Another Reason why the Chinese are eating our lunch [[Economically)

[firstandten]

From the Financial Times an interesting article

Beijing city to raise minimum wage 21%

essentially the article states that even though there is inflationary pressure, it was important for the lower income people to have more money since they spend a larger proportion of income on necessities. Also there were fears that the gap between the poor and rich was getting wider and could stoke social unrest.

Nationwide minimun wage raises is part of a gov't plan to reduce income disparity
and promote greater consumption by middle and low income families.

Wow , what a concept. I guess those folks never heard of supply side economics.

Couldn't supply a link, the Brits get a little uptight about that

[Mikeg]

It sounds like you've been listening too much to this guy:

"What if we could just be China for a day? I mean, just, just, just one day. You know, I mean, where we could actually, you know, authorize the right solutions, and I do think there is a sense of that, on, on everything from the economy to environment." - Thomas L. Friedman, Meet the Press, May 23, 2010

Yep, the Chinese with their state-managed, top-down economy are so much smarter than the rest of us.

At the same time as one hand of the all-knowing and munificent Chinese Government is raising the urban minimum wage, the other hand is furiously trying to solve their economy's acute liquidity and inflation crises by jacking up interest rates.

Their official interest rates have been raised twice since mid-October to no avail and the inflation rate is now at a 28 month high. Did you ever stop to think that maybe the only reason for the "minimum wage" hike was to keep the citizens of Beijing from rioting in the streets over their increasingly diminished purchasing power?

[ghettopalmetto]

Don't the Chinese know that raising the minimum wage is going to totally kill their economy?

If they REALLY want to grow the economy, what they need to do is cut taxes!

[maxx]

Six and a quarter percent is usury? I remember when money markets were at 18% here around 1980.

http://www.dailymarkets.com/stock/20...-requirements/
"...
The Chinese Central Bank raised the reserve requirement ratio by 50 basis points after earlier data showed a rise in property prices for a third straight month, an increase in both exports and imports, significant increases in M2 money supply and jumps in new lending by financial institutions despite government efforts to stem the flood of liquidity into the nation’s economy.
This move by the central bank, which takes effect on December 20th, effectively reduces the amount of money China’s banks have available to lend and aids in decreasing money supply, which further helps fight inflationary pressures..."


[U.S. banks shouldn't have been able to take on the amount of risk they did and investment banks should have had some regulation. That has been remedied to some extent recently.]

"...Inflation is of major concern in the world’s fastest growing economy as remain a primary challenge in China. Some forces that continue to add to inflationary woes in China include strong export growth despite an overheated domestic economy, excessive liquidity as a result of massive amounts of money coming from both domestically and abroad, rising food and commodity prices around the world and the loose monetary policies implemented by the US which are resulting in increased money supply of the Dollar..."

[firstandten]

Yep, the Chinese with their state-managed, top-down economy are so much smarter than the rest of us.

At the same time as one hand of the all-knowing and munificent Chinese Government is raising the urban minimum wage, the other hand is furiously trying to solve their economy's acute liquidity and inflation crises by jacking up interest rates.

Their official interest rates have been raised twice since mid-October to no avail and the inflation rate is now at a 28 month high. Did you ever stop to think that maybe the only reason for the "minimum wage" hike was to keep the citizens of Beijing from rioting in the streets over their increasingly diminished purchasing power?

They aren't smarter than us by a long shot. They are doing what makes sense. Yes there is inflationary pressure in there economy and they will need to address it. However their society has made a decision that they rather have a troublesome inflation rate than riots in the street.

And yes, to keep the folks from rioting in the streets might be the only reason for the mininum wage hike but its a damn good one.

[Mikeg]

However their society has made a decision that they rather have a troublesome inflation rate than riots in the street.

China's society has made no such decision. They live in an authoritarian police-state and are not able to democratically select their Communist leaders. In this case, given their recent embrace of certain elements of capitalism, the Communist regime in Beijing is about to find out first-hand that their authoritarian decision to raise the minimum wage will most likely result in increased unemployment and continued dissatisfaction in the streets.

[firstandten]

In this case, given their recent embrace of certain elements of capitalism, the Communist regime in Beijing is about to find out first-hand that their authoritarian decision to raise the minimum wage will most likely result in increased unemployment and continued dissatisfaction in the streets.

Maybe, maybe not , while it seems counter-intuitive to those who believe a laissez-faire market base solution is the only right one, check out the studies by David Card and Alan Krueger. In there book Myth and Measurement they make a case for raising the minimun wage and showing that it does not affect unemployment in the manner you may think. Now there's many economists that don't agree with them but they have there share of supporters as well.

But also remember this by China being a State Capitalist economy they can manipulate the economy in any matter they like to address whatever economic and social issues they have and don't have to worry about where the "free market"
is going to take them.

[oladub]

I don't see big problems with states raising the minimum wage. The 10th Amendment allows such things. Oregon and Washington have the highest minimum wages at about $8.10-$8.50/hour. Increasing minimum wages would decrease the need for state welfare programs a bit as a $1/hour minimum wage increase increases income about $2,000 annually. The purchaser of the restaurant or other service would be paying the extra amount instead of taxpayers. The intent wouldn't be to end welfare but it would reduce some government hand outs and administrative costs as customers would be paying the difference; kind of like a user fee.

