Post G-20 Hangover: Trade Wars, Currency Manipulation & More

Downtown Seoul

The G-20 meeting in Seoul earlier this month left in its wake a trail of uncertainty regarding the state of the global economic system. The U.S. received its fair share of criticism over its ‘QE2’ quantitative easing measure. ‘Quantitative easing’ is  essentially akin to the Federal Reserve Bank printing more money. The goal here is to help stimulate job growth in the U.S. by weakening the dollar. Forbes columnist Shaun Rein explains why quantitative easing might actually be  a terrible mistake.

Treasury Secretary Timothy Geithner denies the U.S. is manipulating its currency while continually berating China over the low valuation of its RMB. With QE2, the United States can no longer taker the moral high-ground because it has now entered the currency devaluation game. The intent of QE2 is to try to direct investment and job growth back to the U.S. but it will probably have the opposite effect: lowering the standard of living of American by causing inflation.

The U.S. government along with the Federal Reserve is trying to incentive people to start borrowing on credit again with super-low interest rates. Quantitative Easing also aims to bring back manufacturing jobs by killing the U.S. dollar. This is a dangerous game as I have pointed out before (Floating China’s Currency Will Not Bring Manufacturing Jobs Back to the USA). Unfortunately, for America and its citizens, the standard of living has nowhere else to go but down.

China on the other hand is waiting to unleash the power of the Chinese consumer (by letting its currency value rise) when the time is right. That time has not arrived yet. It is much easier to give your citizens more purchasing power when all they have known before is poverty. When the Chinese government is ready, the RMB will rise and the Chinese consumer will be busy shopping. The New York Times magazine spells out the situation exceptionally well in a recent piece: Can the Chinese Become Big Spenders?

The actions by the Federal Reserve have already managed to compel China to enact measures restricting foreign investment, or so-called ‘hot money’, into its domestic market. One example of this is the booming property market, where China just implemented a new rule limiting foreign companies to purchasing  only one commercial property, intended for its own use. In addition, foreign individuals are limited to buying only one residential property in mainland China.

The G-20 managed to accomplish nothing except to exacerbate currency disputes. The recent attacks by North Korea on South Korean territory could also negatively influence trade relations even further by escalating political tensions between the U.S. and China. Assuming tensions subside, it is in the best interest of all parties involved to resist currency anxiety in order to avoid a full on trade war.

Additional coverage on the Post G-20 Hangover:

Forbes: Summers and Economic Fluctuations

Forbes: Why Ben Bernanke is Wrong

New York Times: Currency Fight With China Divides U.S. Business

Wall Street Journal: Bernanke on China, Translated

Wall Street Journal: Barney Frank: GOP ‘Joining the Central Bank of China’

China Leaping Ahead With High-Speed Rail

Fast Train from Chengdu to Chongqing

Via Infrastructruist:

As America continues its game of high-speed rail hot potato, China has quietly finished laying the tracks for the longest bullet line in the world. Spanning more than 800 miles, the line will link the Chinese capital of Beijing with Shanghai, an economic hub on the east. Travel between the two cities will drop to four hours—down from 10—when train service begins in 2012.

Infrastructurist: China Completes World’s Longest Bullet Line

Well there you have it folks. China is pulling far ahead in transportation development with its comprehensive high-speed passenger rail system. Meanwhile, Megan McArdle at the Atlantic writes about why the U.S. will not get China’s high-speed rail. She makes some very good points, including the fact that China has a higher concentration of densely populated metropolises close to one another than in the U.S.- creating a demand for high-speed rail.

McArdle might be onto something here, as opponents of high-speed passenger rail in the U.S. worry about low ridership levels due to the sprawling, low-density nature of the country and its cities- which are, as the argument goes, better served by the private automobile.

Low ridership is definitely not a problem in China, where it is advisable to book tickets for high-speed rail routes at least 5 days in advance due to a huge demand. Whether this would be the case in the U.S. or not would be difficult to predict. For China, a comprehensive high-speed rail system is perhaps the crowning accomplishment on its path to economic and urban dominance.

Tragedy in Shanghai

I’m an unabashed fan of tall buildings, high-rises, skyscrapers- whatever you want to call them. Not only do they lend cities a sense of identity by the way a collection of tall buildings can uniquely define a skyline, they also offer occupants a chance to experience urban environments in the elusive z-axis. Residential towers offer the potential to transform neighborhoods into bustling high-density zones of activity. There is arguably no other type of building that defines the current modern era of world architecture better than the skyscraper.

The high-rise building type is not without its calculated risk though, especially when it comes to the issue of safe occupant egress in case of emergency. When tall buildings do fail (a very rare occurrence), the results are sometimes disastrous. One only needs to remember the image of the collapsing World Trade Center Towers in Manhattan to get a grim reminder of the great risk and loss of life skyscrapers can pose.

