China may face the same problems as Japan with US

Photo credit: The Diplomat

Special Writer

 

COMMENT: Japan’s problems, from what I recall, were aggravated by Washington labelling Tokyo a “currency manipulator” and insisting on balanced trade.

Deja Vu!

So, Japan came to a point where it had to mix rice imports from the US with local rice. The Japanese swear by their rice. They couldn’t be forced to eat imported rice from the US.

It was Washington which suggested that Tokyo mix American rice with the Japanese variety to force the Japanese to eat the former variety.

All in the name of having greater balance of trade.

This is just one example.

We know Japan has a few things going for it.

The Japanese believe in buy Japanese.

They have a high savings rate. They are willing to accept zero interest for such savings and even pay the banks a fee to keep their savings.

Japan made products are much more expensive in Japan than overseas. In effect, the Japanese consumer was subsidising consumers overseas.

Japanese society places a premium on education, hard work and discipline. The mothers in particular tutor their children.

Even then, Japan went through 15 years of deflation (prices not rising, going down) before coming out of it briefly and then going into deflation again. I am not sure what’s the present situation.

Japan no longer hogs the headlines.

Japan has benefitted from the opening of China and lately India.

India has opened up to China too (consumer goods), besides opening up to Japan. It has opened up to South Korea, Taiwan (hardware) and Singapore too (growing an external wing for the economy).

The differences between Japan, China and India are obvious.

China is export-driven.

Japan, besides being export-driven, has always concentrated on the domestic economy as well.

Eighty per cent of India’s trade is domestic. only 20 per cent of India’s trade is with the rest of the world. India only imports to facilitate exports.

China, taking a leaf from India and Japan, is paying more attention to the domestic economy.

Ultimately, how these countries move forward and fare in the world will depend on globalisation and free trade.

The consumer in India, the companies too, cannot be persuaded to live on debts.

In Japan and China, the banks are saddled with bad debts. Both governments are covering up for the bad debts.

Washington will subject China to the same treatment that Japan received. The Americans, Trump or no Trump, will insist the yuan be revalued and trade be balanced.

America pays for imports in USD and insists that exports be paid in USD too.

This makes the currencies of other countries worse than useless, being confined to the domestic economy.

The USD has become a cross trading currency i.e. facilitating trade between two other currencies. M’sians, for example, cannot buy SD directly. The rate is worked out on the basis of USD to RM and USD to SD.

If USD1 = RM5 and USD1 = SD2.50, then RM5 = SD2.50.

That gives a rate of SD1 = RM2.

USD1 = SD1.42.

USD1 = RM4.42

So, SD1.42 = RM4.42.

142 S’pore cent = 442 M’sian sen.

1 S’pore cent = 442 M’sian sen ÷ 142 S’pore cents =  1 S’pore sen = 3.11 M’sian sen.

So, SD1 = RM3.11.

The latest exchange rate is SD1 = RM3.10.

The exchange rate between currencies don’t really tell the story.

For example, an expatriate said that one cubic meter of water in Sarawak, at 0.60 sen, was really cheap. In Denmark, for example, it costs RM6.00 i.e. ten times as much for that same volume of water.

Again, this doesn’t really tell the story.

We worked out that an unskilled worker in Denmark would have to work for just 10 minutes to buy that water at RM6.00 per cubic meter. (i.e. working in Denmark for only half the time spent in Sarawak to buy water which costs ten times as much.)

In Sarawak, an unskilled worker would have to work twice as long, i.e. 20 minutes, to buy that same water at 0.60 sen per cubic meter.

The above approach can be used in calculating what the exchange rate really means for the man in the street.

 

Related Link

 

http://www.voanews.com/a/noted-economist-warns-economic-woes-china/3603502.html

 

Share
Click Now!

Be the first to comment on "China may face the same problems as Japan with US"

Leave a comment

Your email address will not be published.


*