China's control freaks

Subject: China's control freaks Fri Mar 26, 2010 12:05 am

The Chinese government reflexively responds to almost any criticism, or any calls for it to sign on to international policies, as interference in its internal affairs. Which is why it is so entertaining to watch the control freaks in the Forbidden City respond to Google's decision to suspend regular service in China rather than continue to kowtow to the country's censorship regime.

We'll leave aside for now the question of whether the Chinese government "interfered in the internal affairs" of Google when it hacked into the company's servers to steal proprietary software and check the online activities of Chinese dissidents.

By signaling that it is willing to abandon the Chinese market, Google has neutralized the "meddling" defense and forced the Chinese to face the possibility that their economy may not be as indispensable as they had come to assume. We're about to find out whether China needs Google more than Google needs China.

One can only hope that the U.S. Treasury will follow Google's lead in the next few weeks as it decides whether China is manipulating its currency to achieve commercial advantage. For years, the Treasury under three different administrations has undermined its credibility and professionalism by denying the obvious on the theory that we wouldn't want to ruffle the sensibilities of Chinese leaders by appearing to interfere in their internal affairs.

This wink-and-nod approach yielded modest results from 2005 to 2008, when Chinese exports were booming and China allowed the value of its currency to gradually float up by 20 percent or so. But all that came to an end when the global recession hit and Chinese leaders decided it was more important to save Chinese jobs than American ones.

Fred Bergsten, the card-carrying free-trader and currency expert from the Peterson Institute for International Economics, told the House Ways and Means Committee this week that China now has to intervene in currency markets to the tune of $1 billion a day to keep its currency, the renminbi, from increasing in value against the dollar. Bergsten estimates that the Chinese currency is now overvalued by about 40 percent against the dollar, which, as he reminded the committee, is effectively the equivalent of a 40 percent tariff on imported American goods and a 40 percent subsidy to Chinese exports to the United States. That roughly translates to the loss of 1 million American jobs.

More: http://www.washingtonpost.com/wp-dyn/content/article/2010/03/25/AR2010032503777.html

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