China tells US

[olemanoman1950]

Chinas central bank has signalled the country's growing economic confidence by offering blunt advice to Washington about it's ballooning trade deficit and saying China would not be rushed into revaluing it's currency. the deputy governor of the peoples Bank of China warned the US not to blame other countries for it's economic difficuties.

[tonyontherock]

Currency is only one of the issues. Now here is another one and more direct. VAT rebates.

China charges a 17% VAT on the gross sales value of goods. When it is exported, the 17% tax is rebated, thus makes it 17% cheaper than to sell on the domestic market. Even if you take into account of the shipping and insurance costs, it almost breaks even or you make out a bit better depending on the bulk and weight of the product. More exports now are done by foreign investments and joint ventures. In addition to the 17% rebate on the gross sales value, there is a 5 year tax holiday starting (not from you start) from the first year you turn a profit. Say a company uses 3 years to turn black, then 2 years tax free, 3 years 1/2 price. That is eight years even if you do nothing to you tax accounting books. For foreign investments, you need to make foreign exchange (ie, export) to repatriate your dividends, etc . and in most areas, approval of the investment is considered on how much you export. Of course, the currency issue is just another one in the puzzle.

In the IT area, US forced china to stop VAT export rebate, but in other areas, it is still done. Even if you cut all of these government incentives, now or soon there will be a basic infrustructure, effecient work force and cheap labor. I doubt currency, tax and investment policy are going to change that. In some industries, the labor cost of china is no longer competitive. Some clothing and shoe factories are shutting down, because? Moving out to Pakistan, Hundoras, etc. You can see this as a trend in pj, underware, shirts etc.

Instead of crying foul, the solution is to focus. You do see a lot of Chinese complaining about Morgan Stanley charge such high fees, or even people like me or even Tom, Andy, Julie, Curt, Chris. totalling 160 in one joint competiting with Chinese lawyers and taking away their business. My fiend in Shenzhen, after 17 years as a VP of a bank is losing his job. The private equity fund that took control are shipping their people, from, New York. Another Chinese by ancestry but born and raised in the U.S. A.

Tonight, we are going on a boat trip, organized for Guangdong judges. Why? Getting ready for a nod by the Chinese government to allow registered foreign lawyer to appear in court! Imagine Eddy mumbling in Cantonese in a Bejing court "qi xing". The judge will know he was speaking Chinese not German, but still would not understand. Mind you, see another American dressed like a Chinese citizen? He may be going to court on a criminal case.

It is just today's world.

[lele]

Chinas central bank has signalled the country's growing economic confidence by offering blunt advice to Washington about it's ballooning trade deficit and saying China would not be rushed into revaluing it's currency. the deputy governor of the peoples Bank of China warned the US not to blame other countries for it's economic difficuties.

Rumours are abounding that China will make a move.

 

However, not the floating of the currency that everyone thinks.

 

Instead, the rumors that the econ people I talk with here, especially those knowledgable about the China situation talk about is a re-peg, at the same rate, but to the Euro.

 

This would make sense for them if they were worried about chen suibian, which I definitely think that they are. This is, unless the US can raise the value of its currency. However, with China purchasing so much of the US deficit, I am not sure why the US can not raise its currency. I know that the current situation favors the few who own the exporting companies, but it hurts so many more of us.

 

What do people think of the intercombination of the political and the economic issues? Just imagine how strong of a counterpunch the US would be hit by if china suddenly sold 1.5 trillion US$ into Euros at the same time that chen suibian decided to push the issue. Would the us currency be even strong enough to pay its troops in the field for the next month? I am guessing that it would not.

 

Or, possibly, this is just being used for China's own interest, as they may see a brighter trading future by diversifying their sales to Europe?

 

Again, what do people think?