It would be only fair to all concerned to begin by stating that China does not have a China Trade Deficit with developed countries such as the US or with developing countries such as India. If there is a stray example of a small Chinese trade deficit with any country, the writer is as much in the dark about it as most of you out there are.
In fact so overwhelming is the extent of US China trade deficit in favor of China that despite its lack of glamor, it often takes center stage from the more newsworthy issues of freedom of speech and human rights.
The United States of America and China in fact share the most imbalanced bilateral trade relationship in the world. The United States imports more goods from China than it exports to the extent of $202 billion dollars each year. China trade deficit alone accounts for nearly 26 percent of the United States' $726 billion trade deficit. It is therefore no surprise that some people in other developed nations, close allies of the US, mirthfully refer to Hu Jintao as the banker of the most powerful person on earth.
So much for Chinese trade deficit!
The backdrop to Chinese trade balance is a massive labor market and consumer base. The vast majority of China's 1.3 billion people still live in rural areas. The People's Republic of China has, by not unreliable estimates, a surplus rural labor force of 120 million people, many of whom migrate to industrial centers to look for factory work, and further drive down wages. It is therefore no surprise that the US consumers opt in very large numbers for Chinese products (we dare not say goods) while Chinese consumers will prefer to buy cheaper, domestic and often ingenuous -alternatives- to American products. Again, US China trade deficit at work.
In China trade deficit , then the currency exchange rate takes over with an artificially strong dollars gives foreign businesses and consumers more purchasing power than they would have in a free market economy and an artificially weak Yuan that makes foreign goods more expensive for Chinese consumers.
There are some who advocate that the Chinese government should address this his trade imbalance by unpegging its currency and allow it to float freely on the market. The wish list can also be expanded to include Tibet, Freedom of Speech and Human Rights.
In the current scenario, China is firmly in the driver's seat and in a position to call the shots. But the fact remains in the long run that the perceivably unsustainable China trade deficit can lead to severe economic catastrophe scenarios which will affect most of the world's nations. But then we are all dead in the long run, are we not- And those whom the Gods love, die young. ;-(
For more on China trade log onto chinatradinghub.com
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