I just read an article by CNBC Columnist Shaun Rein, entitled, “Why A Fast Appreciating Yuan Won’t Help US Economy,” and I have a few bones to pick with it.
Let me start out by saying that I “talk China” pretty much every day and I have never spoken with anyone who believes that all of the United States’ economic ills are China’s fault, nor have I ever spoken with anyone who believes that China plays absolutely no part in them. I mean, let’s face it: either position would be reductive.
In this article, Shaun Rein comes as close as anyone to the latter position, and he does appear reductive in doing so. Before I go off on criticizing Mr. Rein’s most recent article, I would like to put on the record that I greatly respect Mr. Rein’s courage in consistently taking the most extreme positions favoring China, when he must know that by doing so he subjects himself to responses such as mine. His extreme positions have made him somewhat famous in the Chinese blogosphere for, among other things, the following:
1. Writing here that “Real poverty [in China] is pretty much gone.” In this same article, he also refers to China as being “like a teenage boy.”
The problem is when Rein makes gob-smacking and bewildering assertions, as we see in the very first sentence of his column on North Korea:
Perhaps she was spending too much time planning Chelsea’s wedding, but Hillary Clinton’s recent announcement of a strategy to institute more economic sanctions against North Korea was misguided and half-baked.
FAIL. As multiple commenters have pointed out in the comments there, on the comments here and the comments at Modern Lei Feng, this demonstrates shockingly poor judgment for a columnist writing for Forbes. It’s challenging to think of a more sexist opening to an article. Imagine if we were critical of an Obama decision, and started off our critique by saying it was perhaps due to his being too caught up in planning for his daughter’s wedding. Yet this kind of WTF out-of-left-field whopper permeates Rein’s columns – whenever he writes about topics outside his area of expertise.
3. Proposing here that “the West” award a Nobel Peace Price to Deng Xiaoping so as to improve “the West’s” relations with China. This blog post does an excellent job highlighting the faults of this proposition.
4. Referring here to Google’s decision to take a stand against China as “dangerous and self-destructive.”
5. Calling on the United States to invest in North Korea. This post does a good job taking Mr. Rein to task for that.
Again, though, one has to give Mr. Rein credit for taking positions antithetical to the prevailing view in “the West.” But I am troubled by Mr. Rein’s recent CNBC piece, an article that reveals either a lack of understanding or a China bias so extreme as to be disingenuous.
Let me explain.
Mr. Rein starts his article by talking of a China investing conference he recently attended in New York, “which included speeches from the likes of American Secretary of Commerce Gary Locke and did [sic] hedge fund legend Barton Biggs.” Mr. Rein then notes his reaction to the conference:
Listening to many of the other speakers, I was surprised at their anger and fear towards China. I had hoped that rhetoric would dissipate after the mid-term elections last year. Many attribute China’s boom as a result of stealing American jobs and intellectual property, rather than efficient economic policies and hard work ethic.
It is unclear to me whether Mr. Rein is excluding Barton Biggs and Commerce Secretary Locke from among those expressing “anger and fear towards China.” I certainly hope Secretary Locke is excluded from Mr. Rein’s criticism because Gary Locke, a Chinese-American, is nothing if not temperate. Nonetheless, this paragraph concerns me because in it Mr. Rein seems to categorize those who disagree with him as spewing “rhetoric,” and implying that the only reasons for their doing so are political. Mr. Rein appears not to have considered that their views could be honestly held, and voiced not for political reasons, but out of concern for the American worker. There are plenty of good and serious and smart Americans on both sides of the debate regarding China and its currency and Mr. Rein’s questioning of motives here seems both unfair and unprofessional.
I also take issue with Mr. Rein’s statement that ‘[m]any attribute China’s boom as a result of stealing American jobs and intellectual property, rather than efficient economic policies and hard work ethic.” I question this statement on two grounds. First, I question whether “many” really do attribute China’s boom to “stealing American jobs and intellectual property,” as I have never heard anyone draw that sort of causation. I find it difficult to believe that any of the speakers at Mr. Rein’s event actually said that the reason for China’s boom is its “stealing American jobs and intellectual property.” On the flipside, I have also never heard anyone completely discount China’s economic policies and work ethic as contributing causes to China’s economic success, as Mr. Rein suggests “many” do.
Second, Mr. Rein makes this statement as though it would be absurd for anyone to think that at least a portion of China’s economic gains have come from stolen intellectual property. China is by far the leading counterfeiting country in the world and that counterfeiting has, at least in part, helped drive China’s boom.
Mr. Rein then talks of having challenged Secretary of Commerce Gary Locke “to respond to my position that a fast appreciating renminbi would not create more American jobs, as companies like Nike and Apple would relocate their manufacturing to cheaper areas like Indonesia rather than back to America. I maintained that the real danger to the global economy is the Federal Reserve’s latest round of quantitative easing, which already is exporting inflationary bubbles to emerging markets.”
