Japan: Older Workers Moving to China?

Eddie writes from Spore:

I’ve attached an article that I thought was pretty interesting. A reverse labour flow - older workers to younger countries. If we had an even flow in either direction, it would really breakdown ethnic barriers. Imagine Shanghai having as many Japanese as Tokyo had Chinese. That would balance out the demographics in the 2 cities. There was a story a month back about a Singaporean private collage looking to employ ‘retired’ teachers and civil servants to teach in China. But right now, the balance of flow is of course one-sided. Growth attracts more growth. And the stagnant economies just see a hollowing out.

Japanese job-seekers heading to China

Older Japanese workers with skills and experience but who have lost their jobs at home are turning to work in China
By Kwan Weng Kin
JAPAN CORRESPONDENT

TOKYO - Shanghai-based human resources executive Sun Liping, 40, has a dream. He wants to boost the competitiveness of Chinese manufacturing companies in his native Shanghai, and hopes to do so by matching them with veteran Japanese workers who have the skills to share. Mr Sun, president of human resources firm Shanghai Chuangjia Consulting, knows the situation in Japan well, having studied here in the early 1990s. 'Shanghai's economic development has been very rapid. Some companies in our manufacturing sector are now very good but many are still far behind the Japanese,' Mr Sun told The Straits Times in a telephone interview. 'On the other hand, many Japanese middle managers, product development experts and so on are losing their jobs due to corporate restructuring. So there are Chinese companies which can benefit from their expertise. 'My company can help bring the two sides together.'


Fortunately for Mr Sun, there has been a steady number of Japanese in their 40s and 50s seeking second careers in China. As the percentage of jobless in Japan continues to hover around 5 per cent, China presents bright prospects for older Japanese workers forsaken by their employers. By last April, Mr Sun had received the details of some 1,400 Japanese job seekers, 70 per cent of whom have experience in the manufacturing sector, his main target. PaHuma Asia, a Japanese job placement firm headquartered in Hong Kong, has also seen a leap in applications from Japanese for jobs on the Chinese mainland. According to PaHuma's Tokyo office, 42 per cent of Japanese registered with it want to work in China. PaHuma also attests to the growing number of job opportunities in China for Japanese workers, not only in China-based Japanese companies but also in Chinese firms.


Ms Tomoko Hata, manager of PaHuma's Tokyo office, said: 'In the year ended August 2003, 35 per cent of our available positions were for jobs in China.' Most were in sales or technical fields. A survey released in May last year by the Japan External Trade Organisation (Jetro) noted that while Japanese companies were trimming expatriate staff throughout East Asia, they were hiring more Japanese personnel on local terms, particularly in China and Asean.
And while job placement agencies saw less demand for Japanese workers in Singapore and Hong Kong, they were dispatching more veteran Japanese workers to China and Thailand, said Jetro. Statistics compiled by the Japanese Foreign Ministry show that the number of Japanese residents in China has been rising in recent years, totalling nearly 38,000 as of October last year. Although technology industry workers draw higher salaries in Japan, the lower cost of living in China means they can live comfortably on their Chinese pay packets and still have ample savings. But as Mr Sun pointed out, problems in hiring Japanese go beyond monthly salaries. 'There are often language problems, issues with food and housing, even pensions. But we hope to be able to solve them,' he said. The Sars crisis earlier this year was also a major setback. 'We were unable to arrange interviews in China,' said Mr Sun. With Sars on the wane, he is looking to go full speed ahead to bring to Shanghai companies the Japanese talent they need to compete.


A report last year by chinanews.com said there was a shortage of personnel in the Shanghai area among the 20-to-40 age group who were familiar with leading technology.To plug the gap, Chinese companies are said to be willing to pay monthly salaries ranging from 20,000 yuan (S$4,200) to 50,000 yuan for a Japanese expert.This is several times what they would pay Chinese workers.Many companies have been able to attract workers previously at Japanese blue-chip firms, particularly in the electronics sector, which has shed thousands of jobs over the past few years through early-retirement schemes.Although such workers draw far higher salaries in Japan, the lower cost of living in China means they can live comfortably on their Chinese pay packets and still have ample savings.

