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The Chinese Everyman: Macroeconomics & Waistlines

The U.S. and other nations of the world have been pressuring China to lift currency controls for several years.  Since the beginning of the 2008 global financial crisis the pressure has intensified. Current account and trade imbalances are believed by many analysts to be, in part, a result of a significantly undervalued Chinese renminbi relative to the U.S. dollar. In late June, 2010 China made some minor adjustments, allowing the renminbi to appreciate within a relatively narrow range, partially in response to these pressures (New York Times, 2010).  This temporarily boosted Asian stock markets and had a ripple effect around the world.

My purpose here today is not to discuss the merits of this loosening of capital controls by the Chinese; but rather, to discuss the implications of this for the Chinese and U.S. consumers.  This thought occurred to be after reading Stephen Roache’s call for the development of a Chinese consumer society (Roach, 2009, September 22).  As I was reflecting on that, I came to some surprising conclusions.

In classical microeconomics there is an assertion that intervention in the free market results in sub-optimal pricing which, ultimately negatively affects consumers.  The consumers in the U.S. have been the beneficiaries of years of public policies that have, indeed, distorted prices; however, the distortions have been generally in the direction of benefiting U.S. consumers.  I’m referring here to the massive agricultural and oil and gas subsidies that the U.S. government has had in place for decades as a result of both our trade and military strategies.

These benefits to consumers have not been without a more insidious form of ‘pricing’…What I’m referring to here is the impact consumerism, as a basic lifestyle, has had on U.S. society.  Everywhere we see the results: the break-down of family structures, the rampant drug and alcohol use, the lack of support for quality education for our youth, the rise in violence in schools, the pressures for young people to ‘look’ adult at younger and younger ages, the reliance on prescription drugs for numbing the emptiness of lives, and the growing prevalence of obesity, even among the youth.  Of course, there are many medical and sociological reasons for these trends. I’m sure you’ve read or considered many of them.  My point here is not to analyze these trends; but rather to consider what might happen to Chinese society if they too adopt the lifestyle of consumerism, as they are being urged to do.

It is argued by many macroeconomists that in order to address the wide Balance of (Trade) Payment gap between the U.S. current accounts and capital accounts the onus falls on the Chinese.  It is argued that, along with the reductions in currency controls, the Chinese must begin to consume some of their own products AND open their markets to products from other parts of the world.  This will, it is argued, bring down the U.S. trade deficit (as the U.S. begins to export more products to China) and reduce our indebtedness to Chinese investors, including Chinese sovereign wealth funds.

Is this really what we need to advocate?  Do we really want to see our Chinese compatriots encounter the same sociological degeneration that we have seen with the rise of consumerism in the U.S.?  Given the propensity by the Chinese to exercise throughout one’s life, and the great emphasis on family and society, it is doubtful that there would be a severe degeneration. Nonetheless, a society of obese Chinese is not my ideal of a mutually beneficial future.

A macroeconomic balancing is, indeed, needed.  But, I hope it is not at the expense of the waistlines of the Chinese everyman.

Bibliography

New York Times. (2010, June 21). Chinese Currency News Lifts Asian Stocks. New York Times, Global Edition .

Roach, S. (2009, September 22). Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization. Hoboken, NJ: John Wiley & Sons.

  • Here is an interesting article that was on CNN Money about how rapidly KFC is entering the China market…..

    http://money.cnn.com/2010/07/13/news/companies/Yum_Brands/index.htm?postversion=2010071411

  • Mrs. Ginn,

    As you probably know, much of the current Chinese Education system is based off the US Model. Actually, it is probably a combination of most “top” schools. I remember reading the latter in the Economist. As such, many of the academic leaders have attended the top colleges in the United States, Great Britain, etc. The Economist article said one can attend classes at a Chinese University and feel as if they are sitting at a US School. Although we Americans may blame the Chinese for “reverse engineering” our methods, it makes since to me. After-all, we benefited from Ottoman Empire Medicine and technology, European technology, and other great technologies from various empires. The latter includes China!

    The Chinese have also “modeled” our homes but gone to the “extreme” like many Americans. From what I understand, many of the “wealthy and educated”, have built gigantic homes as an attempt to “model” the American experience. Furthermore, many children have engaged in drug use as well. In the US, we have discovered that many of our affluent children suffer from depression(1), drug use, and increased sexual libido. Apparently, the Chinese citizens seem to be “rebounding” from the effect of Mao on the cultural destruction amongst the Chinese population. Is it possible the Chinese will have another “drug” revolution? I say another because of the Heroin problem in Hong Kong, which the Chinese blamed on Brittain and United States. In fact, the latter is one reason Chinese became a “closed society”.

    In addition, Asian researchers are expected to lead the future of scientific journal article development. I assume this will be the same for other areas of research as well. From what I have read, most experts agree that China will probably be the next Super-power. In truth, they already are a Super-power and have made significant advances in such a short period. In fact, China and Russia seem to have a “special” relationship, and I believe I had read that the current Paramount Leader, Hu Jintao, studied at a University that had a collaboration with a Russian University, or he studied at a Russian University. As we know, the Chinese are building their military and Russia seems to be playing a role in this process.

    Is it possible that there will be a contradiction in Chinese society between Western thought, Chinese thought, and Russian thought processes? From what I understand, there are many Chinese that detest the destruction of Chinese culture, and they place a great deal of blame on Mao and the conservative communist party. Many of the Academic leaders may appreciate Western thought processes more, and the Military may appreciate Russian thought processes since Russia had studied American ideology. After-all, we are a potential “enemy” of China.

    References:

    1. Luthar Suniya S.; Latendresse Shawn J. Children of the Affluent, Challenges to Well-Being. Curr Dir Psychol Sci [online]. 2005. vol.14(1). pp. 49-53. Available from: Entrez, The Life Sciences Search Engine. Search Entrez: Search.

    2. Morton W. Scott; Lewis Charlton M. China, Its History and Culture, Fourth Edition. McGraw-Hill. 2005. Available from: Google Books. Library of Congress: China, Its History and Culture LCCN Permalink ISBN 0-07-141279-4