Such is the pace of change in China you can feel nostalgic about events of a couple of years ago, let alone about things that happened a generation back. Fat Dragon was recently consumed by nostalgic thoughts about talk of the troubles that would face Chinese exporters once the renminbi was revalued against the US dollar.
Of the senior officials, it was always Commerce Minister Bo Xilai who protested the loudest. Chinese exporters worked to skinny margins of 3%, he said. Any change could devastate them.
There was always something ironic about this. When asked about China’s swelling trade surplus, he pointed out that more than half of the exports are from overseas-invested companies. What is there for foreigners to complain about when they are the ones profiting from overseas sales?
The obvious follow up was why should Bo also be complaining about currency revaluation when it would be foreign businesses that were damaged?
In truth, his outspoken attitude simply underlined the real reason for China’s caution on this issue – employment and rural incomes. The jobs on the coast support not just the coast, but also the interior, through remittances from migrant workers.
But back to the issue of currency revaluation and how it was going to squeeze the margins, and the life, out of Chinese exporters. The RMB has appreciated by about 7% since mid-2005, when China broke the decade-long peg to the dollar. Exporters, however, have thrived in the interim.
The margins for textiles, electronics and machinery goods, which together account for 60% of exports, all increased last year compared to 2005, according a report compiled by Deutsche Bank.
It is an astounding finding considering what these industries were up against and one, it must be said, that not all industry participants agree with. But the raw trade figures bear out the report. The surplus surged in January and February this year, astounding analysts who have grown used to a spike only near the end of the year, when Western importers up their orders ahead of Christmas.
Key to the resilience of Chinese exporters is increased productivity, through investment in better capital stock, and their push into higher value-added manufacturing. What’s more, while moving up the value chain, China is able to maintain its dominance of low value-added manufacturing.
Fat Dragon is not captive of the notion that the Chinese can move into any manufacturing area and take it over merely because they are churning out more engineers than any other nation.
The country still lacks the political and financial system that nurtures and supports risk and innovation, and the kind of failure that goes along with it. Its risk takers are largely state-backed and state-mandated – this can get you a long way, as many students of the Japanese economic miracle will tell, but it won’t let you take over the world.
Still, China’s size, drive and ambition, and its cheap sources of capital will be a potent force for many years to come.
So the next time Mr Bo complains about the horrible predicament of Chinese exporters, take it all with a big pinch of salt. After all, he’s chasing a promotion at this autumn’s party congress, and foreigner-bashing has worked well for him so far.