Funnily enough this is something I often discuss with my wife. Spain in ten years time will be one of the oldest countries on the planet. In a society where everyone is old, the premium will be on young people, older people will, almost inevitably be less respected. That, in part explains why so many companies want to recycle their over 50 workforce. In contrast, those societies where there are still a disproportionately large number of young people (just sufficient, not tooooo many) will need the experience of older people, older people will be more valued and respected. Apart from relieving the burden on the welfare system (ironically, in a slightly poorer, but younger society, hospitals may be fewer in number, but access may be easier) it may be a good practical proposition for those over 55 who find themselves prematurely 'released' from their obligations in the west to recycle themsleves, and start a new life in one of the younger 'developing' economies. Apart from anything else, with the internet to accompany you, it might feel just like home.

Why This is not a Good Time to Revalue Renminbi

Following up on the China financial reform topic, here's Andy Xie from last Friday:

I believe China must reform its financial system before it can open its capital account and change its currency policy. The reforms are not just about solving the stock of non-performing loans in the banking system, but more importantly, they are also about stopping the banking system from accumulating more bad loans.

The non-bank financial sector also presents a serious risk to China’s stability, in my view. In particular, our strategist believes the stock market is overvalued; I believe it is not a level playing field.

Further, the inefficient financial system reflects the contradiction between the need to narrow the gaps in regional incomes within China and the inability of the government to collect taxes. If China does not streamline its tax system to raise national tax revenue to more than 25% of GDP, the central government will likely have to continue to rely on banks to support investment programs in poor provinces to narrow the gaps in regional incomes.

There is a race between GDP and bad debt in China. If the latter grows faster, as it has been in the past, China may need to devalue the currency when its exports slow down because inflation is needed to reduce the burden from bad debt. Although productivity gains may support a renminbi appreciation at some point, the financial system is distinctly pointing at the other direction. If you are betting on the renminbi today, I say good luck.
Source: Morgan Stanley Global Economic Forum
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And don't miss this part:

For each US$1 in value for a product that China exports to the US, a product sells for US$4–5 at the retail level in the US. Therefore, American brand owners and distributors benefit far more from China’s output than the Chinese themselves. Moreover, for each US$1 in value for a product that China exports to the US, businesses in Hong Kong or Taiwan take 20 cents.

and remember, a lot of Chinese exports to the US are of products which originate in Hong Kong or Taiwan, and which have simply been 'processed' (assembled etc) in China. A revaluation of the Chinese currency would have no impact on the underlying value of the core components. So it is not clear that anything other than a sharp correction would have more than a negligible impact on the US trade deficit with China, and a sharp revaluation would surely be deflationary and destabilising (which would also amount to the same thing) inside China.

Bank Lending Rockets in China

Yesterday I was defending the Chinese economy from its sillier critics. Today, to show that I am not blind, a 'balancing piece' which indicates some of what the crtics are worried about: the system does seem flooded with liquidity. Chinese banks are increasing lending fast, and at very low margins (oh, oh!), and foreign banks seem to be shying away. I have to collect two books on Chinese banking and financial reform (courtesy of Amazon) from the post office this morning (thanks to Walter Hutchens for steering me towards them), so maybe I'll be a bit clearer on all this later in the week.

In the face of aggressive lending by local institutions, international banks' share of foreign currency loans fell from 15 per cent in 2001 to 7.4 per cent last year; and their share of total assets of the Chinese banking system dropped from 2 to 1.1 per cent over the same period. The figures, produced by European bankers ahead of the European Union-China summit in Beijing in October, have been taken from the People's Bank of China (PBOC), the central bank.

