U.S. Won’t Press for Significant RMB Appreciation

Due to the fact that a better export-oriented manufacturer cannot be found anywhere else in the world, the U.S. won’t press for increases in the value appreciation of the RMB [i.e., renminbi, or the Chinese yuan, the official currency of the People’s Republic of China].

Which country or region will replace China to be the “export machine” that supplies the hard-up Americans with their commodities? Will it be India and Vietnam, Southeast Asia or Mexico?

Mexico’s GDP per capita is $6,000, and their workers enjoy a higher wage level than those in China. China possesses a higher labor capacity than Mexico, which would still be the case even if its wage level were to increase two or three times. What’s more, Mexico is a country that is overrun by peasant uprisings and drugs, which means it is politically unstable.

India possesses a well-established financial and foreign exchange system, as well as strong domestic demand. The population of the country is relatively young, too. Nevertheless, India’s favorable demographic structure is dwarfed by its incomplete educational and infrastructural facilities as well as the anti-foreign bias that prevails in this country. Therefore, India is not a good choice as an export base. Though India does well in information technology services and medicine, and can compete with the U.S. in these areas, problems still exist in this country.

1. The infrastructure facilities in India are incomplete. Though great progress has been made in the communications industry, India’s electricity and transportation are lagging far behind.

2. The quality of the labor force in India is relatively low. India has 34 percent of the illiterate population of the world; the education of the country is at a low level, and it suffers from corruption. Many students in India have to offer bribes to their teachers in order to receive a better education.

3. India, a country that suffers from guerrillas and terrorism, is politically unstable. It lacks a safe peripheral environment: As a super power in South Asia, India does not have friendly relationships with its neighbors. India’s level of security pales in comparison to that of pre-reform and opening up China.

4. A low level of opening up [to trade]. The Indian government and its enterprises don’t allow foreigners access to the domestic market because of domestic political considerations. India is more interested in American weapons rather than industrial products.

5. India places too much emphasis on developing heavy industries and information technology, while neglecting the needs of labor-intensive industries.

6. Exportable service industries in India are small-scale. The industrial structure of the country is incomplete, and most of its exports are resources like ironstone, rather than industrial products.

7. India suffers from political corruption. What’s more, the government provides local enterprises with poor and inefficient services.

The Philippines, also a country with a large population, is in a similar position as India. Both of the countries are unable to make the best use of their rich human resources. People from the two countries have no sense of common identity due to the fact that their outsourcing industries operate in English.

As for Vietnam, infrastructural facilities in this country are incomplete. Though the quality of its labor force is better than that of the Philippines, it’s not as good as that of China. Without a comprehensive industrial system, the country is heavily dependent on foreign assistance in terms of raw materials and technology. Vietnam’s only competitive advantage is that they can offer a relatively low labor cost. Countries in Southeast Asia are dependent on resources exportation. Their infrastructure, quality of labor force and industrial structure are imperfect. The window of labor cost advantage is closed to those countries that demand a higher wage level.

All of these countries suffer from serious political unrest, except Vietnam. The problem of violence is an outstanding issue in Thailand, the Philippines and Indonesia. All of these countries are a far cry from China in terms of their levels of opening up.

A better export-oriented manufacturer cannot be found anywhere else in the world, so the U.S. won’t press for significant RMB appreciation. The U.S. might prefer the yuan to increase in value by degrees so that it can be transformed in a relatively smooth way.

Chinese enterprises will have to risk helping foreign competitors to enter other [less developed] countries. However, it will still be a better decision for American enterprises to launch their businesses in China, since China is an emerging market country, with huge domestic demand as well as having a sound export system that can ensure the competitive strength of American companies. China is such a large, open market that no other markets in the world can compare, except for Europe.

Trade unions play decisive roles in many countries. In the development of regional economies, trade unions tend to support domestic production and thereby inhibit imports. The same is true even in developed countries like Japan and Korea. Many countries that cannot break through the barriers created by trade protectionism can enter their target markets by means of cooperating with Chinese enterprises.

For example, it is extremely difficult for American enterprises to launch their business in India because many of the most advantageous industries have already been established by Indians. Americans would rather close the door to India in view of India’s protectionism. They seem to only want to conduct arm sales with India. However, G.M. did make a successful launch into India by cooperating with Shanghai Automotive Industry.