From: jyw@phys.psu.edu (Jin-Yuan Wu)
Subject: Re: GATT&MFN and puzzling American policy
Organization: Penn State, Department of Physics
Date: Tue, 10 Nov 1992 16:36:58 GMT

In article <1992Nov10.100646.90555@vaxc.cc.monash.edu.au> mte152s@vaxc.cc.monash.edu.au writes:
> ....
>China can find our markets rather than US then US will not withdraw that MFN

This is a very key suggestion. Not only China, but also many other the 3rd
world countries focus on the markets of several rich countries. This causes
many negative effects. To compete in the limited markets, they have to set
their currency rate to a very low value so they can sell their goods at low
price to the rich countries. These 3rd world countries do the same thing
round and round. The result is that the wealth flows from the 3rd world to
the rich countries. I asked a boss of a small clothing store how much Chinese
clothing is cheaper than US one when the goods arrive at his hands. He told
me it is about 30% cheaper with better quality than US clothing.

We used to hear that the labor force in the 3rd world is cheaper. 
The treading-based-currency-rate is one of the reason.

The treading of a country should have three goals: (1) sell the goods, 
(2) sell at good price and (3) buy goods at acceptable price.
With limited markets, one can only sell the goods at very low price.
When the poor countries buy hi-tech products, they have to pay very high
price due to currency rate.

Another reason why the 3rd world countries have to orientate their market
to the rich countries is the demand of hi-tech products. They have to sell
their goods at whatever a price to gain US$ or other "hard" currencies so
that they can buy computer, airplane etc. In the hi-tech area, China can
do a lot. China now has ability to export satellite launching servise, 
small airplane, low temperature nuclear reactors, ships, 
railroad engines and cars, B-type ultrasonic imaging instruments etc.
China sells these products at a fair price which attracts the 3rd world 
a lot. Thus reduces the demand toward US$ and therefor, eventurally will
make the prices of the 3rd world goods (such as clothing, shoes etc) to a
better level. US call our satellite lauching price as dumping price. This
reflects that the Chinese currency rate v.s. US$ is too low. 

So the solution: (I) treading between the poor countries, (II) 
developing hi-tech and its export and (III) raise RMB rate when
it is possible.

By opening markets between the poor countries, they can all be pleased
by the prices of import and export.
Recently, the tread between China and former USSR countries has been very
successful. The only problem is that they have to tread by directly 
exchanging goods since both Chinese and their currenies do not have a
proper rate with the other currencies in the world.

China has many hi-tech which definitely can find the market in the 3rd 
world. But make them ready-to-sell is not a trivial job. More works to
be done here.

Low RMB rate helps export in some sense, but it hurts import of hi-tech,
human resource exchange etc. The RMB rate has to be raised back to 
reflect the purchasing ability some time, but not necessarily now.

Comments are welcome.

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