Colin Barr

Following the money in banking, economics, and Washington

Why China doesn't ask how high when we say jump

October 20, 2010: 4:19 PM ET

While we're on the subject of civil war, Time's Michael Schuman points to a country where it seems all too plausible: China.

Massive poverty and a dependence on strong growth largely explain why Chinese leaders are in no great hurry to let their currency appreciate, Schuman writes.

Seen in a happier kennel

Though China is widely imagined in the financial press as the great locomotive that will pull the West out of its debt-soaked ditch, he notes that 200 million Chinese subsist on less than $1.25 a day. And while China's development in recent decades has been a great success story, naturally it has created its own issues.

I recall visiting a factory in the industrial enclave of Shenzhen a few years back. The factory was located on an upper floor in a large building that housed several others. As I ascended in an elevator with the factory manager, the doors opened suddenly. I got a glimpse of a mob of workers screaming in a darkened room. The doors shut. "That's not my factory," the manager accompanying me said. Turns out the workers were furious over unpaid wages. Such protests and near-riots aren't unusual in China.

Of course, that's not the only reason China's not doing what the U.S. wants. There is also the fact that the United States has drunk its own free-market Kool-Aid, Clyde Prestowitz writes -- in spite of the fact that it was outright trade hostility that actually saved the day when Japan was ascendant.

But Washington has become so convinced it beat Japan with free market policies that it is not responding to Beijing at all as it did to Tokyo. Barack Obama's administration has filed only one WTO complaint since taking office and has steadfastly refused to label Beijing a currency manipulator -- though it clearly is. Washington has not even dared to think about voluntary export restraints and has had little success persuading Beijing to revalue the yuan. That's no surprise: The Chinese are convinced that the Plaza Accord led to Japan's collapse and have vowed to avoid the same mistake. As one high official of the People's Bank of China told me, "We're not going to be crazy like the Japanese."

No, of course not. That's a nice quote, but Prestowitz has a better one that also potentially speaks to China's other recent ones on the trade front, such as the apparent rare earth minerals embargo:

As one Chinese friend explained to me last year, "Now we have all the foreign dogs in the kennel, and we're going to beat the stuffing out of them."

Sounds like fun, though it probably can't match a good civil war.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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