Rest assured, professionals involved in the design and construction of tall buildings strive to make these structures as safe as possible. Architects, structural and mechanical engineers, fire safety consultants, fire safety system-manufacturers, vertical transportation specialists, and construction contractors collaborate together to ensure that high-profile skyscraper projects conform to the highest safety standard.

Unfortunately the world got another reminder of the potential danger of tall buildings this past Monday when a 28-story residential high-rise caught fire in Shanghai, resulting in the deaths of 53 people and injuring more than 70. In this particular case, it is suspected that the fire originated by sparks from welding work taking place on the exterior of the building as part of a renovation effort.

It is likely that the fire spread quickly due to the bamboo scaffolding surrounding the building. Other facts have yet to be determined, such as if the renovation work being done was following proper safety procedures, and if fire safety systems in the building were up to par. Questions also abound about the rescue effort; was everything possible done to rescue residents trapped inside the building?

These questions are sure to answered in the coming days and weeks ahead as investigation proceeds. If it was in fact a fire started by welding sparks, then we will know that this unfortunate tragedy was caused by factors external to the building, and not within the building itself. Given this scenario, it calls into question the safety procedures specifically regarding renovation work, especially on occupied buildings.

It is not at all uncommon to see bamboo scaffolding around occupied buildings under renovation in Chinese cities. Due to various factors, it is often impractical for building owners to relocate residents and businesses during this time. The annoyance to occupants caused by renovation work also means that property owners and contractors are under immense pressure to finish work as quickly as possible.

Hopefully this accident will motivate Chinese authorities to enact a stricter safety standard on property owners doing renovation work on occupied buildings. Much like the 2008 Wenchuan Earthquake in Sichuan Province that uncovered the severe structural engineering defects in the many collapsed buildings, the Shanghai fire leaves the opportunity to improve safety measures to make sure that this type of tragedy never repeats itself.

More coverage on the Shanghai Tower Fire:

ChinaSmack: Shanghai Jin An District Jiaozhou Road Apartment Fire Photos

Wall Street Journal: China’s Netizens React to Shanghai Tower Blaze

China, Japan, America

Japanese Retail Chain Uniqlo at Chengdu’s Chunxi Lu Shopping Street

After spending the previous two weeks in the U.S. visiting friends and relatives, I returned to chaos in Chengdu last week. Just a few blocks from my apartment, protests were being held at the city’s main shopping street, Chunxi Lu, against Japanese-owned businesses. I had no idea this was going on until I was alerted by my friends over at Chengdu Living who were there documenting the scene with photos and video.

This anti-Japanese demonstration came about due to a recent dispute about the ownership of the Diaoyu Islands in the Pacific. The cultural rift between the two countries goes deeper than that though, with bitter feelings about Japan’s invasion of China during World War II still prevalent among those living in mainland China.

Now with China having recently surpassed Japan as the world’s second largest economy, the Chinese are feeling more confident about their growing influence in the world, and especially in East Asia. The protests against Japanese businesses in Chengdu reflect this newfound confidence.

Strangely, China and Japan are very similar in that both are ethnically homogenous countries, with strong cultures and long histories. The successful development process of both countries (and South Korea as well) can be attributed to this fact. Yet too much of the same kind of ethnic pride, if taken to extremes, can lead to radical patriotism- a kind of ‘us versus them‘ mentality. North Korea currently possesses this radical patriotism. Unfortunately, the Chengdu demonstrations hinted at this poisonous mentality as well.

On the other side of the Pacific, the United States is suffering from the opposite affect- a stark lack of consensus among the population. This is exacerbated by fact that America is an ethnic melting-pot, making cultural unity more difficult to achieve. Citizens and politicians alike cannot seem to agree on anything, therefore, nothing happens to help repair the U.S. economy.

Perhaps the lack of ethnic unity is one of America’s primary strengths. After all, there is a lot to be said for a place where people from all over the world are welcome to make a better life for themselves (at least this was the case up until recently). There are some groups though, namely the fringe element known as the ‘Tea Party’, who oppose the notion of openness upon which America built a successful nation.

The Tea Party is America’s own version of radical patriotism. They purport to be about putting an end to frivolous government spending, when in reality it seems to be the last gasp of air for a dying Anglo-Saxon American hegemony. Instead of putting a stop to ALL government spending, Tea Party members and other concerned Americans should be encouraging the U.S. government to make investments in things that promote opportunity (cutting-edge infrastructure, IT research and development, education).

America will never be an ethnically homogenous country like China or Japan. Yet the U.S. can take a cue from the success of East Asian countries by focusing on investing in nation-building rather than sitting around waiting for opportunity to magically come back to its shores.