Thursday, February 4, 2010
China the place to go for opportunity?
Jim Rogers recently said, “In 1807, if you were smart you went to Paris. In 1907, if you were smart, you went to New York. And, in 2007, if you were smart you went to China.”
It used to be that the US was called the land of opportunity. However, with the US in such a huge deficit and still trying to recover after the financial wreck arrived, opportunities may be in China. However, I think before that happens, the income of the Chinese people needs to increase either through an increase in the valuation of the RMB or the actual salaries that they receive.
I only say that because many people from China still try to come to the United States in their hopes of striking it big. These people are able to live off a meager salary in the States and still have money leftover to send back to China. Many people here would think $200 USD to $300 USD is a drop in the bucket but in China that would be about 1400 to 2000 RMB which could be used to fully sustain an entire family in the 2nd tier cities of China. Also, the living standards are much higher in the United States since the laws to protect against dumping and ruining the air quality is much more stringent here which may be the reason why many Chinese citizens still want to migrate to the States.
I doubt that salaries in China would increase quickly enough since many companies would be unwilling to raise the salaries. This would affect the bottom lines of the companies. However, salaries in 1st tier cities (Beijing, Shanghai, Shenzhen and Guangzhou) will probably see increases in salaries more quickly as living standards are much high compared. Other cities would most likely have to wait much longer to see increases in salaries.
The Peterson Institute for International Economics in Washington has estimated that the yuan is undervalued by about 30 percent against all world currencies and about 40 percent against the dollar. I'm not sure when that would occur though since the Chinese government is trying to hold the existing exchange rates in order to A) allow China to have a price advantage in the manufacturing area B) recoup the loan that it provided to the US. It seems that if the Chinese government allowed the RMB to attain a value based on the predicted market rates of the Peterson Institute, China would lose the pricing advantage and it would lose a lot of money due to the money it lent to the United States. In doing so, this would cause internal issues for the billions of people in its country as many manufacturing plants would probably close causing hundreds of riots. Riots have already occurred due to the global recession which closed many plants in 2009.