The market share of overseas lenders is likely to have fallen further in 2003, as Chinese banks' loan books have expanded even faster this year, prompting the PBOC to impose higher deposit requirements on most local institutions late last month. Lending last year rose 15.4 per cent year-on-year, said the China Economic Quarterly. But it has accelerated more rapidly in 2003, rising 71 per cent year-on-year in July alone, the PBOC said. "Chinese banks have a lot of liquidity, and so we are seeing a lot of aggressive lending in large amounts," said one Shanghai-based foreign banker yesterday. "One thing we have to alert clients to, is the fact that this liquidity might at one time end." A number of projects involving multinationals, such as Shanghai's new $12bn deep-water port and an LNG terminal in Guangdong, have been financed almost exclusively by Chinese banks. "It is not uncommon to see a 12-year project financing for less than a 1 per cent margin - there is no justification for us getting into this business," the banker said.
Source: Financial Times
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Knock, Knock , Guess Who's There

Knocking China seems to be all the rage these days, in some quarters at least. Conrad the Gweilo for eg:

China's Growth Illusion

Weijian Shan, of Newbridge Capital, penned an extraordinary and compelling pair of opinion pieces in Wednesday and Thursday's Asian Wall Street Journal. in which he details China's illusory growth, misallocation of capital and sets forth how China can yet reform and avoid an economic collapse.

The pieces are extraordinary because, despite the fact that Newbridge has substantial mainland investments, Shen's analysis is devoid of the usual cant and brown-nosing characteristic of the public views of foreign investors in China. Indeed, Shan's honesty and bluntness are so unusual that it's caused something of a stir within the investment community.
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Now since Conrad is no economist, and since to boot he seems to spend most of his weekends looking at photos of attractive young Asian girls, perhaps he can be forgiven for having left most of his critical faculties in another place, but then there's this piece (thanks to Joerg) from Hugo Restall of the Asian Wall Street Journal to contend with:

"So China is using the hard-earned savings of its people, which could have been devoted to building globally competitive companies, and is instead throwing them down 100,000 state-owned ratholes so that Chinese workers can produce artificially cheap products for American consumers to enjoy. The government is even taking away the dollars earned by selling these products and loaning them back to the U.S. at low rates so that those American consumers can keep on buying. There's still time for China to get wise. But the point here is that Americans should be sanguine about China's development model. Thanks to Beijing's own policies, China is giving them cheap capital, cheap manufactured goods sold below their true cost and a market for sophisticated, high value-added goods. At the end of the day, China will be left with uncompetitive companies, depleted savings and a balance-sheet recession. It will have to sell off the distressed assets of its failed banking system, at which point Western companies can buy up even more of the economy at fire-sale prices..."
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To this concoction let's add a little quote from Arnold Kling back in June (which Joerg sent me this morning):

"Why do foreign investors invest so heavily in dollar-denominated assets and bear the risk of a decline in the dollar? Personally, I think it is because they are stupid.........The beauty of having dollar-denominated debts in a world of currency fluctuations is that the United States is fairly insulated. If the foreign currency crashes, foreign borrowers take the hit. If the dollar crashes, foreign lenders take the hit. Foreigners are screwed either way."

and it seems we have something less than an objective view of things floating around. In fact I have the feeling that there is a US wins come what may paradigm in the air. (One which may, or may not, be as cynical as the George Bush Iraq one, but certainly is just as much of a self delusion). As I said in my triple deficit post earlier this morning, this isn't how I read things. If anything the US may be the economy with the biggest problem if they don't find a fix, even if some non-US citizens who have their money in New York get their fingers burnt in the process. To dub China's growth process an illusion seems to be streching the fact that there are problems, and that they need to fix them, to really incredible limits. This isn't even schadenfreude, but maybe it is schadenfreude displacement, since it involves projecting your own misfortunes onto others in order then to take pleasure in them. As if to show not everyone in the US is so perverse, and uncharitable about China, Walter Hutchens has what seems to be a 'fair and balanced' account of the state of things:

Is there any Value to the RMB Re-valuation Discourse?


