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.

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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

Problem with China economic boom

China is a country that has a huge economic growth, it is said to be one of the biggest producer in the world. China is rich in raw materials and also large number of population, probably a little more or less than India. Because it is so rich of resources such as natural resources, they don't cost much money and everything is cheap as their life expectancy doesn't cost so much. The foreigner then saw their opportunity of making a profit , by investing in China.

Because everything is cheap, including a factors of production and also cheap labor , China attracted many investors around the world to invest in their country, brings up their economic growth and the Chinese also developed their technology by learning from the foreigner, creating a good engineer to help the country developing even more.  

Now what's the problem with China having a good economics? what is that to do with US's economic?
It is because China's currency is so cheap, even cheaper than the US and is remaining low no matter  what global's economic status are, Renminbi is still low. This causes more and more investor to go investing in China rather than their country because of their economic issues. So, more foreign investors in China is equal to less local investor in other countries, causing a local people to lose their job. These problems are causes by the stable currency in China, taking all the investor to their country.

This is why almost every time we look under our household equipments or furnitures, it usually labeled "Made in China", because they have the most businesses invested in their country . China is leading in production because the investor could offer a small wages and in return, a high quality goods , also cheap cost of production which means more profit to the company.

These are just a clarification of the Economic Boom, which is a big problem to the whole globe as other countries (that aren't rich in resources nor cheap labor) thought it was unfair and wanted the Renminbi to go up according to the economic movements, because if this is still going then it will sure to causes more trouble to world's economies.

Further question : How does the economic boom in China effects other countries?

Sources:

http://www.gold-eagle.com/editorials_05/milhouse121407.html
http://yglesias.thinkprogress.org/2010/10/yes-chinas-currency-policy-is-a-problem/

China's Economic Direction

China’s rapid growth in the past three decades, inequality between rural and urban areas. Urban incomes have grown two times faster than rural incomes. The gap of standard living between rural and urban areas are getting closer. People's lives in China have gone better and better. Many rural people have started to move into cities. The government needs to control the population of cities in order to balance the agricultural and businesses.

Contributing to China's growth is the outpouring of investments into China from foreign businesses and entities. These investments have contributed to China's strength as a global leader. And many critics have said that China's currency increase will decrease trade but it has not done. China will continue to thrive in the global market and perhaps take over the US as the world's largest economy in the next 25 years, but China needs to control social unrest and economic disparity in order to truly be a global superpower.

source:http://www.google.com/#hl=en&expIds=17259,18168,26442,28099&sugexp=ldymls&xhr=t&q=china's+economy&cp=6&qe=Y2hpbmEn&qesig=7hWNqC8dDswklJ9I5liKjA&pkc=AFgZ2tlikPqxOXFT3ccXNlv7ojDBDmoNisH2z4LJU0cS9KnVRN-2LfwM-spUugup0i4GjTjVyBwV2LVACCl5ZssXPCMqu0pwCQ&pf=p&sclient=psy&site=&source=hp&aq=0&aqi=&aql=&oq=china'&gs_rfai=&pbx=1&fp=ca05a7bb65e82229

Does a More Socialistic Society Prevent the Tradgedies of the Industrial Revolution?

Perhaps not... There is a group of people known as the transient population of china now number about 220 million people. They are made up of migrant workers, most of which are between the ages of fourteen to nineteen and came to the city from a rural area looking for work. Roughly 80% of all consumer goods in the world are produced by China's migrant workers. These teenagers are payed less than $2.00 a day, clearly not enough to survive. As a result, many hold multiple jobs and often are pressured into breaking the law in order to obtain the money needed to just live. The society they live in turns these young adults into modern slaves, desperate for help.
To help you understand just how many people actually make up this transient population consider that the USA has a population of 310 million. The China's migrant workers are equivalent t0 70% of that. Is that bothersome now? But wait, there's more! It makes up a full 3% of the world's population. Tomorrow, is International Migrant Day, formed by the United Nations. I will be participating by turning my China-made shirt inside out as instructed on the shirt and by Faces Behind the Label to represent IMD. Can you imagine working in a factory for only $2.00 a day under bitter conditions?
Source: http://www.facesbehindthelabels.com

(f)unemployment

In lieu of our class's recent undertakings/studies in the department of unemployment/labor, I present to you a post on the relations between the structure of the Chinese workforce versus that of the American workforce. As videos, lectures, and a book has taught, having a low unemployment level after such a sharp spike/dip in our current recession is a benefit. In the long term, a slow rise equivocates a slow fall. In China, the rise and fall of the cycle is accelerated by the larger population - and at the same time, inhibited by its presence.

