Made in China
With a population of over one billion people, a gross domestic product of $2.68 trillion and exports reaching $100 trillion, China is ever increasing its status on the world's economic stage. Recent headlines make you wonder - how safe are these exports?
As China continues to increase its presence among globally competitive nations, we must work with them to ensure fairness is a part of any economic reform. Congress's first step in urging the Chinese to work with us was legislation that I helped author calling on the Chinese government to remove barriers to U.S. financial services firms seeking access to China's financial service market. This resolution passed by a vote of 401-4.
It is important that we send the message to China that the United States wants to play a constructive role in addressing the vulnerabilities in China's financial services industry, and to help guide China as its economy evolves.
Consider the Chinese market. Of China's 1.3 billion people, 480 million use cell phones, but only an estimated 1 million currently have a credit card. The potential for job creation in the U.S. financial services sector from opening the Chinese market is astonishing, especially for the 50,000 of my constituents who are employed by this industry.
Further, accessing the 1.3 billion Chinese consumers will help reduce our $232 billion trade deficit. Chinese households historically save as much as a third of their income, compared to single-digit savings rates in the U.S. and Europe. Most of this is saved under the mattress' in anticipation of family tragedies. The availability of financial products and services including personal loans, credit cards, mortgages, pensions and insurance products will eliminate the need for such precautionary savings' and facilitate consumption.
China's banking system also provides an unfair advantage to Chinese manufacturers over their global competitors. Facing political pressure to provide credit at terms favorable to pet industrial projects, China's state-owned banks practice no risk calculation. These loans often go unpaid, which is why China has an ongoing non-performing loan problem. Chinese manufacturers benefit from a near zero cost of capital.
I represent a district that is particularly impacted by China's coddling of its manufacturing sector. My district employs almost 68,000 individuals in manufacturing and is home to more than 1,100 manufacturing facilities. Indeed, I hear everyday the concerns from my constituents over the ill effects of China pegging its currency to the dollar. China's government argues that pegging is necessary to ease adjustment in the financial sector and will continue until reforms can foster the more balanced growth they need.
Unfortunately, this belief is misguided. A floating exchange rate would lead to a more efficient use of capital throughout the Chinese system, facilitating adjustment, not impeding it.
In the absence of serious reform and without an opening of the Chinese financial system to firms with sound credit practices and healthier balance sheets, China will continue its current pattern of capital inefficiency and pegging of currency.
Undoubtedly, there is great potential benefit to the United States and other countries in gaining access to China's market. However, there is even a greater benefit to be realized by those 700 million living in poverty in China. With reforms in the financial services sector, those living in poverty in China would gain help in converting what assets they have to capital in order to create a better life for themselves and their family.
Finally, a more modern financial system will have far reaching positive affects outside the realm of financial services. For example, a banking system that accommodates risk is one step on the road to improvement for a country to run a modern manufacturing industry that does not finance bad actors, such as those we have seen recently in the Chinese toy industry.
The United States, and China, have an unprecedented and rare opportunity to expand an important global economic relationship by allowing the thriving U.S. financial services industry to meet the demand of the citizens of China.