Wei Jingsheng Foundation News and Article Release Issue: A554-W324

魏京生基金会新闻与文章发布号: A554-W324


Release Date: June 19, 2010



Topic: The Way Out for China (Part XIII) Finance - by Wei Jingsheng

标题: 《中国的出路》之十三: 平衡金融 -- 魏京生



Original Language Version: Chinese (Chinese version at the end)



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The Way Out for China (Part XIII) Finance and Value of the Chinese Currency

-- by Wei Jingsheng



Recently, a main topic that the "patriotic youth" inside China have been stir-frying is the appreciation of the Chinese currency RenMinBi (RMB).  Even the overseas special agents of the Chinese government have readjusted their targets to protect the value of RenMinBi, so one could see how important it is that it needs sparing no effort.  However, is it really that important to keep the RenMinBi devalued?


One excuse is to guarantee the increase of export, thus guarantee employment.  On the surface, it seems reasonable, but in reality it is really a hoax.  What is trade?  Trade is the exchange of goods.  When exports are much more than imports, naturally there is a shortage of goods inside China, thus the inflation.


So how to solve this issue?  The Communist Party and big businesses say: this is easy, just distribute less wages to reduce the internal spending, then it is balanced.  So if the goods are sold at the normal market price, what to do with the excessive profit?  Well, we could preserve it in banks both inside China and overseas.  This is how China got its foreign reserve in trillions of US dollars now, which is also the source of overpriced housing in China.


However, now the house prices in China are so high that people could not bear it.  The money in the banks also flows back to the market, which on one side resulted in an overheated international money market, while on the other side resulted in excess production capacity inside China.  Meanwhile, both markets inside and outside China shrank disproportionally.  This is the root cause of the global economic recession in the last few years.  It is caused by unbalanced trade, unfair salary and thus the unbalanced profit margin.


To view this issue from a different angle, it is the much too cheap wages that have reduced the internal market in China,  while China races to control the international market.  Accompanied by the foreign trade surplus, large amounts of Chinese wealth are flowing abroad.  Part of that wealth is taken by the foreign capital, while the rest is stored in the financial markets overseas in various forms of bonds.  Yet, within China, its internal market is still at the level of a poor country of the third world, and the income of its people still ranks in the rear of these poor countries.


How to change this deformed situation?  It is very simple and now is the best opportunity: to raise the exchange rate of the RenMinBi and open the currency market for free exchange.  Then, the foreign currency stored in the international market would return to the Chinese market to absorb the RenMinBi.  This return would produce three results:

1)    The reduction of the RenMinBi flow in the market, thus reducing the rapid inflation;

2)    A decrease of exports and increase of imports, thus a gradual shift of foreign trade toward balance;

3)    Production would rapidly shrink in the short term.


Although it would get rid of the stagflation situation, the shrinking production might result in a vicious circle.  This is one of the reasons why the Chinese premier, Wen Jiabao, does not dare to allow free currency exchange.      


As it is impossible to expand the international market in the short term, there is only one solution: to expand the internal market inside China.  With the current workers' movement spreading over the whole country demanding wage increases, it would exactly solve this problem.  The increased wages to the middle and lower classes, in addition of the raised value of the RenMinBi, could all be thrown into the consumers' market inside China.  This will expand the market rapidly, thus preventing the shrinking of production.  Thus the independent workers' union movement could be the true emancipator to save China's economy.


There are people who are concerned that raising wages would result in a reduction of production, as well as factory relocation.  This argument is more to scare the people.  Even when the wages of all the Chinese workers are doubled, their average wage is still much less than in many developing countries.  The capitalists still have a lot profit to gain.  So a massive relocation will not happen immediately, but the excessive profit of the Chinese and foreign capitalists will indeed be reduced.


This solution brings the advantage that the Chinese workers' living status would get some improvement, and a reduction of the tension in the international trade war.  More importantly, it would expand the internal market inside China, which is the root condition for the Chinese economy to be able to develop continuously.  With the present kind of market that is dependent on exploiting the working class and is harmful to the others in an effort for selfish gain, China cannot continue.  Currently, the rising international trade war targeting China has already put a period on this so-called "China Model".


