China should allow faster appreciation of their currency, RMB, allow RMB free exchange in the world market and become a reserve currency of the world just like Euro and USD. The reasons are:
1. Price is too low in China; a bottle of drinking water in Beijing is one RMB, it is $1.50 in San Francisco and it is 2 Euro in Paris. One bus ride in Beijing is 0.40 RMB on a bus pass, it is $1.50 in San Francisco. Chinese people should be paid more.
2. Because USD is the reserve currency and most of the world trade is based on US dollar, the net result is the whole world is paying the current financial meltdown in the US.
3. The rapid depreciation of USD is effctively reduced the true value of every country has USD as foreign reserve. Chinese government has almost 2 trillion foreign reserves. Most of my Chinese family memebrs and friends have foreign money in their pocket, under the mattress or in the bank. There are several trillion dollar held by ordinary citizen as well. If the USD depreciate 50%, the bitter truth is: all these USD held by Chinese will worth half.
4. The saving rate in of ordinary citizen of US is in the negatives, and Chinese people save 25% to 40% of their income. Average family has 9 credit cards, carrying $16,200 crdit balance in US, this could be another big problem in US, if people could not pay their credit card bills. On the other hand, China is pretty much a cash society, no family memebers or friends of mine carry any credit card.
5. The financial institutions leveraged their capital 30 to 40 times, like Lehman’s Brothers and pretty much all institutions are leveraged in US, and Chinese financial institution do not use any leverage as I am familiar with some of them.
6. US government defict is more than 10.5 trillions in US and Chinese government has almost 2 trillion foreign reserves. Most of my Chinese family memebrs and friends have foreign money in their pocket, under the mattress or in the bank. There are several trillion dollar held by ordinary citizen as well.
7. US runs trade deficit at a rate of more than 700 billion dollar a year. China is running a huge surplus. US is running government deficit around 500 billion dollar per year. China does not have deficit, or very little defict in a few years I can remember.
8. If Chinese government reduce the bureaucracy, spend more on education, health care, social security, ordinary citizen would free safe and start to spend, the domestic consumption would increase greatly.