The immediate reaction of all major broadcast media upon the election of Donald Trump was to campaign to discredit his electoral mandate. There never was any analysis of his policy rhetoric, especially pertaining to China, our trade deficit, multinational organizations or the role of major international institutions like the IMF regarding its continued soft peddling of monetary requirements changing China’s status as a market based political economy.
The qualm over the nature of China’s economic regime matters, for if a nation state qualifies as a market based economy, then monetary rules regarding China’s managed relation to its currency, capital controls and hosts of other tools used to manipulate its domestic capital stock have political consequences. China uses the rules of the international economy to bolster the domestic rule of a single ethnic group over all others: the Han.
Any brief look beyond either tweets or major media contortions of the Donald reveal a startling good intuitive grasp of China’s continued manipulations that serve a predatory regime that openly seeks to dominate both its neighbors and other regimes that it has relations with.
Beijing continues to politically manage its currency for favorable status regarding purchasing parity with other nations and export demand.
December 2017 saw the eleventh consecutive monthly increase in foreign exchange reserves for the Central Bank of China. These are monies piled up in the vaults of the Chinese Central Bank denominated in foreign currency. They serve as a powerful bulwark against the free movement of capital across nation states. They also help Beijing’s ruling class with fixed income from the EU & US. Chinese officials have openly sought to keep its own currency pegged to the dollar. The Yuan (pronounced like yawn) actually shadows the movements of the US dollar; this is called a floating peg and serves the domestic interests of the ruling Han in Beijing.
Throughout 2017, China’s stockpile of foreign reserves reached the world’s largest capture of foreign monies at $3.14 trillion. To counteract US tax reform and the anticipation of massive capital outflows, Chinese Central Bank officials have redenominated, re-balanced their portfolio’s out from heavily invested US Treasury bonds. Who knew that Chinese ethic nationalism would assist a moribund US Congress in its own deficit spending?
Why does this matter?
Without having a political regime openly harnessed to the requirements of a functioning market, the regime walls off the ability of its citizens to capture capital, equity formation, effectively keeping its working population subsistent, dependent and unable to enjoy the social mobility that characterizes western political economies. By closing its capital account, the Han in Beijing keep its people under a harsh rubric while opening harassing foreigners for historical grievances.
In totalitarian society, everything is used to ameliorate the human person, every bond sundered for the collective.
Well dressed televised pundits false claim that China’s managed economy needed to openly tackle an unconventional policy mix of excess domestic capacity in housing with closure of excess industrial capacity. The real story is more cynical.
The Keynesian mandarins in Beijing have closed China’s capacity to link the Yuan to other currencies. Chinese money is useless because it cannot be converted into another currency. This is the source of China’s current problem. Its ruling class wishes to possess all the fruits of a market-based economy without having to bother with the ethics of openly managing one.
The Han masters want subjugation, the price paid for the commanding heights of benevolent rule. It cannot go on much longer. How can Beijing expect its working population to remain subservient to ethnic domination masquerading as nationalism?
A perfect storm is brewing domestically for the rulers of China, for a hybrid regime to win it must openly embrace what it cannot manage: A market based economy based on free exchange.