The days of adhering to every aspect of their Communist party's demands have shifted, as many foreign trade corporations have found loopholes to expand their business and deal in more products/distribute to more outlets than ever before. The heightened competition in this area of imports has increased the demand for the amount of workers - and recent strikes have pushed Beijing's factory managers to increase the wages of their workers by 30%. All this, plus the fact that the world's most populous country will face a shortage in labor in the upcoming years.

The balance, however, has been found (really, speculated) by China through the elimination of price controls and the establishment of wholesale markets. Their hope, as well as that of Dr. Mary Gallagher of the University of Michigan, is that the various levels of the workforce in China can find a balance and adjust their expectations of the current economic outlook. The fact that a migrant worker and a graduate student earn the same starting wage is a bit unsettling, but in time I believe that they'll find a way to fix these issues.

How will these problems be resolved? (to be continued ...)

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Re-do China Economic Boom

In 1978, China had a great reform from the government. They are trying to make big change in their nation. It makes encourage to enterprises, private businesses, foreign trade, and investment to other countries. These all programs had been successful and worked well. Before 1978, the China's economic were only growing by 6 percents in a year, but after the program they grew up 9 percents in a year in 1978. This growth is huge if you compare to other countries as Hong Kong and Korea that they are only growing 7 percents in a year in 15years. After few years they grew 13 percents and grew fast in these days. The few analysts are said that they might become lagers economic country than the United States in 20 years.

The people are curious that why are they have been doing well. IMF (International Monetary Fund) researched and had a great result. China made lots of new factories and communications systems and these expedited China's economic and become very significant part in China's economics. The cheap Chinese workers also become important part in driving force for economic boom. In 1979~1994, the China's economic increased over 42 percents of growth and in 1990 they increased more. This huge jump is from economic reforms in 1978 and it became huge parts in the China's economic boom.

Link: http://www.imf.org/external/pubs/ft/issues8/index.htm

Another question:

What does the United States have to do to compete with China?

Re-do China’s Economic Power

Americans think that China will become one of the strogest coutry and will decrease jobs in the United States. The most of people think that the jobs will be gone because the factories are moving to China to get low price of workers. The Americans are also think that China is a competitor to America, but they don't think that China will be the top of the world. They are just concering about their growth in few years. This shows in stastics as only 30% of people said China will be the serious competitors for the Unites states and also 5% said they are not even close to become a competitor for the United States. The 65% of people think that they are not truely critical to effect America's economic.

Altought the Americans are thinking that they are not dangerous enough to effect the United State's economics, China are growing fast enough to catch up in world top economic coutries. They are making big buildings as skyscarpes in the fastest time and sixteen-lane bridge. Their engineering also expedites ahead in other areas. Chinese engineering is speeding ahead in other areas, outdoing American efforts. The end of the year they are making a train that will go to Beijing to Shanghai that only takes 4 hours. The distance is same as New York to Atlanta and that takes 18 hours. However, the president Barack Obama said China is not containing same and better rail system as the United States. He also said they are only just using our property.

Link : http://abcnews.go.com/WN/China/chinas-growing-economy-numbers/story?id=12152317

http://www.americans-world.org/digest/regional_issues/china/china2-5.cfm

Another question:

What is the disvantage for the U.S.'s economic from rising china's economic?

Relationship Issues

In lieu of the recent attacks on South Korea (by North Korea coughPalincough), China has been repeatedly pinned by the bulk of the G20 members to sway their ally.

Known to be North Korea's sole ally, China's decision to continue sustaining the partnership with this Communist regime has led me to question why it even bothers with a country that does not seem to be able to provide anything in return?

Upon research, I have discovered several things.

