Here is Some Mindsteroid Must-Read from letters@chronicle.utah.edu. There’s little to fear. As future leaders of the United States, it’s important for students to study historical phenomena. This can educate upcoming leaders on world trends to avoid in the future. One such phenomenon swept small, yet strategically significant states during the Cold War. The term “Finlandization” refers to the Soviet Union holding power over Finland’s foreign policy during the war. Moscow used its military power, coupled with the West’s disinclination, to defend small states like Finland, to dragoon Finns into policies that took Moscow’s interests into account. If the United States is not careful, it risks Finlandizing with respect to China for economic reasons. That is, it risks purporting friendliness toward the Chinese outwardly because it fears China’s power secretly. China runs stabalization process on its currency, which guarantees that the Yuan trades within certain parameters. This process involves China extracting dollars from its trade surplus. Normally, these dollars would be sold in the foreign exchange market, which would drive down the price of the dollar. However, to counteract this, China eats up U.S. Treasuries bonds. When the dollar decreases in value, China buys Treasuries bonds to reinforce it. These economic facts permit China to manipulate its currency free from reproach. They conflate to give China a sort of financial nuclear option against the United States, and force the United States into policy making from China’s back pocket. Congress should enact an excise tax on imported Chinese goods, and should forbid the Chinese government from making further purchases of U.S. Treasuries. These actions would level the playing field in trade practices, crack down on currency manipulation and reduce the risk of Finlandization. Some forecast a trade war with China in the event that Congress sanctions the state. Others wonder how the United States would be able to finance its debt if China is not there to buy Treasury bonds. As for the latter, according to a World Bank report, China hasn’t bought U.S. Treasury bonds at as rapid a pace in recent years, making it unlikely that the United States would suffer if it forbade China from bond purchases. The former fear derives from a more basic fear, namely, that China is becoming the world’s economic superpower. It is true that China’s economy could soon eclipse the U.S. economy in terms of gross domestic product. With 1.29 billion people — four times the population of the United States — China should have a larger economy, if it is remotely efficient. The more relevant figure is the purchasing power parity, which takes into account standard of living and the value of produced goods. Here, the United States, with a PPP of $48,147, is worlds ahead of China, whose PPP is just $8,394. China’s economic growth is overstated. The country still heavily relies on state-owned industries; that is, it props up certain sectors of the economy while punishing others. It is not sufficiently capitalist to support its current rate of expansion. China moved precipitately from an agricultural economy to an industrial economy. The same transition made long-term growth impossible for the Soviets. China’s labor laws are lax, as are its environmental regulations. Both workers and the environment are degraded, which affects growth rates, according to the World Bank. China’s economy is export-based, too, and features low consumer demand; slow economies elsewhere in the world or self-sufficient states pose a threat to China’s growth. Regime type also matters. Daron Acemoglu and James A. Robinson show in “Why Nations Fail: The Origins of Power, Prosperity and Poverty” that economic growth is only sustainable when coupled with democratic political institutions. This is because incentives to innovate are nonexistent when liberties are restricted. China’s central government channels resources away from the people and toward elites while placing burdens on the backs of the people alone. China looks to follow the trajectory of Soviet Russia. Rather than long-term economic growth and political reform to boot, the Chinese are apt to experience short-term prosperity and eventual decline. We, as future leaders of America, must understand these lessons of history so that when the time comes to address China’s status on the world stage, we can act from an informed position and end up on the right side of history.
The definition of
socialism is: “a centrally planned economy in which the government
controls all means of production.
Here is Some Mindsteroid Must-Read: The People’s Bank of China, the country’s central bank, said in a statement published on its official website that the floating band in the inter-bank spot foreign exchange market will be enlarged from 0.5 percent to 1 percent effective April 16. To keep the exchange rate stable, the PBOC has set a daily reference rate for the yuan and it will be allowed to fluctuate only to the daily limit on either side of the reference rate. The trading range was widened to 0.5 percent from 0.3 percent in May 2007. It also raised the spread between dollar selling and buying prices offered by the foreign exchange-designated banks to their customers to 2 percent of the reference rate, from the current level of 1 percent. News of this announcement was widely supported by the International Monetary Fund (IMF) as it promoted market transparency and economic stability. From CBS Market Watch: Christine Lagarde, managing director of the International Monetary Fund, welcomed the move. “This underlines China’s commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate,” Lagarde said in a statement. The scale of the widening is bigger than the 0.7% the market had expected, according to Ting Lu, a China economist at Bank of America Merrill Lynch, in emailed comments. Earlier this week, China Securities Regulatory Commission increased the quotas for foreign institutional investors from $30 billion to $80 billion. This move highlights a strategic economic shift from an export model to a consumption model. From Bloomberg News: China, the world’s second-biggest economy, has pledged this year to free up control of the yuan and liberalize interest rates as the government deepens reforms to revive growth and offset slowing exports and a cooling housing market. China needs to rely more on markets and the private sector as its export- oriented model isn’t sustainable, World Bank President Robert Zoellick said in February. “More action on opening up their markets to outside investment is definitely a positive,” Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management Inc., which oversees about $700 million, said in a phone interview. “It’s not a huge amount. They’re taking a small-steps approach to see how markets will react with more participants.”
