these days. The wages went up to 200 dollars which raise 100% than 2005. This is effective for young people who is suitable to make product faster, but not for people who is more than 40 and could not get a job anymore. This rising wages effect as a good part first time because of increase in productivity, but the costs of imports went up so inflation was made here. This is because the economic system was relying on the low wages. The cost of imports went up 0.4 percent in 2007 and later it went up to 0.9 percent in 2008. This pressured not only for China and also in the United States and some Europe countries. They are trying to stop this chaos so they put a new labor law which is for increasing the rights of the workforce and this is for foreigners who come from Thailand, Vietnam, or Bangladesh. By this law, 20 million jobs in 67,000 factories were lost and the growth in export order began to fall. This shows positive effect for China's government, but this led to global financial crises and Guangdong later collapsed.

This still is going on right now. In early 2010, the shortage developed that workers want more wages so they did not come back after the New Year holiday and made the wages go up to one dollar per hour for factory workers in Guangzhou. This effected and strikes in 2010 at Japanese auto plants. Lastly according to Fan Gang, who is the professor of economics at Beijing University and director of China's National Economic Research institute, said that due of the high wages there will be more room for unremunerative agricultural than industry work which will effect positive part for China's economic.

Source: http://en.wikipedia.org/wiki/Economy_of_the_People%27s_Republic_of_China

Further Question: Will they become a strongest coutry because of economic growth in China?

Why China doesn't want to devalue their currency?

China is pursuing a mercantilist policy: keeping the renminbi weak through a combination of capital controls and intervention, leading to trade surpluses and capital exports in a country that might well be a natural capital importer.

China is probably the biggest producer in the world, and also one of the most successful economically. Currently, we could see that Chinese's currency is a lot more attractive to all the investors around the world. But no manner what happens, China's currency will remain stable in order to attract outside investors as well as increase production. So many investors around the world decided to invest in China because of the low cost of production and easy access to workers due to the fact that China has a large population.

Quantitative Easing, How does it work?

Quantitative easing is the process of increasing a money supply by the Central Bank or Federal Reserve. This money is used to buy a government securities or other securities from the market. So how does it work? ,
The point of this process is to make the bank decided to lend a money to people who are in needed of cash, (maybe a businesses). The banks didn't want to take a risk by lending their money to people who needed the money because anything could happens and they might not get their money back. So what the bank does is they take the money from the Central Bank, and instead of lending to businesses, they buy treasury. Now the Federal Reserve saw that there are people who needed money but could not get any because the bank won't give them the loans, So what the Federal Reserve does is to produce money and push it into the economy. This is how it's done, The Federal Reserve use the money to buy an assets or the securities from the bank, in other word, they take the pressure off the bank.
Then what happen next is the Federal Reserve will buy a treasuries, because the more demand that Federal Reserve created for the treasuries, The lower the yield(returns) becomes,  and if the yields goes down, it's mean the less incentive for the bank to buy those bonds as it will not make any profits from it.
So when this happen, it actually forcing the bank to find a way out, anything that will make them a profit. This forces the bank to finally lend the money in their bank to those people or businesses that needed the money at the first place, This process make the bank stop buying treasuries to lending a regular loans to the wide market. And in case if the QE still not working, the Federal Reserve will put money in to the system, which will devalued the Dollars

Further Question

How or What will make the QE not working/ failed?


Links: www.marketplace.org
            www.businessinsider.com
            www.economistsview.typepad.com/.../2008/.../deflation-quant.html

What has China's economic boom done to the environment?

China's economic boom has been affecting about 20 years and they industrialized a lot of cities. However, there is a big problem in this economic boom. In 2008, Elizabeth C. Economy said that there are environmental problems which damaged to the ecosystem. Furthermore, it costs China about 9% of its GDP and this problem is far more than what Europe and the United States are having. There are three specific environmental problems and those are water, land, and population and development.

First of all, the water is one of the most problems in China. The one-third of China's populations are lacking to access to get clean water because they are having problems in water shortage and water pollution. The 70% of rivers and lakes are already polluted and this effect huge economic par because they have to put more money to make a project called "Dam project". They put high cost on this project, however, by this project the farmland had been lost, and therefore, it does not make it better. The other part lands are also having a big problem. The desertification leads China and they lost about 5800 square miles of grasslands every year. This size is same as Connecticut. This leads dust problems which effects China's air pollution and China is not the only country that gets harm by this. This air pollution from desertification leads problem into North Korea and South Korea and it becomes a huge problem every year. Lastly, the population and development becomes a problem. China has been grown a lot which leads more population and more urbanization. The more people in that country lead more productive and the more cars make more air pollution these days. This becomes huge problem in air pollution either.

Those are the problems in environment in China by economic boom. It is now a huge problem that China has to solve to make better economic. They are also growing rapidly, but ironically they are losing more environments and have to put more money on that part.

Link: http://www.cfr.org/publication/12608/chinas_environmental_crisis.html

Questions: What is the significant product that leads China's economic boom?

Effects of China's Economic Boom

China, since its Economic revolution led by Deng Xiaoping, became one of the strongest, and most influential economic power in this world. This is clearly evident through everyday items from Chinese factories, and the treatment that other nations give to Chinese government. Because China, with its huge population, has little labor costs, and the fact that the China is communist country, makes the job easier for China to literally exploit the workers. This is the reason that "made in China" is cheap, so cheap that people are willing to buy more of Chinese products, and even domestic jobs are being shipped to China for more profit and less cost.

Also, Economic Boom in China made it more vulnerable to natural resources, especially oil. China does not produce its own oil, so it buys the massive amounts of oil from the world market. To meet its huge demand, China has to buy a lot of fuel, and consequently raises the price of oil up for the other countries; yet they even have a huge reserve that can be more than or equal to the reserve in U.S. This high demand makes the oil very scarce.

Positive sides are also present. Cheap products of "same" quality as more expensive domestic products are making customers very happy, since they have to spend less. Also, the business firms are happy because countries like China have low wages, and they can exploit the workers very easily and profitably.

China's economic boom is a two edge sword. It hurts U.S economy significantly, yet U.S cannot live without its close relationship with Chinese economy. So, what does the world do to prevent China's unstoppable growth that will most likey going to be more harm than good to the world?

Sources:
http://articles.sfgate.com/2006-04-09/opinion/17290539_1_china-s-gross-domestic-product-chinese-internet-chinese-communist-party
http://www.time.com/time/magazine/article/0,9171,1934872,00.html