I would not for a minute argue that there is anything close to a one to one correlation between China jobs and U.S. jobs. In other words, I agree with Mr. Rein to the extent that he is saying that a fast rising renminbi that leads to jobs leaving China will mostly lead to new jobs in places like Indonesia, rather than in the United States. But Mr. Rein’s assertion that a rising renminbi would not create new American jobs is misguided. Just a few weeks ago, in a post entitled “China Manufacturing: We’re Bringing It Back Home,” I wrote of how my tiny law firm has handled three matters “JUST THIS YEAR” involving American companies that are leaving China completely and, in doing so, are bringing jobs back to the United States. Rising China costs played a part in all of these companies leaving China, and if the value of the Renminbi were to increase, more American companies would leave.
My post did not even mention my American clients who have stopped hiring new workers for their China operations and begun hiring new workers for their United States operations because of the narrowing of costs between the two countries. Nor did it discuss the client who called me just since that post wanting to discuss moving the “low end” portion of their China operations to Vietnam and the “high end” portion back to the United States. Since China’s rapidly increasing wages are causing U.S. manufacturers to move jobs back to the United States, there is every reason to believe a higher valued renminbi would do the same.
My firm has another client (also not mentioned in that earlier post), a good-sized American manufacturing company, who had been told by one if its biggest customers (a Fortune 25 company) that if it did not start manufacturing in China soon, the Fortune 25 company would cease to do business with my client anywhere in the world. This U.S. company just recently told me that it would not be establishing manufacturing operations in China and that the Fortune 25 company had backed away from its requirement that it do so. The primary reason for the change by the Fortune 25 company was that producing our client’s super high quality products was, in the end, no cheaper overall in China than in the United States. If the renminbi had been worth 20 percent less than it is now, I very much doubt that this same decision would have been made by the Fortune 25 company, and, as a result, hundreds of American jobs would have been lost.
Mr. Rein also fails to acknowledge that China jobs going from China to countries other than the United States is not necessarily a pure neutral in terms of American job creation. Last year, we had a client shut down its facility in China and bring that manufacturing back to its facility in Ontario, Canada. I would bet that the Ontario factory and its Canadian workers both buy more American goods than the Chinese factory and the Chinese workers ever did. Mr. Rein disregards the fact that factories and workers in Canada and Mexico (and probably even Thailand and Vietnam) buy more American goods and thereby create more American jobs than do Chinese factories and workers.
Mr. Rein would have us believe that Commerce Secretary Locke’s failure to respond to Mr. Rein’s “challenge” was because Locke had no answer for Mr. Rein, but I’m guessing Mr. Locke simply chose not to engage with Mr. Rein because he saw Mr. Rein’s position as so extreme. According to Mr. Rein, Commerce Secretary Locke’s response to Mr. Rein’s accusations regarding the U.S. Federal Reserve’s quantitative easing was that “Bernanke needs to stimulate America’s economy through a loose monetary policy. He [Commerce Secretary Locke] did not take into account the criticism of Brazil and Germany about the Fed’s policies.” I object to the notion that the United States (or any other country for that matter) should set its monetary policy based on the views of a couple of foreign countries. The United States Federal Reserve is tasked with doing what is best for the United States, and right now the United States has a job problem, not an inflation problem. Brazil and Germany and China have the opposite problem, so it only makes sense for them to want the United States not to prime the pump. Does that mean the United States is wrong for doing so? Of course not. And does anyone really believe Gary Locke is not savvy enough to realize that America’s economic policies can have worldwide impact?
Mr. Rein then reiterates how the value of the renminbi can have no (as in ZERO) impact on American jobs, as though repeating a falsehood makes it true: “Are Locke and the other speakers right that a fast appreciating renminbi will create more jobs on American soil? No.”
Mr. Rein then suggests how it is that he is right and America’s Commerce Secretary and its leading investors and economists are all wrong:
In fact, more than 70 percent of big American multinationals operating in China told my firm they did not want the renminbi to appreciate too much because it will cut into their profits. The majority also said they would increase costs to the American consumer or move to cheaper production areas if it rose.
What does Mr. Rein even mean when he says “more than 70 percent of big American multinationals operating in China told his firm” of their views? What constitutes a “big American multinational operating in China? Something like 80 percent or more of the Fortune 1000 operate in China. Did Mr. Rein really hear from all 800 of these? Who at these big multinationals was doing the talking? I very much doubt it was the CEOs, so who? What led these “big American multinationals” to reveal these views to Mr. Rein’s firm? Were the “big American multinationals” really asked if they wanted the renminbi to appreciate “too much”? Does not the phrase “too much” itself have negative implications? If someone were to ask me whether I wanted the renminbi to appreciate “too much,” I would say, “no, I do not want it to appreciate ‘too much,’ I want it to appreciate just ‘the right amount’ and no more.”