Here is Some Mindsteroid Must-Read: The People’s Bank of China, the country’s central bank, said in a statement published on its official website that the floating band in the inter-bank spot foreign exchange market will be enlarged from 0.5 percent to 1 percent effective April 16. To keep the exchange rate stable, the PBOC has set a daily reference rate for the yuan and it will be allowed to fluctuate only to the daily limit on either side of the reference rate. The trading range was widened to 0.5 percent from 0.3 percent in May 2007. It also raised the spread between dollar selling and buying prices offered by the foreign exchange-designated banks to their customers to 2 percent of the reference rate, from the current level of 1 percent. News of this announcement was widely supported by the International Monetary Fund (IMF) as it promoted market transparency and economic stability. From CBS Market Watch: Christine Lagarde, managing director of the International Monetary Fund, welcomed the move. “This underlines China’s commitment to rebalance its economy toward domestic consumption and allow market forces to play a greater role in determining the level of the exchange rate,” Lagarde said in a statement. The scale of the widening is bigger than the 0.7% the market had expected, according to Ting Lu, a China economist at Bank of America Merrill Lynch, in emailed comments. Earlier this week, China Securities Regulatory Commission increased the quotas for foreign institutional investors from $30 billion to $80 billion. This move highlights a strategic economic shift from an export model to a consumption model. From Bloomberg News: China, the world’s second-biggest economy, has pledged this year to free up control of the yuan and liberalize interest rates as the government deepens reforms to revive growth and offset slowing exports and a cooling housing market. China needs to rely more on markets and the private sector as its export- oriented model isn’t sustainable, World Bank President Robert Zoellick said in February. “More action on opening up their markets to outside investment is definitely a positive,” Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management Inc., which oversees about $700 million, said in a phone interview. “It’s not a huge amount. They’re taking a small-steps approach to see how markets will react with more participants.”
That’s some Horsemanure Worth-Loathed, Read this on the Harvard Crimson: Bo Guagua, a student at the Harvard Kennedy School, has captured the attention of international media following the political downfall of his father, a former Communist Party leader, and the arrest of his mother for the alleged murder of her son’s mentor. Bo Guagua’s father, Bo Xilai, was removed from his position as Party secretary of China’s Chongqing municipality in March and then ousted from the Politburo—China’s most influential political body—the following month. The reasons for his rapid downfall are not entirely clear, but include allegations of corruption and overextension of power. At the root of much of the publicity surrounding the younger Bo is his connections with the late Neil Heywood, a British businessman who lived in China until his death last fall. Bo’s mother Gu Kailai, wife of Bo Xilai, was arrested for Heywood’s murder earlier this month. Heywood is thought to have served as a mentor to the younger Bo by helping him gain admission to Harrow—a prestigious English secondary school—and Oxford University. Chinese authorities said that the family’s relationship with Heywood soured following “a conflict over economic interests,” according to a report in The Daily Mail. While he was a student in England, Bo Guagua’s behavior came under scrutiny as reporters examined rumors of his father’s corruption. Many questioned how the family could afford to underwrite the private education and glamorous social life of their son, who was well known for throwing lavish parties and driving a red Ferrari in Beijing. As the controversy heated up in recent weeks, Bo Guagua has removed himself from the public eye. His last clear public communication followed his father’s removal from his position as party leader last month. “My personal desire is to focus on my studies and be left out of the political intrigues,” he wrote in an email to The Times of London. He was believed to be residing in his Cambridge apartment as recently as Tuesday, according to a report in The Wall Street Journal. Some reports have speculated that he will seek asylum in the United States after he receives his degree from the Kennedy School next month. Bo Guagua could not be reached for comment. Kennedy School Professor of Practice Emeritus Marvin Kalb said that the recent stir in the media over the family indicates growing political tensions in China. “Clearly Bo [Xilai] was someone who challenged the assumptions of the party and the timetable of the party,” Kalb said. “The people in power looked upon him as someone who was who challenging their authority.” He added, “What you’re looking at is a [potential] change of direction of the Communist Party…. I believe the traditionalists at this point will end up winning the day. The man who represented a fundamental threat to their power and their style has been purged.” —Staff writer Justin C. Worland can be reached at jworland@college.harvard.edu.
