Fixing China's banks is key
No one is blaming China for either the current dollar ratios or the deficit ("Don't scapegoat China for weak dollar and deficit," Dec. 13, page 9). The only concern vis a vis China is its fixed ratio with respect to the US dollar no matter the change in the US dollar exchange rates with other currencies. This is precisely the concern and one which requires a focused reform in banking procedures and non-secured loans within the banking system of China.
The network consequences for bad loan performances are not accounted for in the gradual opening of China's banking system to outside ownership, which is now restricted to a 20 percent limit. Loan pruning proceeds at a pace not sufficient to effect a straitening of that banking system in time sufficient to render China an equitable trading partner for the US.
While retail importers may call the clothing and textile industry in the US a declining industry, it is still an industry that employs a total of 686,000 workers in all its branches. Elimination of quotas without a labor law code which protects independent union organizing and collective bargaining, a lack of law enforcement for these kinds of laws, the maintenance of the fixed forex ratio between the yuan and the US dollar -- combined with extremely low labor-wage rates in China such that not even Honduras and Nicaragua can compete -- these are the combinations of factors which cause concern.
Add a quarter-million workers here and a quarter-million workers there in high-tech and, before you know it, you are talking about real numbers of real people -- 2.6 million in fact -- and many of these are naturalized Americans who have immigrated from China. That is a large number of people trying to develop good replacement positions for their own careers and vested equities in just two or three years. No one blames China for the budget deficit nor the dollar ratio. In fact, we are encouraged that the market is placing the dollar in its current ratios with respect to the yen, the euro and other currencies. In fact, this allows our manufacturers to compete for orders in markets outside the continental US for the first time in many years. This is a good thing for domestic industries.
We do need to manage the budget deficit. We also need to determine a way to speed the improvement of loan ratios in the banking system of China and to deregulate the yuan at a faster pace than is currently anticipated without causing turmoil or providing opportunity for disruption in China's financial system.
Eric Hands
Seattle, Washington
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