CHINA: China's Currency Distortion Affects U.S. Workers

April 2, 2010

In two weeks, Treasury Secretary Timothy Geithner will deliver a report to Congress, in which he will say whether the Chinese government is manipulating its currency. Lawmaker from both sides are calling for Geithner to label the Chinese manipulators. Rep. Tim Ryan (D-OH) says the currency distortion puts "a lot of Americans out of work."

TRANSCRIPT:

MARY LOUISE KELLY, host:

The United States government is also thinking about its financial relationship with China. Lawmakers from both sides of the aisle are calling for Treasury secretary Timothy Geithner to declare that China is manipulating its currency. Geithner will deliver a report to Congress about two weeks from now.

In the meantime, lawmakers like Ohio Democrat Tim Ryan are saying things like Chinese currency distortion is putting a lot of Americans out of work. And if you're wondering what a decision by the Central Bank of China has to do with workers in Ohio, we have an explanation from Alex Blumberg of our Planet Money team.

ALEX BLUMBERG: To understand why American lawmakers are so upset about Chinese currency policy, it helps to follow the money. So let's start with someone pretty typical - an American businessman who gets stuff made in Chinese factories.

Here's one - a guy named Emron Kareem(ph).

Mr. EMRON KAREEM: My business is called Trophy Skin. We produce medical devices that treat skin conditions using light therapy.

BLUMBERG: Picture a medical-looking lamp with a blue light that kills acne bacteria. Kareem has his lamps manufactured in China at a factory he found online. Every couple of months he wires the Chinese factory money for a new order - American money.

KAREEM: They always quote in U.S. dollars. I found that across pretty much every supplier that I've worked with.

BLUMBERG: Okay, so this is the first stop in following the money, the first step in understanding what people mean when they say Chinese currency manipulation.

Kareem is not the only person in America wiring dollars to Chinese factories. No, no, no. Every day thousands of American companies send billions of dollars to Chinese suppliers. And what we're interested in - what happens to those dollars when they get to the Chinese factories?

To answer that question, you need an economist. I have one of those too: Paul Wachtel at New York University's Stern School of Business.

Professor PAUL WACHTEL (New York University): Those Chinese factories need to buy electricity. They need to pay their labor. Theyve got to pay for transportation. But if they're operating, obviously, in the Chinese economy, they need to do it with the local currency. So they take those dollars and they buy Chinese currency.

BLUMBERG: And this right here, this is a critical moment in our story. You have all these Chinese factory owners with billions of dollars. To pay their bills they need to convert dollars into the Chinese currency, renminbi. So they're all saying: I need renminbi. There's this huge demand for renminbi and therefore it should cost more dollars to buy it. The demand has increased, the cost should go up as we'll - at least if the supply of renminbi is constant.

Except that the supply isn’t constant, and this is where the manipulation comes in. Someone is increasing the supply of renminbi. Who has the power to do that?

Prof. WACHTEL: The Central Bank of China. Whenever it sees the value of the currency beginning to rise, they're ready and willing to supply the renminbi to make sure the price doesn’t increase.

BLUMBERG: So this is the charge: The Central Bank of China is creating additional renminbi for the sole purpose of keeping it undervalued. Manipulation.

Now, why would the Chinese want to do that? And why do Ohio congressmen want it stopped? Well, the Chinese do it because it makes their exports more attractive. It makes it cheaper for people here in the U.S. and all over the world, actually, to buy things made in China.

But the flipside is, and here's the problem: It makes our stuff more expensive in China, so Chinese people can't afford to buy as many iPods and Polo shirts and Kindles, and for that matter, acne lamps, from America.

Again, Paul Wachtel.

Prof. WACHTEL: China should be importing more, which would increase exports from developed countries like the United States, and the lead the robust growth evenly around the world.

BLUMBERG: Recently a new group came forward saying the Chinese government should let the renminbi rise in value - not the first group you'd expect to publicly question the Chinese government either. It was a group of Chinese business leaders.

