UPDATE: They suspended the circuit breaker.
http://www.cnbc.com/2016/01/07/chinese-securities-regulator-suspends-market-circuit-breakers.html
I'm almost sorry to see it go. It was exciting.
That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters. So, what does this mean and why is it happening?But the central bank's fixings have helped drive the yuan down not just against the dollar this week, but also other major currencies, including a 3.5 percent fall against the yen and 0.8 percent against the euro.
The short version, is that China doesn't let the yuan float. If they want to devalue it further (not so long ago they were letting it rise), then it suggests that their economy is worse off than they are letting on. They would devalue it because if the yuan is cheap, it makes Chinese exports attractive, which increases orders for Chinese goods. It's one way to do economic stimulus. However, it does make it rough on any Chinese holding foreign debt as it becomes more expensive to pay that off. If you get paid in yuan and owe someone dollars, you are getting killed at the moment. Personally, I think it more likely the Chinese economy is closer to contraction than it is to the 6% growth the CCP has reported.
That makes some sense. Though, I find it kind of hard to believe that China needs to do any manipulating to get people to buy their goods. I thought that just by the pure size of their chunk of the manufacturing market, people bought Chinese products by default.
The cost of Chinese goods has increased over time as wages have increased. From what I understand, they can't compete anymore in some markets like textiles. That's one price of success as a low-cost exporter, if you always export cheap stuff, you can't develop a robust domestic economy. If you need someone to make widgets, you find the country with the lowest price. These days, it doesn't matter much if your widgets come from China, India, Bangladesh, Vietnam, or most anywhere else. If your boss is going to give you a promotion if you can save 5% on widget orders, you make the move.
Huh. That kind of surprises me actually. I could have sworn that I read that part of what helps China maintain a competitive edge is that it's manufacturing infrastructure is so tight, from supplies, to the actual manufacturing, to shipping, that it's hard for other countries to undercut them in price because they'll always be missing a piece of the puzzle, making the whole thing more expensive for them. I think I read somewhere that for that reason alone, an I-Phone manufactured here in the States would cost 3 times as much as they do currently.
I don't doubt that is the case for something like the iPhone, but when it comes to less complex items such as auto parts, I bet the infrastructure advantage isn't as great. Actually, some quick searching suggests that even Foxconn wants to diversify out of China due to higher wages. They have been trying to expand manufacturing to India as well:
Global economy is a pendulum swinging back and forth towards equilibrium. This is the wondrous magic of capitalism. The US will see a slight surge in manufacturing, and really has been over the last 5 years with movements like Reshoring. Jobs have been coming back to the States recently because everyone used to think outsourcing was a cure-all for manufacturing costs, but piracy, difficulty of communication due to language barriers and time zones, length of lead times, etc all led to some people deciding it was better to have jobs here. Plus with that, they get to put 'Made in the USA' on their product and reap the substantial tax benefits. There is always going to be some new business school movement out there. In 2000-2010 it was offshoring, in the 90s it was 'cutting out the middleman'. It turns out the middleman was really good at his job and a lot of middlemen are still comfortably employed. Even moreso you see entire companies taking on the role of the middleman (UPS and FedEx for example) whereas this kind of outside 'inefficiency' was business school sacrilege 20 years ago. Before that it was process engineering, and before that it was sales and marketing. It's a long process of finding out what works in a long process of finding out a lot more things that don't and applying what sticks to your business. So you'll see American manufacturing coming back, then it will move back and forth until it settles where it should be for the greatest efficiency. Because the invisible hand is like that.
If I could guess what that would be I would be the richest man on the planet. Complete automation of more and more things will be the background thing that won't be changing back in a pendulum. You're only going to move in one direction that way. Not only will you start to see minimum wage jobs replaced by automated systems, but you'll start to see what used to be solid paying careers completely obviated. Politcally this is going to be impossible. This will enrich capital owners and the well educated management class, further centralize wealth, and the shift from capitalist economies which provide sufficient employment for all who want it (where we are currently) to capitalist economies which simply cannot provide jobs and reach competitive efficiencies will be the defining change of the 21st century. People will fight this as Luddites did in the 1700s, and economists will point out that in the past everyone was better off in the long run as the looms which unemployed a large sector of British textile workers provided cheap clothing for a much larger sect. This provided more demand for cotton, more agriculture, richer farmers, etc. But for those unemployed textile workers, it was a shit time. Their skill had been made obsolete. They literally may have died as a result of textile change and you can't blame them for fighting it. Luckily for Britain this was a small enough portion of the population that it wasn't complete upheaval. But when it happens on a large enough scale (and believe me, it's happening as we speak) it will be unpredictable. The smartest thing I think that anyone is going to be able to do is a guaranteed minimum income, but that is going to be fraught with so many challenges. There will have to be a disruptive technology (I'm talking free energy level disruptive) to get us through that. But it's all a guessing game. Maybe nothing will change and everything will stay the same until a rogue AI kills us all anyway.