WASHINGTON—The U.S.-China Economic and Security Review Commission (USCC) recently unveiled a report warning against China’s market manipulation tactics, lobbying efforts, and economic wheedling in U.S. governmental and business sectors.
The commission found that increased government control and manipulation of China’s internal and external market systems had certain negative effects on the U.S. economy.
“China’s leaders are now proclaiming that their economic model—a blend of subsidies, government control of the market, export-led growth, and selective privatization—is superior” to any other existing market theory, the USCC said.
The Chinese regime advocates quite blatantly the benefits of a government-controlled market system. It uses tactics gleaned from the West, including public relations and lobbying firms, to have the world buy into its brand of market tactics.
To draw into its folds the world’s manufacturing facilities, it offers benefits not possible in the West. The regime prohibits collective bargaining and forming labor unions. Thus, it provides foreign manufacturers with low-cost labor not available anywhere else.
Low-cost loans from state-owned banks, tax exemptions, and cheap land taken from Chinese citizens by force join the list of goodies the regime offers foreign manufacturers to relocate facilities to China.
“The Commission notes a disturbing trend [by China] away from the development of a free market system and instead sees moves to greater government control of the economy … Many of China’s economic reforms over the past 30 years are, in reality, a government-directed industrial policy that seeks to promote export-led growth … Such policies are having an adverse effect on U.S. industries,” said Carolyn Bartholomew, USCC chairman in her opening remarks at a recent press conference.
Culprit for Many of America’s Ills
According to the commission, China is strangling America’s economy and bears more than any other nation the responsibility for the global economic crisis with its export-driven economy, export-driven subsidies, undervalued currency, and internal lending strategies.
“Beijing’s industrial policy was a contributing factor to the imbalances that led to the global financial crisis that affected the economies of rich and poor nations alike,” stated the USCC report.
China’s push into gaining control of the world’s raw resources, especially petroleum and metals, is a hidden manipulation of market prices that is unhealthy and not beneficial to the international economy at large.
The USCC predicts that China’s economic finagling will be the driving force of the next economic crisis.
“If China continues to pursue huge trade and investment surpluses and to accumulate vast financial claims, it will hinder the necessary global economic adjustment, create excess manufacturing capacity, and lay the groundwork for the next crisis,” predicts the commission.
China’s Currency Manipulation
In September, China’s trade surplus with the United States amounted to $166 billion, the highest figure for 2009. U.S. exports to China in September amounted to a mere $5.9 billion, while imports into the United States amounted to a staggering $212.8 billion.
The above is only possible because China pegs its currency to the U.S. dollar, allowing its products to be sold cheaper than is possible by any other country, undercutting the rest of the world and eliminating existing competition.
In July 2005, China’s currency changed from being pegged to the dollar to a “managed float.” But in July 2008, the onset of the financial crisis, China’s regime put the brakes on the “managed float” and returned to strict currency manipulation.
By stopping the currency appreciation, leaving its currency notably undervalued, it has outmaneuvered other producing nations and stopped international competitive forces.
Manipulating the currency is one of the most effective weapons the communist regime is using against the world. It has effectively destabilized market forces and is the main factor for America becoming China’s largest debtor and China becoming America’s largest creditor.
By pegging China’s currency to the dollar, it artificially cheapens China’s goods and services. This action prevents the People’s Bank of China from responding to the demands of China’s burgeoning economy and limits its responsiveness to inflationary forces, according to trade policy expert Eswar S. Prasad, professor at Cornell University.
“Flexibility of the currency is an essential prerequisite ... rather than an objective in itself,” said Prasad in the USCC report. “Giving the Chinese central bank room to raise or lower interest rates by freeing it from having to target a particular exchange rate would help rein in credit growth and deter reckless investment, reducing the risk of boom-bust cycles; an important point here is that an independent monetary policy requires a flexible exchange rate.”
Remedies to China’s Transgressions
The U.S. administration must monitor and attack China’s trade distorting policies with greater urgency at the World Trade Organization and implement and enforce existing U.S. and international trade laws, the commission recommended.
In addition, the USCC urges the Office of the United States Trade Representative to pinpoint and use applicable sanctions against existing trade barriers that prevent U.S. goods from being sold in the Chinese market.
The greatest effort should be toward eliminating market distorting pricing arising from pegging the renminbi, the Chinese currency, to the dollar. Such activity would do much in eliminating global economic imbalances. Such effort must include congressional legislation that offsets the effect of the Chinese currency manipulation and should be in effect until a true market environment is established.
Additionally, the commission urges the U.S. Congress to find the ways and means to bring the U.S. manufacturing base up to par and back to the level of operation that would sustain a healthy U.S. economy.
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