One of them, the president of a Chinese computer company, said it wouldn’t be a bad thing if ordinary people in China had more purchasing power. He, like the rest of the world, wants to sell more stuff to China.

For NPR's Planet Money, I’m Alex Blumberg.

CHINA: Has China's Business Climate Cooled To U.S. Firms?

April 2, 2010

Google recently announced it is moving part of its operations to Hong Kong; and harsh corruption sentences have been handed down to China-based executives of the British-Australian firm Rio Tinto. Zachary Karabell, author of Superfusion tells Renee Montagne that the recent events don't mean the business environment is souring for foreign firms in China.

TRANSCRIPT:

MARY LOUISE KELLY, host:

This is MORNING EDITION from NPR News. I'm Mary Louise Kelly.

RENEE MONTAGNE, host:

And I'm Renee Montagne. For foreign companies based in China, the last few weeks have been hard on morale. There was Google's high profile showdown with China and the company's decision to move part of its operations to Hong Kong. And this week a Chinese court handed down harsh sentences to executives of the mining giant Rio Tinto, who were convicted of bribery.

Some see this as a sign that business environment there is souring. Zachary Karabell is not one of them. He's the author of "Superfusion: How China and America Became One Economy."

Mr. ZACHARY KARABELL (Author): Look, I think Google is a fascinating story, but Google may be representative of Google. It's an unusual company. It has a moral mission that's woven into its corporate statement. Google also is immensely profitable. And Google wasn't doing so well in China. So you add all those things up and you have a company that can kind of afford to stand on principle and does so.

MONTAGNE: Do you think censorship, though, is something that companies other than Google, whose business it is, is information - do you think censorship is something other companies should be worried about in China?

Mr. KARABELL: Well, first of all, there are by some estimates at least 25 other countries in the world where Google and other companies that are in that information business globally accept levels of censorship, whether that's in large parts of the Middle East about certain type of moral content, certainly Iran. We know about North Korea. We know about - but the point is, censorship is not confined to China, nor are the issues of information companies dealing with that confined to China.

MONTAGNE: Let's turn to another event that's been in the news and had people wringing their hands about the business environment in China. And that's the sentences handed down for these Rio Tinto executives and managers. And Rio Tinto is this huge - second biggest, I think, mining corporation in the world. Is there any way not to see this as something political or at least a commentary on foreign companies being in China?

Mr. KARABELL: Look, none of us know whether or not the executives who were sentenced actually did accept bribes or engaged in some level of corporate espionage or not. It's an opaque court system. It's not like there's enough evidence out there that you and I can judge.

So a lot of the discussion then is - given that we don't know the facts here, and we never will - is this politically motivated or were these just four corrupt executives? If it was just four corrupt executives, then it signifies nothing other than four executives of a very large company immersed in the Chinese economy being caught red-handed.

Even if it's politically motivated, which it absolutely may be, that doesn't necessarily signify a cooling climate toward foreign businesses in China any more than when a U.S. spy plane went down in China and the Chinese took it apart and then sent it back in pieces after having copied the entire thing, or the Wen Ho Lee case - the physicist in Los Alamos who was accused of espionage. You know, there are crises that go on as part and parcel of a complicated relationship that do not then spell the end of this relationship.

MONTAGNE: Is it possible though that the perception that there are barriers there would make foreign companies look around for other options in Asia?

Mr. KARABELL: Well, first of all, there are barriers there, and I don't want to be construed as suggesting that there aren't. But there are barriers to entry in any foreign market. But in terms of going elsewhere, there's really nowhere else to go where you have 10 percent growth, three to six hundred million emerging middle class consumers who want stuff and have the means to actually buy stuff, and an environment that is more porous than not, where the rule of law is increasingly at least adequate to enforcement of contracts, getting your investments out if you put them in. So in many respects that's what makes Google so exceptional. It's one of the only companies that could literally afford not to do business in China.

MONTAGNE: Zachary Karabell has managed money for the China U.S. Growth Fund, and his new book is "Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It."

