High-Tech Exports & higher RMB Exchange Rate, Key to raising national Living Sta
January 2, 2007 2:52pm CST
China today focuses too much on subsidised exports of low-tech products enabled by low wages and low-cost raw materials which are made even lower by her excessively low exchange rate. Overall slowing down of internal development compounded by environmental degradation are two negative impacts on the Chinese nation caused by the low exchange rate which compels the entire populace to subsidise the low-tech exports of cheap products. Only with a most advanced technological level and the biggest and most efficiently productive economy will China be able to export high-tech products made by highly-paid scientists, engineers and technicians. All this entails China competing with the advanced countries with the highest wages world and not backward countries with the lowest wages. In this way, China would be further allowed to stop her insidious subsidies through the excessively low exchange rate, thus, allocating more available resources for faster internal growth. If most if not all Chinese exports are of a high-tech caliber it is then possible for China to compete effectively against the major advanced countries with a minimal amount of subsidies in terms of lower wages or a lower exchange rate. Thus, China as a whole will not be forced to provide excessively heavy subsidies to support an export sector which increasingly parasites on the overall economy and keeps it from expanding as fast as it could. With more technological advances, Chinese exports will continue to shift to an increasingly higher technological level, thus enabling China to stop her current excessively heavy subsidies to the exporters. Also, since China can produce these high tech products, her need to import high tech products will be decreased. This in turn means China's need to subsidise exports in order to earn foreign exchange in order to import high-tech products will be decreased even further. We look forward to the day when China is exporting fuel cell cars, jumbo jets, and all kinds of high tech products that are competitive because of their superior qualities and not because it is more heavily subsidised by an excessively low rate exchange rate. However before China is able to advance rapidly in technological development she must first allocate more funding for R&D. China has allocated some 1.35% of her 2004 GDP or some 184 billion yuan for R&D. This is much less than developed countries. China must immediately increase her allocation for R&D to at least 3% of her GDP and ultimately to a minimum of 5%. (China's GDP should also be less dependent on foreign outputs in China.) Since technological R&D will in time return great profit, it is a very good investment unlike subsidies to low-tech exports which only drain resources out of China for very little return while keeping her backward and poor. Certain Chinese in their abysmal short-sighted ignorance have advocated that China maintains a low -ech level to keep the Chinese workers performing at a low rate of productivity in order to keep the cost of labour low. They argue that low labour costs are a decisive advantage for China in the competition for exports and FDI. They also argue that if the productivity of the Chinese workers rises, then the cost of labour will incrementally increase and then China would become less attractive to foreign investors and the FDI would flow to other lower labour cost countries and the Chinese economy would collapse. They do not understand that exports are not the ultimate goal of China's national economic policy. China's ultimate national economic policy goal is raising of the Chinese people's standard of living to the highest level in the world. Viewed in this perspective, it is obvious that low-tech exports relying on low labour cost is not in China's best interests. and she must phase out low-tech exports as soon as possible. Lastly, China's rise in living standards has less to do with exports than with the development of her internal economy and raising of the productivity of her workforce. Exports have little to do with the people's standard of living ,except insofar as to allow China to import goods she cannot produce. In which case, it is obvious that the higher the value of the RMB the more goods China can import per unit of physical export which translates into a higher of standard of living for her people. Therefore, China has not much need of low technology, low-tech exports, low labour wages, and FDI that exploits these lowly attributes. What China is in need of are high technology, high productivity, high labour wages, and domestic investment which together will lead to the highest standard of living in the world.