With a high level US official in Beijing and the US election heating up, noise is being made on both sides of the Pacific about the RMB valuation issue. I find it is beside the point.

Let's assume China "caved in" on this one and revalued the yuan as some US interest groups want it to do. Even if China dramatically increased the RMB's exchange rate (or even allowed it to liberally float), would this really change the fundamental reason the US is shedding manufacturing jobs and has a substantial trade deficit with China? I doubt it. The difference in PRC and US wages would still be dramatic, even if the yuan were revalued. Even allowing for the cost of transportation and some other inputs, how can a US union worker (or even a non-union one in say my home state of Alabama) compete with a Chinese worker in terms of the cost of labor? I don't see it.

Plus, I imagine computer technology and other efficiency gains have trimmed more manufacturing jobs than overseas competition in the aggregate, much less China's contribution alone, much less the part of China's contribution that is attributable to the falsely valued RMB.

Cheap labor is simply China's competitive advantage. If the RMB were traded 1:1 to the U.S. dollar, the cost of labor in China would still be much lower than the cost of labor in the US. So is this an economic or only a political issue?

And though I realize there can be enormous pain for the individuals directly affected, how would freezing in place these vaunted US manufacturing jobs be good for the US standard of living in general in the long run? Should we all agree to pay more for everything so we can say it was made in the US, or should we let the creative destruction of capitalism work its magic? Trying to give every worker an iron rice bowl is what China tried, and they didn't like the results and have been moving away from that approach for 20-plus years.

We certainly need to press China on lots of issues--and I, too, hope the RMB becomes fully convertible (so that creative destruction could come to China's stock markets), but pressing them to revalue the RMB for the purpose of keeping US factories running seems to me like a mistake. I doubt it will really help those factories much, and I doubt helping those factories, if we could, would really help the U.S. much.
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China Mobile's Agile Movements

While the a strong whiff of 'promo' about this Finance Asia article, the details you can find there are real enough. China Mobile is now the world's No2 carrier in terms of subscribers, and set to rocket upwards if the market potential is anything to go by. This situation could also be revealing about the pattern which may be to come as China's internal market expands.

The company's position as the second largest mobile phone operator in the world by number of subscribers was bolstered at the end of last year with the acquisition of seven mobile phone interests in China. The acquisitions were funded by a $6.6 billion share placement and a $690 million convertible bond, the largest equity issue from non-Japan Asia ever achieved. With the assistance of its financial advisers, China Mobile Hong Kong's senior management showed a stroke of genius by registering the deal in the US which meant that a lot of institutions were encouraged to participate. The convertible bond portion of the transaction was 25 times subscribed.

"China is now absolutely in the super league, one of only a handful of truly global wireless companies," commented the head of equity capital markets for Goldman Sacks, Mike Ryan, following the successful deal.

From the proceeds, China Mobile (HK) was able to acquire seven mobile communications interests from China Mobile Communications Corporation in Beijing, Shanghai, Tianjin, Liaoning, Shandong, Hebei and Guangxi. "The acquisitions have significantly expanded the subscriber base and geographical coverage of our business," says Mr Wang. "The group's network in the coastal provinces of China now covers almost half of the population in China." As a result, China Mobile (HK) services approximately 53% of all mobile subscribers in China, with subscriber numbers exceeding 45 million by the end of 2000...............

"To build our wireless data business, we have established a joint venture with Hewlett Packard and other parties." The joint venture will focus on the development of wireless data-enabling technologies and applications. This will include a standardized nationwide platform for wireless data.

China Mobile (HK) formed another strategic alliance in February when it signed a deal with Vodafone to share management expertise and human resources as well as operational expertise. It will also participate in joint research and development in key technologies, infrastructure, applications and solutions relating to the mobile phone market. Vodafone's chief executive, Chris Gent, now sits on the board of China Mobile (HK) as a non-executive director, in part to assist the company in seeking new joint ventures and equity-based strategic alliances.
Source: Finance Asia
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China's Enormous 'Reserve Army'


Here's another dimension of the China situation, and one that's likely to mean that prices stay down whatever happens to the yuan. The question is to understand the whole dynamic of what is happening. Introducing an enormous new labour supply from the rural hinterland into the new economic zones, and then systematicall folding the state owned industries on the fly creates a very special dynamic. And one that is liable to see internal wage deflation for some time yet.

