My Commentary:

          Thomas L. Friedman is a writer for the NY Times. He says that James Chanos, whoever he is, believes that the Chinese economy is going bust; however, “China has a $2 trillion reserve in foreign currency. It also has low taxes 20%, and low interest rates, easy credit, undervalued currency, and hot money” according to Friedman.

          I have read the criticism that China’s economy is ramped up much as our economy was ramped up prior to 1929; however, I am not expecting China to make the same mistakes  the Federal Reserve made in the 20’s or is making now. The fact that China is a manufacturing dynamo that produces five times the steel that is being produced in the United States tells you that political correctness is not a big problem in China. Sure air pollution may be killing Chinese by the thousands, but with a population of 2 billion, and rationed healthcare limiting government cost, pollution is not likely to have a significant impact on China’s economy. 

          It is also unlikely that the US has the ability to put trade restrictions on imports from China, because much of the US economy is reliant upon raw materials from China, not to mention finished products. Perhaps we can thank the environmentalists and big government spenders for a cleaner environment here in the US, but we might also blame them for the US firms that are exporting pollution to China by relocating production facilities there where less government regulations and the devalued Yuan makes investing there attractive. Furthermore, US firms that want to take advantage of China’s welcome must agree to share their intellectual property, which is how China has moved from little umbrellas for bar drinks into hi-tech electronics, auto production, heavy equipment, and manufacturing aircraft so quickly and inexpensively.

          Since the Chinese are not able to vote themselves benefits, or complain about high prices or poor living conditions, the Chinese government can employ tough measures to make needed adjustments to their economy. US politicians are not about to do that.

          I see it the way that Friedman sees it: “And here is the other thing to keep in mind. Think about all the hype, all the words, that have been written about China’s economic development since 1979. It’s a lot, right? What if I told you this: ‘It may be that we haven’t seen anything yet.’”

          The next time someone who has visited China tells me how bad off the residents in the city have it, I’ll remind them of what Friedman wrote: “China also now has 400 million Internet users, and 200 million of them have broadband. Check into a motel in any major city and you’ll have broadband access. America has about 80 million broadband users.” I might also mention that the Chinese are in a kind of war economy as were the Americans in the 40’s. All the good stuff is being shipped abroad, and the devalued Yuan makes those commodities expensive for the 2 billion person potential Chinese market.

          If China stops floating the Yuan to match the devalued US Dollar, imports from China will inflate for the measly 300 million person American market, and fall for the 2 billion Chinese purchasers. You do not need a PhD in Economics to know what that will mean.