China’s banks use gold as legal currency

In my opinion, the increase in the Renminbi will only help China. China is very reliant on imported commodities. The main cost of production in its Chinese factory is the raw materials most of which are imported. I believe China has only to gain when the Renminbi increases. And as time goes on, they’ll realize that more and they’ll let the Renminbi appreciate.

Press TV: The cost of the imports, the raw materials, will be more beneficial for the factories, if you let the Renminbi appreciate. But they have delayed doing this for some time. Why have they waited for so long to do this, Dan?

Collins: If you go to the highest circles in Beijing, there’s this conspiracy theory up there. They look at Japan’s example.

A lot of people in Japan will tell you that we made a big mistake in the Japanese currency. We also kept it too long and created a huge bubble. Twenty years later, we’re still not out of it. China’s almost in a very same situation.

So, in Beijing, there’s a lot of people saying look what happened to Japan, they increased their currency over 200, 300 percent over 20, 30 years, and now they’re in such a big problem. That’s been the consensus.

There’s also a lot of vested interest in exporting. There are a lot of capitalist people here [who are] very focused on exporting. But I think over time, if you look at the cost of goods production in a factory, 50 percent is raw materials. Most of that’s imported. Your labor, other things, that’s 10 percent or less.

Eventually, they’ll catch on to raising the local living standards here. And I think we’ll see it higher next year. But raising the local living standards here is priority number one. And the best way to do that is to let the Renminbi appreciate.

Press TV: Now, what you’ve just described there, Dan, is they’ve seen the way it happened in Japan, they realize the problem of financing a bubble and then the burst that comes after it, so, that’s not a reason why they would not let the Renminbi appreciate. What you’re saying, that at the top of the People’s Bank of China, at the top of the cadre of management there, are they in the pocket of foreign interests? I mean, why are they acting against their own interests? I don’t understand.

Collins: I think there’s been two groups. You’ve seen the Central Bank of China come out very positively on revaluing the currency. Now, it’s never going to happen one time over night, they don’t work that way. But there’s a group that wants faster appreciation, and there’s a group that wants slower appreciation. The slower appreciation group really has on their mind they want jobs. Jobs are number one.

But the reality today, China is almost near full employment. You go to several manufacturing regions of China, you can literally not find workers. And wages here have literally doubled in three years.

I believe the Renminbi’s been relatively stable this year because they’ve taken into a lot of costs in terms of inflation – worker’s, salaries, electricity, everything’s gone up.

And I think next year, now that we’ve seen inflation stabilize here, we’re going to see some more credit loosening happening, loan quotas are going to go up, and I think we’re going to see the Renminbi appreciate more next year.

But there’s really been a tug-of-war between two thought groups up in Beijing.

Press TV: It sounds like the government has extended this window, this arbitrage as a way to build this trust in terms of jobs which people can understand readily. Whereas, the service industry is a bit more abstract and, maybe, that transition will have to be managed at some point, but it’s not as obvious to the average person who has a “job” in a factory, that’s what that’s all about.

Now, Secretary of State Hillary Clinton is saber rattling against China in the past week. 1,000 marines are going to be sent to a new permanent base in Australia, on China’s doorstep. What’s this all about, Dan?

Collins: Hillary came to Vietnam last year and signed a technical agreement where the US will help Vietnam enrich uranium. When I saw that, I think the strategy became very clear to me on US foreign policy in Asia.

You know, China’s a continent in itself and there’s a lot of small countries surrounding it, and a lot of them are nervous about Chinese power in the region. And they’re going to look to the US to be a kind of consolidator of power as a hedge against the Chinese. They don’t want to see China rise up and take over the region.

And I think the US, what they’ve announced this week with these new people going into Australia, is just a part to increase their Pacific power base.

Press TV: There’s huge hedge fund bets being made on both long-China and short-China. There’s a lot of talk about some of the more visible hedge fund managers out there who have a very large negative bet on China. They point to the “ghost cities”, the over building, etc.

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