China's soaring economic growth will not stop hundreds of thousands of staff at state-owned firms from losing their jobs in the next five years, the country's state media has reported. According to the China Daily, the main English-language paper, more than 2,000 state-owned enterprises (SOEs) will go to the wall. That, the paper warns, will further worsen China's already serious unemployment problem. "Further bankruptcy will make things extremely tough for redundant workers, and will probably exacerbate China's urban unemployment problems," the paper quoted an official from the State-owned Assets Supervision and Administration Commission (SASAC) as saying. Almost 8,000 SOEs have already gone bust - although another 159,000 remain in business, the paper said. China's government is keen to see the back of many more, since their inefficiency often means the goods they make are worth less than the cost of making them. Following the country's entry into the World Trade Organisation - and the resulting increase in imports - the mismatch is likely to get worse. State benefits for the unemployed are limited in China, remaining little changed from the pre-market economy days when everyone had a job in a state enterprise. That means those forced out of work may end up swelling the numbers flocking from the provinces to China's big cities and often ending up sleeping rough.
Source: BBC News
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Anecdotal evidence from Peking Duck only confirms this impression:

I am no economist, but it appears to me that this is the conundrum of China's economy:

''The policy of allowing these loss makers to go bankrupt will make China's employment situation much tougher,'' the official was quoted as saying. State-sector reforms have led to the shedding of tens of millions of workers every year, many of whom cannot find new jobs. The Ministry of Labour and Social Security said that China needed an additional 24 million jobs for its unemployed urban residents.

That's 24 million jobs for urban residents alone. I don't even want to think of how many in the countryside are out of work. On top of this, the government is always borrowing more and more to support the non-productive, cash-bleeding SOEs, so the banking system is under perpetual strain.

And that's where the "maintain social stability at all costs" mentality steps in. Once you have any sort of panic, any run on the banks, the entire system is threatened. I realize the situation is more complex than that, but I was always aware when I lived there of just how fragile things really were.

A common myth, I believe, is that multinationals in China are thriving, and that the Chinese are lining up to buy foreign goods. I'll take that back -- it's half myth. There is no doubt a sliver of the vast population is indeed buying Mercedes sedans and Louis Vuitton bags. And the middle class is certainly growing, though I believe most readers would be amazed at what would constitute the "middle class" wages of, say, an accountant or marketing manager in Beijing.

I would guess that most of the Louis Vuitton, Ermenegilda Zegna and Hermes boutique shops that seem to be everywhere in Shanghai and Beijing are breaking even (maybe), thanks to that high-spending sliver at the top, as well as the expats. But I can't imagine anyone getting rich from them.

Most companies seem to feel they must establish a presence in China now and take advantage of the great marketplace of the future. ............Time will tell if this is an ingenious strategy or a doomed goldrush. I honestly can't say. Some are definitely doing very well, especially certain auto manufacturers like Volkswagen and Buick, which made shrewd deals to assemble their cars on Chinese soil. Others are operating at a painful loss.

One thing's for certain: the new pheomenon of the Chinese millionaire and of that small sliver at the top that can afford Prada bags and trips to Paris is a mixed blessing when it comes to holding the society together. Their money is certainly trickling down, but it also exacerbates the already shocking discrepancy between the nouveau riche and the dirt-poor peasant/migrant worker. The government appears to be truly concerned (justifiably, IMHO), about a possible "Let them eat cake" gulf between the rich and poor.
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Kieran over at Crooked Timber had a piece last weekend about Nick Cristof and the China/Russia connundrum ( the latter has had a serious stab at political reform and has ended up with a deteriorating economy, while the former has had slender political reform, and a booming economy. That being said, if you talk to Chinese and to Russians about their respective societies, it is by no means clear that the difference is as large as it might appear to be. People in China certainly feel a lot freer than they did 15 years ago, and the Russians have serious problems with their political process).

