The Dollar’s Not Almighty Anymore: A Little Dose of Fear Among the Elite Can Be a Good Thing

Shanghai – I was talking yesterday with the chief financial officer of a US-based drug firm that operates here in China, producing for the Chinese market, and got an up-close look at how bad things are for what used to be called the Almighty Dollar.

The company in question, a joint venture between a very profitable U.S. drug company and a local Chinese company, is quite profitable itself.

The guy was explaining to me that his firm needed to add another factory, because the one they had was running full-tilt and couldn’t keep up with demand. That might sound like a simple problem, and one that most enterprises would be happy to confront, but the shrinking US dollar, and concerns in China about inflation, complicate things.

You would think that it would be a simple matter of the parent company’s sending over the $50 million or so that it would cost to build the new plant and that would be that, but it turns out that the dollar is falling so fast against the Renminbi (RMB), the Chinese local currency, that no contractors or other vendors necessary for setting up a new facility are willing to accept it as payment. That means the company has to try and come up with the construction costs in local currency.

I won’t go into the arcane machinations that involves, except to say that Chinese financial authorities and the country’s central bank, the People’s Bank of China (PBOC), aren’t letting local banks or foreign-owned banks with offices in China lend money without going through a tough approval process, the outcome of which is iffy, and they are setting interest rates at 6.5% for those loans they do approve, which is a pretty stiff rate to have to live with. So there are no easy options.

The important point is that the dollar is being viewed here in China the way people in the U.S. have long viewed Mexican pesos… or Chinese RMB.

That's sure a big switcheroo.

I remember back when I was a Fulbright professor at this city’s elite Fudan University, back in 1991-92, people wanted dollars so badly that you had to be crazy to go to a bank to change them at the official rate of about 8 RMB to the dollar. Practically anyone you met, even a stranger on the street, was willing to swap you RMB bills at a rate of 9 or even 10 RMB to the dollar. I had an American friend who told me he was riding his bike into the city, and was on a crowded street packed solid with slowly moving bicyclists when everyone was forced to press to the side to allow a bus to pass. His bike ran up against a neighboring cyclist and the handlebar cut a gash in the man’s wrist, apparently severing a small artery, which began gushing blood. My friend, who like me spoke Chinese, began apologizing profusely, and was getting off his bike to offer help when the man, his arm gushing blood, began asking, “Change money? Change money?”

Today, if you’ve got dollars nobody wants them, but I’ve been told that if you have RMB, you will find the reverse situation, with just about everyone having dollars they are stuck with that they’re desperate to unload at way above the official exchange rate of 6.35 RMB to the dollar.

That should tell us Americans all we need to know about what is being done to our own economy and to our standard of living. According to Business Week magazine, Americans will spend about $1.7 trillion on consumer goods, including gasoline and oil, this year. More than half of this amount is imported, meaning that we Americans are spending about $1 trillion a year on imported goods. As the dollar sinks — and it’s sinking because of the deliberate policies of the government and the Federal Reserve Bank — the cost of those goods rises (actually the costs of many other goods, seemingly locally produced, also rises because so many of the components—for example the parts that go into a supposedly US-made car—are imported from abroad).

For most of those goods — particularly oil and gas, but in fact most others too, from computers to televisions to small fuel-efficient cars to clothing — there are no domestic substitutes, because other deliberate government policies, such as the latest international trade pact President Obama and Congressional Democrats and Republicans reached with South Korea, have pushed or driven manufacturing overseas, effectively de-industrializing the United States. So we Americans have little choice but to pay more for the products we want or need. Either that or we cut back on our standard of living.

This is happening of course in a time of 20+ percent unemployment or underemployment, when wages are being hammered by greedy employers taking advantage of the desperate desire for jobs, and of the severely weakened labor union movement.

No wonder Americans are taking to the streets to protest Wall Street, and the bought-and-paid elected officials who have been stripping the economy like a demolition crew in a condemned building before the arrival of the wrecking ball!