1) Where You Are Determines Who You're With

The close proximity of these two countries is one of the primary reasons why the two even function. After the Korean War, China has maintained a strong bond with North Korea. Fighting together created a brotherhood, it seems, as did their shared love for Communism.

2) It Takes Two to Tango

The entirety of North Korea's economy relies upon China. In its current state, North Korea does not contain enough resources to remain self-sufficient. However, this is not just a one-person game. Bilateral trade between China and North Korea reached $2.79 billion in 2008, up 41.3% compared 2007.

Though China's economic power has grown significantly in the past three decades, and it has grown to become the world's second-greatest superpower, it is the author's belief that these ties with North Korea are bringing them down. In addition to current issues of population control in China (as it boasts a fifth of the world's population) and lack of resources, the ties with North Korea create strain for the Chinese economy as other countries begin to turn up the heat because of the events of late. The economic success of China is not just defined by its hard work and efforts, as the other inhabitants of the world have to comply with its requests - and it appears that its current plan of attack will not have make for many happy inhabitants.

To be honest, I think they should just break up.

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China’s Economic Power

Most Americans do perceive China as an economic competitor. In a NBC/WSJ poll of May 2005, 61% identified China as “a serious economic competitor of the United States” with another 30% saying that China will be “will be a serious economic competitor to the United States in the future.” Just 5% said that it will never be an economic competitor.
At the same time Americans lean slightly toward having a positive view of China’s economic growth—which is not a contradiction given American belief in the stimulative value of economic competition. A December 2005 CNN/USA Today poll found 48% thought “the growth of China as a major economy” was a positive development for the United States, while 46% saw it as a negative development. Asked by Pew in May 2005 “do you think that China's growing economy is a good thing or a bad thing for our country?” 49% said it was a good thing and 40% said it was a bad thing. When asked about the possibility of China becoming “significantly more powerful economically than it is today” (emphasis added), the response was divided. Forty-six percent said it would be mostly positive while 45% said it would be mostly negative. (BBC World Service Poll conducted by GlobeScan/PIPA November 2004).

This same pattern was found in questions that ask about whether China’s economic growth is a threat. In a December 2005 CNN/USA Today poll, 64% of respondents said they considered China to be “an economic threat to the United States,” while 33% said it was not a threat. However, when given the option to say whether they viewed China’s growth as a threat or an opportunity, views were more balanced. An April 2005 Ipsos Reid poll asked “Do you view China's recent rapid economic development as a threat or an opportunity for the United States?” with 50% saying it was an opportunity while 44% said it was a threat.

Reference:http://www.americans-world.org/digest/regional_issues/china/china2-5.cfm


Another question:

What is the disvantage for the U.S.'s economic from rising china's economic?

What is Quantatative Easing and how will it affect the economic relationship with China?

Quantatative Easing is unconventional monetary policy used by some central banks with the aim of decreasing long term interest rates. QE increases the supply of money by creating money which is then used for increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower their yield. Federal Reserve of U.S is now working on the 2nd round of Quantatative Easing, which will stimulate the economy even more because the 1st stimulus did not work as much as expected. The Fed believes that QE2, which would involve massive purchases of Treasuries, would push yields on Treasuries and bonds down and produce a surge in investment and consumption expenditures.
QE2 has a goal, to raise the economy's inflation to 2~4%. Federal Reserve inflationary policies are apparently poised to sweep us up, up, and away until, that is, the balloon bursts once again. Because of this, many domestic investments are likely to be made. More investments, more factors of production, and more domestic products. Because QE2 supplies more money and increases supply of dollars, the value might go down. Which means, the China's export will earn more than now. Because Renminbi is highly regulated by Chinese government, and because G20 failed to stop this manipulation by Chinese Government, Renminbi will not change in value. But since the dollar value goes down, Renminbi gains less power than before. For example, if 1 Renminbi changes to 1 dollar in U.S, now 1 Renminbi which changes to 2 dollar in U.S. after the inflation and QE2. Because dollar value goes down, Chinese exporters are damaged. They have to increase their price to get the same profit in Renminbi. The imports from China, therefore, will likey decrease.
However, American exporters face a different side. Since dollar can change into more Renminbi, American entrepreneurs can establish and gain more profit in the Chinese market.
By proposing and operation QE2, American businesses gain more advantage on domestic and international market. In Domestic market, cheaper American products compete against more expensive Chinese products. In international market, American industries can gain so much more revenue with less investments. In conclusion, QE2 will encourage domestic products, which will have increased demand because of lower price, lower unemployment rate, and possibly end of recession, while successfully exploiting the Chinese market also, with less investments and higher revenue.

