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Roll Another Yuan, Just Like The Other Yuan

If you think China’s floating of the yuan/renminbi is gonna turn US manufacturing or the trade deficit around anytime soon, you’re smoking something. Consider this:

China most certainly isn’t stupid. It’s built its economy – with a LOT of help – around manufacturing for export. These guys aren’t in any hurry to pull the plug on this party and, as it’s been written already, the announcement was more likely political (in advance of the upcoming G-20) than altruistic.

Not that they (and, ahem, others) aren’t drooling over the opportunity to develop and open up a strong indigenous consumer market on the mainland. They (we?) are. But a floating yuan and other evolutionary factors (labor unrest, rising costs, quality control challenges) won’t make up for the huge price incentives that China offers buyers in the West anytime soon.

Something struck me while I’ve been reading and surfing across the most recent “it’s all China’s fault” grandstanding from manufacturers and businesses in the US.

What if, instead, China is scared? Like, scared to death right now?

Think about it – China’s been holed up, relatively closed to the outside world, for centuries. There were sputters of openness with the West in the 19th & 20th centuries, but not until the late 1970s did China begin to reform/modernize its economy and political systems. They threw the doors open after Nixon left, and in we came.

That’s not long ago, folks. Change takes time. And in 25 years or so, China’s becoming not only A world leader, but some argue THE world leader. It’s just coming into its own economically, and its manufacturing base is expected to overtake the US in the next few years.

Now, imagine you’re at or near the top of the Chinese gubmint. Rapid change is everywhere. To put its economic power into perspective, as of 2002 China had 171 cities with populations of 1-million people or more. As of the 2000 census, the U.S. had 9. The Internet – regardless of how it’s regulated there – has accelerated commerce and exposed China’s citizens to the outside world (that alone must have them in fits). China’s being thrust into a global leadership role at an astonishing rate. What would you be thinking while managing that kind of growth and acceleration to “openness?”

Me? I’d be completely, wholesale-smooth freaking out right now. And on top of everything else, China is expanding economic development with countries across APAC and EMEA – and NOW I’m expected to lead a world that I haven’t been playing in for very long? You can’t tell me there aren’t some party leaders having trouble sleeping at nights.

I don’t buy – at least not pall mall – the entire “China = Bad” argument. Things aren’t always that simple. And no government – I don’t care how totalitarian it is – ain’t that good. Governments by nature are, at best, dysfunctional. Want proof? Look no farther than the Gulf of Mexico. Governments may indeed be bad, but no government is that good – or that competent.

The fact is that even IF a floating yuan closes those gaps and neuters China’s price advantages, another country or region will take its place. It’s always been so.

We’d better have a plan. Otherwise, we all might as well smoke up.

AJ Sweatt
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