Meanwhile, here in China, where the country has been vacuuming up American dollars like an Orick TV commercial, people, at least in the big cities like Beijing and Shanghai, are looking incredibly well off. HuaiHai Road, a major east-west thoroughfare I remember from as late as 1996 as having been a drab street lined with dismal-looking noodle shops and stores selling shoddy tools and drab, poorly made clothing for the local market, and street vendors selling produce, is lined with top-of-the-line fashion stores thronged by women seeking the latest look and restaurants that charge almost New York prices.

Instead of fleets of bicycles, or even the motor scooters that throng streets in much of Asia, Shanghai’s streets are filled with new cars, many of them costly Toyotas, BMWs and Mercedes sedans. Of course the wealth gap in China is enormous — roughly what it has become of late in the U.S. — but even the working class here, at least in the cities, feels generally better off, because of where they’ve come from, while we in the U.S. are seeing ourselves sink.

All those dollars (and euros) pouring into China, and especially into cities like Shanghai and Guangzhou in the south, are also being put to use raising the standard of living in other more collective ways. Friends of mine here in Shanghai who used to live in cramped one or at best two-room bare concrete walled and floored flats, often with no bath and a shared community kitchen, are today ensconced in four-room apartments, nicely appointed, with tiled full bathrooms, spacious kitchens, and wood parquet floors. When they travel into the center of town, instead of riding a bike for two hours, they hop on a modern subway—part of a city-wide system completed in some 15 years’ time that now rivals the Paris Metro or the London tube, only with all glistening new stations and cars. There’s even a mag-lev segment right out of a science-fiction story — the only commercially operating such vehicle in the world, to take people the 19 miles to the airport at 275 mph on a silent, frictionless cushion of magnetic flux!

Schools have also received a tremendous amount of funding, from grade school through college. I could barely recognize Fudan’s modern campus with its towering new buildings and surrounding well-groomed parks and campus grounds.

I don’t want to overstate China’s progress. This country and its people face huge challenges. The environment has been raped and in many parts continues to be raped, there are beggars sleeping on the sidewalks, prostitutes proposition foreigners even on the better streets of Shanghai, and the air in this city, while perhaps a bit cleaner than I remembered, has me coughing and clearing my burning throat constantly after only a week here. It also continues to be a police state.

But the point is that despite all that, this remains a country that is improving the lot of its citizens, while the U.S. is clearly moving in the opposite direction. More importantly the impoverishing of Americans is happening, clearly, by design, as U.S. politicians act not in the interests of the many, but of the 1% who own them.

China’s political system is at least as corrupt as the U.S. system, but what is different is that the Chinese elite has a healthy fear of the wrath of the public. The violent risings of the Chinese masses, in the revolution that installed the Communist Party, and in the Cultural Revolution of the late 1960s and early ‘70s, the peaceful but determined 1989 Tiananmen protests and the growing wave of rural and urban unrest by peasants, workers and even over-taxed shopowners, have all made rulers here acutely aware that they can only cling to power if they keep trying to improve broader living standards for the majority.

Just this week, for example, a mob of hundreds of angry shop-owners and residents of Zhili, a town near Huzhou in Zhejiang Province, rioted over extortionate tax collections by local officials, overturning and burning several police cars and reportedly injuring some police officers and local officials — this according to local published news reports. Such events are not uncommon and serve to keep officials on their toes.

In the U.S. there is, or at least for decades has been, no such fear in the hearts of America’s ruling elite and their craven politician servants.

Perhaps with the advent of the Occupation Movement sweeping the country, this will change, though it remains to be seen whether a purely peaceful protest movement, with demonstrators passively accepting mass arrests by local police, will create enough fear in those avaricious hearts to bring an end to the current economic and political system of oligarchy, greed and exploitation, and increasingly, repression, that characterizes today’s United States.