http://www.csmonitor.com/Business/ThinkMarkets/2010/1018/What-s-this-QE2-all-about
http://en.wikipedia.org/wiki/Quantitative_easing
http://blogs.wsj.com/economics/2010/11/03/qa-on-qe2-what-a-fed-move-would-mean/
http://www.smartmoney.com/investing/economy/why-qe2-isnt-the-answer/

Further Question: What is economic benefits of China's economic boom in U.S?

Would the Renminbi be devalue against US Dollar in the future?

Will Renminbi ever devalue?

Due to the differences in cost of production, lots of investor chose to invest their money in China rather than their own country.This make lots of people lost their job because Chinese worker causes less spending and are able to do as good work as anyother foreign worker like American or Indian, this will decreases the price of production and provide more profit to the business. A rapid increasing of invester investing in China make Chinese government wanted to keep their currency in an optimum value to attract more investor while the other currency are kept changing according to the current economic situation.In order to keep their economic the same, with no decreasing in profit, China refuse to devalue it's currency

In my opinion, I consider that the Renminbi will maintain it's strength against US Dollar. The economic of China is getting better with the higher rate of GDP and also increase the rate of investment in China. Infact, with the growth of economic plus the QE2 issued from the Federal Reserve of the United State,it could force the US Dollar to be devalue against Renminbi further in the future. However, if China doesn't want it's currency to be revalue, it could sanction the rate of Renminbi in the money market to maintain at the same level of the exchange rate against US Dollar.

 Cited from: http://www.dallasnews.com/sharedcontent/dws/bus/columnists/chall/stories/DN-Hallonline_10bus.State.Edition1.3d7e691.html

http://www.risk.net/asia-risk/news/1563630/renminbi-replacing-us-dollar-trade-currency



Further question : How does "QE2 (Quantitative Easing)" works?

Next due date (2nd post)

Due date will be 3/12.....

How is Chinese currency different than the U.S Dollar?

Chinese use Renminbi, which consists of Yuans, the equivalent of 10 Jiao, that can be divided into 10 fen. It’s similar to dollars, and having different amounts of paper bills. Their paper money is distributed by 1.5, 5, 10, and 50 values. In hotels and department stores you may pay with a credit card however credit cards are not accepted in stores or restaurants, where as in the U.S you can pay cash or credit almost anywhere.
Currently both United States and Chinese currency are at the same value in the international currency market.

reference: www.danwei.org/china_information/china_currency_trade_revaluati.php

China Economic boom

Economists studying China face thorny theoretical and empirical issues, mostly deriving from the country's years of central planning and strict government control of many industries, which tend to distort prices and misallocate resources. In addition, since the Chinese national accounting system differs from the systems used in most Western nations, it is difficult to derive internationally comparable data on the Chinese economy. Figures for Chinese economic growth consequently vary depending on how an analyst decides to account for them.

Although economists have many ways of explaining--or modeling--economic growth, a common approach is the neoclassical framework, which describes how productive factors such as capital and labor combine to generate output and which offers analytical simplicity and a well-developed methodology. Although commonly applied to market economies, the neoclassical model has also been used to analyze command economies. It is an appropriate first step in looking at the Chinese economy and yields useful "benchmark" estimates for future research. The framework does, however, have some limitations in the Chinese context.

Original data for the new IMF research came from material released from the State Statistical Bureau of China and other government agencies. Problematically, the component statistics used to compile the Chinese gross national product (GNP) have been kept only since 1978; before that, Chinese central planners worked under the concept of gross social output (GSO), which excluded many segments of the economy counted under GNP. Fortunately, China also compiled an intermediate output series called national income, which lies somewhere between GNP and GSO and is available from 1952 to 1993. After making appropriate adjustments to the national income statistics, including adjusting for indirect business taxes, these data can be used to analyze the sources of Chinese economic growth.