EMAIL DETAILS

Hunter,

Let's get together next week. Let me know a good day to stop by.

Michael
On Oct 1, 2010, at 11:57 AM, Hunter Biden wrote:

> M-
> Sorry I missed you this week. Eric spoke to me- we can discuss in
> person nxt wk.
>
> R. Hunter Biden
> 202-333-1880
>
>
> On Oct 1, 2010, at 9:32 AM, Michael Andrews <mandrews@ips.edu> wrote:
>
>> Why China Is Unwilling to Revalue the Yuan
>> with 3 comments
>>
>> The following guest post was contributed by Ian Lamont, an MIT
>> Sloan Fellow. He was previously the managing editor of the Industry
>> Standard, and has also researched China’s state-run media and
>> communications policies.
>>
>> For years, China has been subject to enormous external pressure to
>> increase the value of its currency, or let it float on the open
>> market. While doing so might relieve pressure on foreign economies
>> by boosting their exports and reducing trade deficits, it runs
>> counter to Beijing’s domestic priorities, which involve doing
>> everything it can to preserve economic growth and domestic
>> stability, and by extension, its hold on political power.
>>
>> All countries exploit the dynamics between their political and
>> economic systems. But China’s situation is exceptional. For three
>> decades, the government of the People’s Republic of China has
>> perpetuated a grand political dream, claiming a single-party
>> political mandate from the Communist ideals espoused by Mao Zedong,
>> while simultaneously drawing power from the capitalist canon.
>> Beijing has been able to pull it off, largely through the promise
>> of spreading wealth and opportunities to even the poorest of
>> villages and maintaining benefits for cadres and workers in state-
>> owned enterprises which cannot easily be absorbed into the
>> capitalist system. A high rate of GDP growth is required year after
>> year to maintain this state of affairs.
>>
>> A sudden change in the value of the Yuan could have the effect of
>> throwing a wrench into the works, potentially setting off a chain
>> reaction of factory closures and layoffs across the interconnected
>> networks that drive China’s export-oriented economy. In the short
>> term, China might be able manipulate legislation, the banking
>> sector, and welfare levers to prop up key industries or regions.
>> But in the long term, it is uncertain if these steps would be
>> enough to preserve social stability or continued loyalty to the
>> Communist Party.
>>
>> What sorts of domestic consequences would result from a slight
>> uptick in the value of the Yuan? The currency is now trading at
>> about 6.7 renminbi to the U.S. dollar. At the very least, Chinese
>> exports would become slightly more expensive to foreign buyers. The
>> resulting drop in Chinese exports would put marginal factories out
>> of business and put their workers on the streets. Other companies
>> wouldshift low-wage manufacturing to countries such as Vietnam and
>> Sri Lanka. In the industrial parks around Shenzhen, the unemployed
>> could be reabsorbed into the local manufacturing economy. In remote
>> interior provinces, where economic institutions are less developed,
>> there would be fewer opportunities, and a corresponding rise in
>> poverty, anti-government feeling, and isolated “mass incidents.”
>>
>> But what would happen in the case of extreme economic disruption,
>> prompted by a sharp change in the exchange rate, the currency
>> openly floating on the world market, or some other unforeseen
>> effect of a revaluation? The social and political turmoil unleashed
>> by a sharp, sudden slowdown of the Chinese economy could
>> potentially lead to Tiananmen Square-scale protests, widespread
>> domestic instability, and an exodus of migrants or refugees to
>> neighboring countries and overseas.
>>
>> China is not attempting to hide its fears. “Any significant
>> appreciation of the renminbi will erode China’s export
>> competitiveness overnight and impact the livelihood of tens of
>> millions of workers,”notes an editorial authored by the pro-
>> government China Daily and republished in China’s state-run news
>> agency in May. The essay further describes two economic goals: To
>> maintain a target GDP growth of 8 percent per year (a level it has
>> achieved nearly every year for the past two decades) and contain
>> China’s consumer price index (which it tries to keep under 3%).
>>
>> Additional factors may influence China’s currency policy in the
>> short term. One concern is foreign policy, such as relations with
>> key trading partners. Another is nationalist sentiment, which the
>> Communist government has manipulated to support its own hold on
>> power. Economic injustices inflicted by foreign powers on China in
>> the 19th and early 20th centuries — such as the treaty ports system
>> — still play a role in China’s nationalist propaganda. These
>> humiliations require the current generation of Chinese leaders to
>> tread carefully around policy changes that could be viewed as
>> kowtowing to foreign demands.
>>
>> So, for foreign governments, companies, and labor groups expecting
>> China to allow its currency to appreciate, there may be no
>> significant movement until China’s back is truly against the wall —
>> or the leadership in Beijing can find a face-saving way to
>> convincingly portray a revaluation as an advance demanded by its
>> people, as opposed to a policy shift dictated by foreigners. In
>> addition, China’s trading partners need to be aware that a change
>> in the value of the Yuan will not by itself erase their trade
>> deficits or reduce their dependence on cheap manufactured goods
>> from abroad. Such a shift may even lead to problems that have long-
>> lasting implications for China’s people and the global economy.
>>