I don’t think culture can be the right answer. It’s always tempting to reach for it when we’re faced with a very complex, nationally-bounded problem. But you have to be careful how you think about it. In this case, Kristof clearly thinks of national cultures as being pretty stable. But if they’re stable, how can they explain the huge changes in each country over the past decade? You might think that the shock of the Soviet collapse allowed Russian cultural tendencies to express themselves fully, but that’s not very convincing. Were they not expressing themselves fully between 1917-91? There hasn’t even been a similar shock in the Chinese case, so why all the changes?

The question Kristof asks is one of the Very Big Ones in comparative political economy, so it’s not fair to blame him for not solving it in a short column. The depth of the problem isn’t always appreciated. For instance, you might say “Yeah, the Russians were just as lazy and vodka-ridden under Communism, they expected the state to provide for everything and they still do, hence the lack of economic growth.” This vastly underestimates what’s happened to Russia since 1991. A good paper by Ted Gerber and Mike Hout lays out the early evidence of the disaster and shows how little of the “market transition” ever happened. (JSTOR subscription required.) Things have gotten even worse since then. I don’t have the numbers to hand but I think Russia’s GDP fell by about 40% over the 1990s. (I want to believe that it couldn’t be that much, surely, but the number is stuck in my head. Clarifications welcome.) Life expectancy is down by about five or six years. People in the Soviet Union might have gotten used to state provision of services, or have a cultural tendency to sit around the table and drink, but I don’t see how that explains such a gigantic drop in economic output and basic life-chances in a country the size of Russia.

If the macro, long-term “Culture is to Blame” explanation is unconvincing, the micro, short-term “Economists are to Blame” explanation doesn’t work either, and for the same reasons. The neoliberal policies demanded by the IMF and thought up by U.S. economists haven’t done any noticeable good. They’re usually diagnosed (often now by their originators) as having failed because evil crooks got hold of all the assets in the economy. But again, there’s the sheer scale of the problem. Even if this is why the policies failed, it doesn’t seem sufficient to explain the catastrophic outcomes. Especially when you remember that — as Ronald Reagan kept telling us in the 1980s — evil crooks were in charge of all the assets when Russia was still part of the Soviet Union, too.

All of which leaves a non-specialist like me a bit confused and wanting to do more reading that I don’t have time to do.
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I tersely posted the comment that you might try looking at the demography. Virtually no-one took up the suggestion. It's like we're all colour blind. There is virtually no way that the 'transition countries' can have sustained growth with their demographics. I would bet anything you like that 90% of the explanation for the China-Russia difference can be understood in these terms (I would also bet that 10 years from now a lot more people will be prepared to agree with me). It may seem simplistic, but it could be just that simple (wasn't it Einstein himself who recommended keeping theories simple - just as simple as possible, no more than that). The other thing I noticed about the comments was the underlying cynicism of many in Western Europe and the US about the Chinese reality. We keep going back to the 'they rig the figures argument'. Sure that's probably partly true as we've seen with SARS. But there are other 'proxy' measures which are being used by good economists like Andy Xie (who the Crooked Timber crowd don't seem to have heard of!) to get an independent perspective. Or there is the argument that US corporations are going to China to lose money, just because it's fashionable (my guess is that people who make these comments don't understand much about accounting procedures, or about why the US is having a jobless recovery). However, it is also true, as Peking Duck observes, that the poor may be getting poorer, but this also happended in the UK in the first half of the 19th century, and in the US around the turn of the 20th century, and look what happened next. I hate to say this (especially given the ideology that they profess), but a lot of this smells awfully like 'eurocentrism' to me.

