Friday, April 22, 2011

The Trucker Strike that May Stop Chinese Purchases of U.S. Treasury Securities

Below I report on how protests over price inflation in China are resulting in a change in Chinese central bank policy relative to the dollar. Most of the protests have gone unreported in Western media. However, one protest, impacting Chinese exports is making headlines. Reuters has the details:

Striking truck drivers protested for a third day on Friday in Shanghai's main harbor district amid heavy police presence and signs the action has already started to curb exports from the world's busiest container port.

The strike is a very public demonstration of anger over rising consumer prices and fuel price increases in China....The strikers, many of them independent contractors who carry goods to and from the port, stopped work on Wednesday demanding the government do something about high fuel costs and what some called high fees charged by logistics firms, said the drivers, who clashed with police on Thursday...

China's tightly controlled state media has made no mention of the unrest, and the city's government, which is working hard to turn glamorous Shanghai into a global financial hub to compete with Hong Kong and London, has denied knowledge of the strike.

"We're currently not aware of the situation," a spokesman with the Shanghai city government said. He declined to be identified...Duncan Innes-Ker, China analyst at the Economist Intelligence Unit, said the strikes could inspire protests by workers in other transport sectors, given rising fuel prices.

"There are strikes in the taxi driver industry on a regular basis in numerous cities across China," he said. "These are happening and they will continue to happen, and if the oil price continues to rise they will get worse."
There are conflicting reports as to how much of an impact the strikers are having on slowing imports, but the strike does underscore that climbing prices are a problem in China and that the Chinese shift in policy that will allow the yuan to appreciate much faster against the dollar has at its core inflation-based unrest amongst the masses.

Geithner has wanted the Chinese to stop propping up the dollar against the yuan, he is getting his wish. But, this change in policy will mean the Chinese will be buying fewer Treasury securities, since they will no longer be buying the dollars with which they have been buying the securities. Now, let's see who Geithner can get to buy Treasury securities that the Chinese will no longer be buying. I can think of only one man Geithner can call.


  1. Hi Robert,

    Do you think the Chinese will implement price controls, as per standard operating procedure for all governments faced with popular unrest over rising prices?

  2. They already have on some products.

  3. Chinese officials are trying to suppress housing prices (asset inflation) and suppress food and energy prices. Price controls are mainly targeted at the food and energy. They're trying to creatively manage housing demand and speculation, but gaming the system is standard.

  4. But doesn't the Chinese government peg the yuan to the dollar for exports?(so when the more dollars are produced they create more yuan) so how are they going to correct that?

  5. Pretty much the central planning council of the Communist Party has given into the the inevitable decline of its labor-intensive export industries. If yuan appreciation isn't going to crush those industries, wage inflation will. That is coupled with a retiring workforce that is finding no replacements in the younger generation.

    To hasten the process, the central government is phasing out a lot of tax incentives or favorable tax status that made those industries profitable at all.

    The planning councils are more focused on promoting high value add jobs, higher tech manufacturing, and innovation. The downside to their planning is that innovation would benefit more if they didn't interfere at all.

  6. China only pegs the yuan to the US dollar because commodities are traded in US dollars as the reserve currency. What happens to the US dollar if commodities are traded in Yuan and the Yuan is allowed to appreciate??