Chinese trap – Dangerous Protectionism

Why global economy is not functioning well?


A. Purpose:
- Purpose of this memo is to inform you of my conclusions about one of culprits, which are disturbing invisible hands and causing financial crisis in global market.


B. Background:
- Violation of fundamental premises of Economic Theory:
As you know, Economic theory only works under the certain premises such as no restrictions of money flow (free movement), etc.


China is violating a couple of fundamental economic premises as follows:


1. 2 way tactics of holding Money flow in China. (Protectionism)

A. Chinese GEN’s Exchange rate fixation. (violation of free trade)
B. Restrictions of taking out money from China. (violation of free movement)


A. Chinese GEN’s Exchange rate fixation. (violation of free trade)

By setting Chinese Gen at exceptionally low rate and making labor costs as cheap as possible, China gained lots of factory type jobs and succeeded to increase sales as a nation. (Increase of Money in-flow into China)


B. Restrictions of taking out money from China. (violation of free movement)

By placing upper limit of taking out money from China (20,000 GEN), China is trying to hold money flow within Chinese market.


When the above two practices combined, it becomes protectionism of Chinese market.
In other words, China is trying to grow and prosper Chinese economy at the expense of global economy in my opinion.


Chinese economy used to be weak and insignificant in the past.

Now Chinese economy is very strong and significant in global economy having the second highest GNP in the world next to the U.S.


2. Function of global currency:

Of course number one global currency is U.S. dollars, followed by Euro and YEN.


What happened about Chinese GEN?


Chinese GEN is not qualified as global currency due to the following reasons:


3. Restrictions and fixation of Chinese GEN.

Since Chinese GEN is not free flow currency and we do not trust Chinese GEN, Chinese GEN is not functioning as a global currency.


In other words, we do not wish to keep Chinese GEN as reserve money since we cannot globally move it as free as we wish.


This is one of the reasons why Japanese YEN is so strong these days.


The U.S., Europe, and Japan lost lots of factory type jobs while keeping out of job workers at home. (Decreased sales with the same O/H. => bad economy and financial trouble)


The U.S. and Europe has spent lots of money to stimulate its economy before fixing Chinese trap as mentioned above.


Once money goes into China, it is hard to come back and thus money is gradually accumulated in China.


China prospers and economy of the U.S. and Europe gradually shrink since money will not come back from China very easily.


Since Japan has not spent as much money for economic stimulation nor extend money supply as much as the U.S. and Europe, Japan still has some room to take some actions, I guess.


Although China has the second biggest impact to global economy as a single nation, Chinese GEN is useless as a global currency and thus people reluctantly keep YEN as relatively safe reserve money.


4. Conclusion:

China is creating lots of current issues in a way of protectionism.


We should fix this issue of China’s protectionism first; otherwise, most of our efforts will be soaked up by China.


The U.S. government tried to fix it once in the past alone.


Since this is a global issue, please raise this issue at either G20 or United nations and try to solve it altogether once more.