The secret behind high wages and low prices in the United States, and low wages and high prices in China

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This post was last edited by loeyshek on 2011-1-22 01:37. Around New Year’s Day, CCTV News repeatedly cited the high praise given to China’s economy by Western developed countries; Western media also competed to highlight the significant impact that China’s economy has on those countries in various ways. China’s reform and opening up indeed brought about tremendous changes in the West; over 30 years ago, the West had high wages and high prices, while China had low wages and low prices. One of the great miracles brought about by China’s reform and opening up is the emergence of a new economic pattern: in the West, there are high wages and low prices, while in China, there are low wages and high prices. Because it combines China’s low wages with high prices, and the United States’ high wages with low prices, this results in a gap in real incomes between China and the United States that is much larger than the gap in monetary incomes. In 1980, the per capita income in the United States was $10,200, while in China it was $190; the difference was approximately 54 times. Since China has low wages and low prices, even with an income difference of 54 times, Chinese workers can, just like American workers, support a family of four or five on their own. In 2008, the per capita income in the United States was $37,600, while in China it was $1,100—a difference of 34 times. The gap in monetary income has been reduced by more than one-third. However, in real life, American workers can still single-handedly support a family of four or five people. In contrast, Chinese working couples toil day and night, yet still struggle to support just one child; they often even need help from their grandparents. Why is the gap between the money wages of workers in China and the US narrowing, while the ability of Chinese workers to support their families is declining? It has even reached a point where it is difficult for a couple to work together to support just one child; such a situation is not only unique in China but also an extremely rare phenomenon in the history of industrial development around the world. It is precisely because the originally high prices of developed Western countries have been brought to China, combined with low wages or even extremely low incomes there, that the ability of Chinese workers to support their families has dropped to the lowest level in human history. So what is to blame for such a reality? The answer is very simple: China’s finance. Whether it is the low prices in the United States or the high prices in China, both are the result of China’s fiscal policies. This is the fundamental reason why the United States is more concerned about China’s reform and opening up than the Chinese themselves. First, regarding low prices in the United States. In China, financial subsidies are provided for goods through export tax rebates ； The second is to provide it to enterprises through loss subsidies. Secondly, high prices in China are the result of high taxes and inflation in the country. In China, taxes account for a staggering 64% of the price of consumer goods, while the cost of the goods themselves makes up only 36%. In other words, for every 100 yuan spent by Chinese consumers on goods, 64 yuan goes toward taxes—a figure nearly 1.8 times higher than the actual cost of the goods. Such astonishingly high taxes added to the price of goods naturally lead to high prices. If this were the end of the disaster, it would be acceptable. But for the Chinese people, the disaster is far from over; they also have to bear the losses caused by the severe inflation resulting from exported goods. For every dollar worth of goods exported by China, approximately 7 yuan must be issued domestically to maintain balance, based on an exchange rate of around 1 to 7. Currently, China’s foreign exchange reserves amount to about 2.3 trillion dollars, which means that more than 16 trillion yuan has been issued domestically as a result. This figure is nearly 5 times higher than China’s money supply (M0) of 3.4 trillion yuan in 2008. All of this excess money created through export earnings is passed on to the general public in the form of inflation, leading to a significant depreciation of the value of money in people’s hands and, consequently, a sharp rise in prices. Here we see an absurd phenomenon that leaves the Chinese people in tears of frustration: the more goods China exports and the more foreign exchange it earns, the worse off the ordinary people become. If China did not export goods but used them for its own people, it would not only improve the standard of living of its citizens, but also avoid any need for foreign financial subsidies ； Or, to put it another way, if China gave its exported goods to foreign countries for free, without receiving any US dollars in return, it wouldn’t need to issue more RMB domestically; the currency wouldn’t depreciate, and the losses suffered by ordinary Chinese citizens would also be minimized. But now, the goods produced are exported abroad, and the dollars obtained from those exports are also lent to foreign countries, while the additional RMB generated remains in the domestic market, turning into \"pure waste paper\" with no underlying goods. Since this newly issued \"pure waste paper\" circulates alongside existing currency, it will inevitably lead to a significant devaluation of the existing currency and a sharp rise in prices. As a result, the Chinese people not only lost the wealth generated by their exports, but also suffered losses due to the depreciation of their monetary wealth. In contrast, the situation in the United States is exactly the opposite of that in China: money in the U.S. market flowed into China, while Chinese goods entered the U.S. market. With less money in the market and more goods available, prices inevitably dropped, allowing Americans to buy more goods with their money. Additionally, the US dollars flowing to China are subsequently returned to the US Treasury through China’s purchases of US Treasury bonds. The US Treasury can use this money from China to increase the supply of public goods, which in turn helps to lower prices and enhance the purchasing power of the American populace. If we consider this issue from the perspective of the ordinary people in China and the United States—not from some other perspective—it becomes clearer: the goods produced by the Chinese people are bought by the American people using dollars, and those dollars end up in the hands of China ； The American people got the goods, while China got dollars; the only thing the Chinese people received was the depreciation of their existing currency. As a result, the United States prints money for China, and China prints money for its citizens ； The United States uses these banknotes to obtain various goods that its citizens need, while China does the opposite – it uses these banknotes to take away from its citizens the various goods that are produced there. The most crucial element in the formation of this “wealth cube” is the decoupling between the increase in money supply and the increase in goods: newly produced goods flow to Western countries like the United States, while the newly issued money remains in the Chinese market, continuously eroding the purchasing power of money in the hands of ordinary people. ——This is the secret behind high wages and low prices in the United States, and low wages and high prices in China.