Mr. Rein’s claim that the majority of these “big American multinationals” said “they would increase costs to the American consumer or move to cheaper production areas if it [the renminbi] rose” also means nothing. Is Mr. Rein saying that the majority of these “big American multinationals” would increase costs to the American consumer if the renminbi were to increase by .0001%? Or is Mr. Rein saying that the majority of these “big American multinationals” would increase costs to the American consumer if the renminbi were to rise “too much”? Without a specific percentage rise in the renminbi as a reference point, the views Mr. Rein attributes to these “big American multinationals” are extremely vague.
But even if we were to ascribe meaning to what Mr. Rein purports to have been told by the “big American multinationals,” this information is still irrelevant to the argument in which Mr. Rein claims to have bested Secretary of Commerce Locke. Mr. Rein’s thesis in his article (at least up to this point) has been that raising the value of the renminbi will not create any American jobs. How does the allegation that the Microsofts and Exxons of the world want the renminbi EXACTLY where it is right now (and not one scintilla higher) support Mr. Rein’s claim that the value of the renminbi has no impact on American jobs? Does Mr. Rein really believe that every “big American multinational” bases its ideal value of the renminbi on what will produce the most American jobs? “Big American multinationals” focus on what will increase their profits, not what will increase jobs for American workers.
On the flip side, I note that many of my United States clients who sell their products and services to China have noted how the strengthening renminbi is lifting their profit margins. This is exactly what one would expect. Those American companies that manufacture in China will tend to favor a lower renminbi and those American companies that sell from the United States to China will tend to favor a higher renminbi.
Mr. Rein then belittles the “arguments by Locke and others that China’s currency policy hurts America” as “misguided,” and goes on to point out “two other areas many of the panelists got strikingly wrong on China.”
Mr. Rein notes how “many said intellectual property protection is getting worse there [in China, when], in reality it is getting far better as the government cracks down on piracy and as consumers increasingly demand real items.” Mr. Rein’s claims that the Chinese government’s cracking down on piracy and consumers’ increasingly demanding real items is proof that intellectual property protection is getting better in China omit key information. Though these trends are probably factors in China’s intellectual property theft numbers, neither of them reveal what those numbers actually are. Are Chinese companies engaging in more or less counterfeiting now than they did a year ago? I was not able to find any good evidence one way or the other, but both the EU and the United States seem to think the problem is worsening (see this and this). Without these hard numbers, it is not fair to describe those who think one way as being “misguided.”
Then Mr. Rein goes off on a strange and seemingly unrelated tangent. He starts criticizing the “western world” for not giving “Beijing enough credit for ridding the country of long-standing gender inequality:
Secondly, the western world does not give Beijing enough credit for pushing for equality in the legal and education systems and ridding the country of long-standing gender inequality. There are now more females in degree, MBA and PhD programs; students and women have the right to initiate divorce.
The fact of the matter is, Chinese women are becoming the great purchasing force in the country. In the 1950s, women accounted for only 20 percent of household income. That rose to 35 percent in the 1990s and is now at parity. In fact, our research suggests women there will account for 55 percent of the $11 billion of luxury goods purchased there in 2011.
Even in rural areas, women are starting to earn more than men when they relocate to urban areas. Women get jobs as waitresses and make $350 a month while their husbands take home $120 a month in construction. Many women are becoming breadwinners and changing family dynamics in the process.
I do not understand why Mr. Rein discusses China’s gender equality in his particular article, but again, I have never heard anyone (American, “western”, or otherwise) say anything negative about what China has managed to achieve on this front.
Mr. Rein then concludes his piece by again harshly discounting those who disagree with his view of China:
As China takes its place as the world’s second superpower, America needs to understand it better in order to ensure peace and to take advantage of business opportunities.”
Too often politically charged rhetoric and ill-informed people are shaping American public opinion towards China. The reality is that China has played a critical role in helping the world’s economy recover from the financial crisis and is making great strides in protecting intellectual property and promoting more gender equality.
Mr. Rein seems to be implying that good China and United States relations rest entirely with the United States, and that if the United States would just understand China better, there would be peace and business opportunities for all. At the beginning of his article, Mr. Rein talks of all the high-level government officials and investors at the conference; by the end of it, he seems to view the speakers at this elite New York City gathering as representatives of “American public opinion.” Either way, I think it unfair for Mr. Rein to chastise all Americans and (not the entire “western world” as he did previously) for having the wrong “public opinion” regarding China, based on a few lectures he attended at an investment conference in New York City.
I am also troubled by Mr. Rein’s final sentence, which seems to say that because “China has played a critical role in helping the world’s economy recover from the financial crisis and is making great strides in protecting intellectual property and promoting more gender equality,” anyone who expresses disapproval of Chinese policy is “ill-informed.” I too am impressed by what China has accomplished, but I would never claim it is above criticism or that those who criticize it are “angry,” “ill-informed,” or “strikingly wrong.”
No matter where we stand on it, it is important that we use language that seeks to stimulate discussion, rather than shut it down.
What do you think?