Higher minimum wage requirements would even help some Ma and Pop operations compete with chain restaurants and other box stores because they can hire their own relatives and keep their own books.

This would make some US manufactures less competitive with foreign competitors but the riddance of NAFTA type agreements and institution of import taxes to offset lower income taxes would fix that.

Back on topic- It isn't minimum wages, or the lack thereof, that is causing the Chinese 'to eat our lunch'. I just read an article about how while we are putting all sorts of restrictions on burning coal, we are simultaneously exporting more coal to China. It still gets burned. It still adds to the world's pollution problems. The insanity of hobbling ourselves thus reducing the demand and price for the commodity while exporting it to China is insane. That is just coal. Multiply that with hundreds of similar decisions. Another article was about how China has long required foreign investors to partner with Chinese partners. Now, China it taking that forward and demanding that foreign companies operating in China allow Chinese companies to partner with them in international ventures. GE recently complied.

[Patrick]

China's largest coastal cities also have a problem with recent college grads not being able to find jobs. Sounds familiar eh? These grads are flocking to the big city looking for good paying jobs only to be burned. These folks are called the "ant tribe" and sounds very familiar to what is going on here in the States. China and America have a lot of differences but you'd be a fool to think that we don't have similarities.

[Mikeg]

But also remember this by China being a State Capitalist economy they can manipulate the economy in any matter they like to address whatever economic and social issues they have and don't have to worry about where the "free market" is going to take them.

So you're admitting that China's society did not make this decision to raise the minimum wage and that it is really the members of the authoritarian Communist regime who decide which social and economic issues get addressed and what the new policies will be?

[canuck]

China's largest coastal cities also have a problem with recent college grads not being able to find jobs. Sounds familiar eh? These grads are flocking to the big city looking for good paying jobs only to be burned. These folks are called the "ant tribe" and sounds very familiar to what is going on here in the States. China and America have a lot of differences but you'd be a fool to think that we don't have similarities.

Yup, I remember reading they were churning out 50000 or more engineers a year a coupla years ago.

As you say, there is a lot we dont know about China like the crime statistics. We claim the stats are tampered with here but I heard a story on french radio about horror stories that go unreported like huge numbers of mass murders by psychopaths, etc... Not as tame and docile as we are led to imagine, and corruption is rampant of course.

[gibran]

My late great dad would always say it would be China that would pose the biggest threat to our freedoms an dby owning our debt I and beginng to think he is right...

[firstandten]

So you're admitting that China's society did not make this decision to raise the minimum wage and that it is really the members of the authoritarian Communist regime who decide which social and economic issues get addressed and what the new policies will be?

I did use the word society as a catch-all for the people in charge be they authoritarian or not. If your point is well the people had no say in this. I would counter that this is there culture and I'm not going to impose my political values on people who's view of the world may be different from mine. If what they do works and the people are happy to me that is whats important.

[maxx]

According to this wiki article, provinces and cities in China can determine minimum wages.
http://en.wikipedia.org/wiki/Minimum...law_by_country
In February 2010, officials in Jiangsu province increased the minimum wage to 960 RMB [[about US$140.62) per month, the same as Shanghai. China's highest minimum wage is in Shenzhen [[1000 RMB per month).
Guangdong Province increased its minimum wage on 1 September 2006 and was split into five categories. The highest is ¥780 per month or ¥4.66 [[~US$0.68) an hour [[in Guangzhou city). The lowest is ¥450 per month or ¥2.69 [[~US$0.39) an hour.[18]
From the 1st July 2010 thirty provinces -including Beijing and Shanghai- raised their minimum wage to address the country's widening income gap. In Beijing the minimum wage was raised by 20% to ¥960 a month. In Shanghai, which has China's highest minimum wage, raised it to ¥1,120 a month.[19]


Also:

In the European Union 18 out of 27 member states currently have national minimum wages.[20] Many countries, such as Sweden, Finland, Denmark, Switzerland, Germany, Austria, Italy, and Cyprus have no minimum wage laws but rely on employer groups and trade unions to set minimum earnings through collective bargaining.[21]

http://www.nytimes.com/2010/06/04/bu...bal/04pay.html
"...
Provinces and cities throughout the country have raised their minimum wage this year as companies have reported growing labor shortages with migrant workers from the interior choosing to seek jobs in small cities closer to their homes.
A strike at a Honda Motor car parts factory that began month was resolved Wednesday after the company offered its workers a 24 percent pay raise, showing how the balance of power in the country’s factories is gradually tipping toward workers.
Stung by labor shortages and a rash of suicides at its factories in southern China, Foxconn Technology has raised the salaries of many of its Chinese workers by a third.."

[oladub]

I found a cheery story about Master Locks bringing back some production from China to Milwaukee because with rising shipping and production costs in China, some production has become cheaper here. Master Locks, the article goes on to say,is completely unionized and has never asked for any government subsidies. This isn't to say the tide has turned on exporting jobs. Still, it's nice to have an occasional piece of good news.

Master Lock reassessing China
Milwaukee-based company finds it can compete better from U.S. soil

[Papasito]

I just read an article about how while we are putting all sorts of restrictions on burning coal, we are simultaneously exporting more coal to China. It still gets burned.

Better to burn it here than there. China has no EPA like we do.