Op-Ed: China, the Yuan, and the protocols of economic Feng Shui

Feng Shui, which means “Wind and Water” is an effort to balance the spiritual and the physical realities. In terms of trade, it’s an analogy that won’t go away. The Yuan flies economic skies like a dragon, and is in no hurry to look like a pigeon.

The wind factor is coming mainly from the US. A lot of air has been circulated in the upper reaches of Washington on this subject. China’s first trade deficit in years has again raised the longtime limping subject of revaluing the yuan. The previous US administration and US business were at one stage obsessed with this subject, and got nowhere. Current calls are getting much the same response, and there are good reasons for that. The water factor, excuse the pun, is liquidity. China works on very tough margins, and capital is the name of the game, in all areas of China’s ferocious upgrading of itself. What capital can do, and what it can’t do, are drivers. The Chinese pegged the Yuan to the US dollar for pragmatic reasons. The USD, despite the insanity of its home base economy, and the dismal US economic performance, is the de facto world currency. Feng Shui has a lot to do with positioning, and this position is a common sense approach to a country which trades with every other nation on Earth. Having one basic benchmark makes sense in terms of capital movements. The US, in one of its less elegant displays of economic intellect, states that the Yuan is undervalued, and that it’s an unfair competitive advantage. The Yuan’s current level is even being called “currency manipulation” in that quaint form of US diplomacy which has achieved so little over so long. China was opposed to upvaluing on principle in recent times. Now, it’s a question of Feng Shui, doing things under an auspicious set of conditions… maybe. The idea that the Chinese are naturally going to follow the trade practices of the chaotic US and European models is pretty bizarre. If they change anything, it’ll be for their own reasons. There are a few factors to consider here: 1. China wants to be seen as a world leader, not a follower. Taking economic orders from the US and the West will never be in the ballpark. 2. Upvaluing brings some advantages, in terms of purchasing power, which is very much part of the Chinese game plan. 3. Inflation is a looming problem. It could undermine the solid success of the boom, if prices react to currency situations in the wrong way. 4. China is committed under the current 5 Year Plan to developing a big domestic economy. There’s no way round this, it’s the obvious next phase of development. This will change the mechanics of the Chinese economy, particularly if strong local demand affects production volumes. 5. The Chinese economy is currently export driven. Any currency move which adversely affects that isn’t even theoretically worth doing. The money has to keep rolling in to fund the development costs. That sort of capital movement can vary a lot, if currency values start getting fidgety. 6. The Yuan could become a speculative currency quite easily. That could lead to massive fluxes in values which are quite useless to the Chinese in terms of trade values. Unlike the Japanese before them, the Chinese are sticking with the game plan. Japan managed to destroy a perfectly good domestic economic schematic with a few badly chosen policies and some truly lousy approaches to domestic costs. China, if it makes a few basic mistakes, could wind up with a stagnant pond instead of an ocean of liquidity. Also unlike the Japanese, the Chinese business top brass are all US educated. They know what’s wrong with the US methods. They would be about the last people on Earth to be impressed by the demands of an economic model that never practices what it preaches, and has managed to sabotage itself so thoroughly. The last thing they want is to be seen to be pushed into a move. If they do anything, it’ll be on the basis of “helping the world economy”, not because someone who should know better threw a tantrum. Dragons don’t have to take advice from under-medicated gophers, either. China’s image is important to it, and it’s also important to note that the ancient Chinese saying, “If it ain’t broke, don’t fix it”, (they bought it at a garage sale on Wall Street) is also relevant. Nobody’s exactly suffering from doing business with China, and the wind is blowing the Chinese way. Dragons also don’t like their broad oceans to turn into kitchen sinks. The current situation contains a lot of mobility and allows China to move freely. Cranking up the currency values, to be worth doing, has to show some strong positives, not just a way of reducing margin values. Remember: · The Gruesome Financial Crisis is still going on, · The West is having palpitations at the events in a tiny European economy like Greece, · The US is still looking like an underachieving economic invalid, · World trade is only now starting to resemble its former levels of activity Would you take advice from this mess? Feng Shui is ultimately about a proper match of spirit and place. If the spirit is willing, the place will have to be right, too, and that’s China’s call, not the West’s.