Yet Another Point of View on Currency Reform

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Every once in awhile, I and/or Jason, receives an email from a public relations professional looking to increase a client’s exposure. We take many of these interviews for a variety of reasons. Recently, a PR agency contacted Jason and sent him the following pitch, “Between housing incentives, employer tax breaks, and the recent tea party movement, America is searching for solutions to and scapegoats for the current recession and potential for a double-dip. It’s most recent effort, encouraging China to “manage its currency, may be an example of the United States refusal to adapt to global capitalism changes; mainly, the end of its position as undeniable market leader. Jason invited me to join the call (I could hardly refuse) and so we chatted with Mr. Benjamin Wey, a US-China trade and business expert and Founder of New York Global Group, a Wall Street investment and consulting firm with offices in New York and Beijing. We thought it might make for an interesting conversation.

Mr. Wey made his first point that the whole controversy regarding currency reform is short-term focused. He went on to say that according to a report by the Chinese Ministry of Commerce, “If the Chinese currency were to appreciate up by 5% from current levels that will force 50m Chinese laborers to lose their jobs. This means those jobs are export oriented. The labor costs in other SE Asian countries aren’t much more expensive than Chinese labor but currency appreciation could create a revolution in Chinese society. From a practical point of view currency appreciation threatens Chinese stability. He argued the currency adjustment amounts to a short-term fix to alleviate US political pressure.

Instead, Mr. Wey argues a better fix would involve an enhancement of the US labor force by bringing more value-added jobs (and products) to market. He referenced Germany as a good example of a country that has gone the value-add route. Mr. Wey goes on to say that the average Chinese manual labor job paying $350/month isn’t the kind of job US workers want anyway. Mr. Wey went on to argue that on the contrary, companies like GE, Google, Caterpillar and Deere pay people good wages and do very well in overseas markets.  (He also suggested that auto-making would also move overseas). Mr. Wey predicts that in 5 years only innovation-based products will have longevity.

He pointed to Intel as an example the Chinese have tried to develop a chip but they haven’t. Innovation has to come from an open society, he suggests. We asked about all of the rules and procedures the Chinese government asks of overseas suppliers particularly around forcing those firms to share technology, not to mention take/steal/borrow intellectual property. According to Mr. Wey, this will become a huge issue and he acknowledges it creates some challenges for American firms. However, the Chinese will gain the technology they need, if not from America than from America’s allies. Take nuclear technology as an example. According to Wey, China is buying from Israel and Israel gets a lot of its technology from the US. The US is now competing with many other countries and companies. What is the best approach so that the Chinese can’t take the innovation? Mr. Wey acknowledges this will become an even greater concern over time. Mr. Wey continued by saying, “GE is a great company GE products in China are expensive so there are lots of players buying locally produced medical products, implying competition will naturally ensue.

We asked Mr. Wey to comment on the recent rare earth export control ban of products to Japan (which we at MetalMiner have not been able to substantiate). He said, “Look, the Chinese have 95% or more of the market and reports indicate a huge increase in prices. We as the US don’t have control over other countries’ prices. And on the flip side, look at the iron ore market within China. There the Chinese can’t dictate prices. They are subject to what the miners will sell to them at. What we need to do is because RE prices are a lot higher now, is drive more US companies to get involved and develop new approaches and innovations. This stimulates the RE industry. We chatted about Anshan’s investment in SDCO and Mr. Wey concurred with our point of view that the notion of state owned entities taking stakes in US companies is problematic. Private company transactions are a different matter altogether.

In summary, Mr. Wey suggested the trade relationship among countries is never smooth. He expressed some worry and said, “Unless this country [the US] puts in place budget controls unless people get more practical on the issues that matter over time the Chinese will come a dominant force from a political and economic perspective. The Chinese will become wealthier tomorrow than today and could easily become the wealthiest in the world. Innovation and a more highly trained labor force have become necessities in the US – that and controlling the spending will lead to greater prosperity to come.

–Lisa Reisman

Comments (4)

  1. Paul Adkins says:

    Lisa,

    good to hear someone speaking some sense for a change. Mr Wey is spot-on with his analysis.

  2. Adam Johnson says:

    This is one of the best pieces written about China from a real world perspective. Thank you very much for this article from a China expert- Benjamin Wey. We need more people who think like Benjamin Wey in the White House or on the Capital Hill. We must focus on domestic issues in the US and improve ourselves.

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