 

RUSSIA: Russia's Caucasus Region Ripe For Trouble

April 2, 2010

By David Greene and Renee Montagne

A Chechen militant group has claimed responsibility for Monday's double bombing on the Moscow subway that killed dozens. There were also attacks in Dagestan. Analysts say the bombings are part of the long-running campaign for independence by militant Muslims in Russia's North Caucasus region. It's an impoverished area that has become a battleground involving an Islamist insurgency.

TRANSCRIPT:

RENEE MONTAGNE, host:

A pair of shocking suicide bombings in the Moscow metro has got us talking this week about the Caucasus, in particular the mostly Muslim north, which is part of Russia. It contains Chechnya and its troubled neighbor Dagestan, which was also hit this week with suicide bombings.

We'll be hearing more in the coming days, so we asked NPR Moscow correspondent David Greene to help us out with some background.

David, let's begin this primer, this lesson, if you will, on the Caucasus, with geography, because I imagine listeners are beginning to get lost in the Caucasus.

DAVID GREENE: Yeah.

MONTAGNE: In relation to Russia, where is this North Caucasus region that we've been hearing about?

GREENE: And that is really important, Renee, because a lot of people, when they think of Russia, I think, have a picture of eastern Europe and maybe traveling from, you know, Berlin or Ukraine into Russia. I want to take you to a totally different area. I want you to think more about Iraq and Iran, because the Caucasus are closer to those countries than they are to Moscow.

And it's been an area that has been one of the most diverse over the centuries. It has been fought over by different countries and different cultures for centuries. There are endless numbers of ethnic clans and languages. But now, in the world we live in today, it has all the ingredients for trouble.

It's very impoverished. Unemployment is incredibly high. There's a lot of anger at the world. And so it's become one of these real battlegrounds involving an Islamist insurgency.

MONTAGNE: Okay. So you've just came back from Dagestan and they've been fighting for independence from Russia for, as you say, centuries. What do the people there that you met in Dagestan say to you about the strive to escape Moscow's rule?

GREENE: We should say there are people even there who believe in Russia and who support Russian leaders, but there's also a lot of frustration among people who don't feel part of Russian society, if you will. There's complaints of workplace discrimination against Muslims. There's a feeling that Russia is not incredibly tolerant of Muslim traditions.

And, you know, one of the uneasy things to see, Renee, is when people from the Caucasus travel to Moscow and go to some other Russian cities up to the north. You know, you can see it in train stations. They're the first to be stopped and searched for documents.

MONTAGNE: But why are the Russians so determined to maintain their dominance of the region?

GREENE: Part of the deal current Prime Minister Vladimir Putin - who's former President Vladimir Putin. Part of the deal he made with the Russian people was, you know, we're going to make life better for you, but you have to accept some level of an iron fist, some level of control. I will keep you safe. We'll have a powerful government. I will protect you from terrorism. And so it's very politically important for Prime Minister Putin to keep control of that area. It's politically beneficial for him to show that, you know, he's sending Russian Special Forces down there to control the region. And so this is a big battle for Putin and his prestige.

MONTAGNE: After hideous wars in Chechnya, the school massacre in Beslan, the theater siege in Moscow where hundreds of people died, airliner, metro bombings - is there any sign of an end to the cycle of terrorist attacks and then state repression?

GREENE: The suicide bombings in the metro this week sadly are nothing new. I mean, it hasn't happened in Moscow for some time, but this is something that Russians have learned to experience. But the timing was interesting, because Russian President Dmitry Medvedev has tried to change the policy strategy in the last few months.

He said he wants to improve the economy in the North Caucasus. That's absolutely vital. Give people, you know, something to look to that is not, you know, joining an insurgent group. And now, you know, we have these two bombings. Medvedev, Prime Minister Putin both come out. They say we're going to go after, we're going to kill these terrorists. And whether Medvedev can return to that policy now in this current climate of actually focusing on the economy instead of just making this something very close to a war will be very interesting. I think people will be wondering right if that effort is going to go by the wayside.

MONTAGNE: NPR's Moscow correspondent David Greene, thanks very much for joining us.

GREENE: Always a pleasure, Renee.