China Readies its Excuses


John Snow is about to visit China, and the Chinese are preparing their excuses. Despite all the comparisons with Japan I think it is imporant to understand that the dynamic is going to be very different. Since 1945 the Japanese have never been prepared to confront the US head on. It was only two years ago that Beijing took down a US airplane and refused to back off. Ironically the more pressure the US tries to apply, the more resistance they may encounter. Which doesn't mean that the yuan will not go up. As the spokesmen say, the only firm decision is 'not now'. China will make concessions, but not on fundamentals in my opinion. Essentially I think Andy Xie is right, the most interesting thing for the Chinese to do right now (speaking only about economics) is to fix their financial system. Removing subsidies is only a token gesture, since a 5% increase in costs inside China only translates into a very marginal price change in the US. Really the problem is not that China is exporting too much, it is that the US is exporting too little. That problem can only be solved inside the good ol' US of A (perhaps with a little help from Europe and Japan, who are, after all, the main customers).

China is preparing to reduce incentives for exporters, increase purchases of Treasury bonds and loosen controls on foreign currency holdings to blunt mounting pressure from the United States, where its growing trade surplus has come under heavy political scrutiny, Chinese officials and analysts say. The steps are expected to be among concessions Chinese leaders offer Treasury Secretary John W. Snow on his visit to Beijing this week, although they fall well short of meeting Mr. Snow's demand that China begin allowing market forces to set the value of its currency, the yuan. With Democratic presidential candidates, influential American manufacturers and even Alan Greenspan, chairman of the Federal Reserve, pressing China to overhaul its currency system, officials here are eager to head off trade tensions. But they are also determined to maintain the current exchange rate, set at roughly 8.3 yuan to the dollar, for some time to come. "People do not want Mr. Snow to go away disappointed," said a financial expert affiliated with China's State Planning Commission who has been involved in preparations for the visit. "But the decision on the yuan has been made. There will be no change at this time."


The issue reflects the growing sensitivity of China's trade surplus in the United States and its robust economic growth, which some critics say is coming at the expense of American jobs. It is also an early test for the new generation of China's leaders, who will be called upon to handle inevitable diplomatic frictions as the country attracts tens of billions of dollars annually in foreign investment and posts year-on-year export growth of more than 20 percent, much faster than other major economies.

China passed Japan last year as the country with the largest trade surplus with the United States, at $103 billion. That has made it a prime target for producers of textiles, auto parts and other ailing industries, which say China is stealing their business by currency manipulation. The situation is reminiscent of economic tensions with Japan in the 1980's. China today and Japan then had rapidly growing trade surpluses and currencies that many analysts said were kept artificially cheap to promote exports. On his first stop today in Tokyo, Mr. Snow took veiled aim at both the weak yen and the weak yuan. Yet China's economy now is more open to foreign investment than Japan's was then, and multinational companies like Dell and Wal-Mart influence China's low-cost production as big employers and purchasers. China's leaders know this makes it less likely that they would face heavy trade sanctions, as any penalties would raise the price American consumers pay for goods as diverse as socks and laptop computers, analysts say.

Chinese officials are preparing short-term measures to channel more of the country's export earnings into the international economy without changes in the exchange rate.

One step is to cut or eliminate some export subsidies that give its industries a further competitive edge. Among the possibilities under discussion are steps to cancel or sharply reduce tax rebates paid to exporters in sensitive industries like textiles, shoes and furniture. Mr. Xie (that's MS's Andy Xie, Edward) estimates that a reduction in rebates could force companies in the industries involved to raise their prices by about 5 percent. That could eliminate some of the gain from recent swings in the value of the dollar, although given the enormous cost advantages of producing such goods in China, it would probably do little to stimulate manufacturing in the United States. China is also using its large pool of foreign currency reserves, which now total $356 billion, to buy more United States Treasury bonds. In the first six months of this year, it bought a record $41 billion of Treasuries, less than Japan but far more than any other foreign country.
Source: New York Times
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