Will it produce even more serious inflation when both the RenMinBi exchange value goes up and wages for the Chinese workers are raised?  On the surface, these two measures would partially mutually offset each other, which is not very helpful in reducing the ongoing inflation.  However, there is a third factor, which is the increase of imported goods.  An increased RenMinBi value, together with removing non-tariff tax barriers, would result in a rapid increase of imports.  To absorb the excessive currency would be an effective way to restrain inflation.  Thus, already driven up by the increased consumption in China, the internal production would also be simultaneously increased.  This is the only way for the Chinese economy to walk out of this stagflation predicament.


There is some public opinion in the USA that is concerned about a damage to the US economy when the Chinese government dumps its US dollar reserve.  That is because indeed, some within the Communist government and some in the Chinese society always clamor to strike the US economy by the way of dumping the US Treasury securities.  This idea is a freak produced by the economic theory of the Communist Party without an understanding of the market economy.  In some way, it is more of a psychological war.  On one side, the Chinese government makes thunder without the rain, in an effort to scare the American people.  On the other side, the US government appears to be worried, in a way to lure the Chinese government to do something stupid.


What would be the result if the Chinese government dumped the US Treasury securities?  That would devalue both the securities and the US dollar.  The value of the securities would not affect the US government's ability to pay back its debt in time.  But the devaluation of the US dollar would be what the US President Obama needs in an effort to hit his target of increased exports.  When the US dollars are devalued, not only would the Chinese RenMinBi, but also the value of the other currencies including the euro and Japanese yen would all go up, so it helps the USA to easily reach its goal of reducing imports and increasing exports.  This would be only good for the USA without harm.  Why should we be afraid if the Chinese Communist government did that?


Would the reduction in value of Treasury securities result in a resistance to buying them?  No.  Devalued US dollars means the acceleration of the economic growth.  They would buy with appreciated currency, because the credit of these securities is determined by the credit of the country times its economic situation.  When the US dollars are devalued yet its economy is improving, there is no reason to doubt the credit of the US Treasury securities.

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To hear Mr. Wei Jingsheng's commentary, please visit:



(Written on June 17, 2010, and recorded on June 18, 2010.  Broadcasted by Radio Free Asia.)



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Wei Jingsheng Foundation News and Article Release Issue: A554-W324

魏京生基金会新闻与文章发布号: A554-W324


Release Date: June 19, 2010



Topic: The Way Out for China (Part XIII) Finance - by Wei Jingsheng

标题: 《中国的出路》之十三: 平衡金融 -- 魏京生


Original Language Version: Chinese (Chinese version at the end)









-- 魏京生














1) 市场流通的人民币减少,通货膨胀迅速下降。

2) 出口下降,进口增加。对外贸易逐渐趋向平衡。

3) 生产在短期内迅速萎缩。




在国际市场短期内不可能扩大的前提下,只有一个办法,就是扩大国内市场。现在全国蔓延的增加工资的工潮,恰好解决了这个问题。中下层工薪阶层所增加的工资, 再加上币值的提高,都会立即投入到国内消费市场。迅速扩大国内消费市场,阻止生产的萎缩。独立工会运动真正成为拯救中国经济的大救星了。






提高人民币汇率和提高工资双管齐下,会不会造成更严重的通货膨胀呢?表面看,这两项措施部分的互相抵消,对缩小通货膨胀帮助不大。但是还有第三个因素的加 入,这就是进口的增加。币值的提高再加上取消非关税壁垒,进口会迅速增长。吸收掉过量的货币,是抑制通货膨胀的有效方法。受消费增长带动的国内生产,也会同步增加。这是中国经济走出滞胀困境的唯一的方法。




抛售美元债券会有什么后果呢?那就是债券和美元同时贬值。债券币值对美国政府按期还债没有什么影响。而美元贬值,正是达到奥巴马总统增加出口的目标所需要 的。因为美元贬值就意味着人民币和日元、欧元升值。于是美国不费吹灰之力就达到了进口减少,出口增加的目标。对美国是有利无害。为什么害怕中国抛售呢?



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