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Mosquito traps to TVs: A look at China's export machine

By Ian Williams

GUANGZHOU, China – The biggest trade show on the planet, the Canton Fair, opened here Friday.

It covers a floor space equal to five times that of the Empire State Building, attracts tens of thousands of Chinese companies, and up to a quarter of a million buyers are expected from every corner of the globe.

Strolling though the cavernous pavilions can leave you a little dazed. There's everything from bikes to mosquito traps to phones, TVs and tires. What don't they make here?

Electric chauffeur-driven cars ferry the buyers down long walkways between frantic rounds of deal-making.

On a stage between two of the pavilions, I watched several robotic vacuum cleaners "dance" to a Lady Gaga song. "Isn't this the most memorable show you have ever seen," said a woman overseeing the performance. "Exports are increasing, going up. It's good. To the U.S., to Europe."

‘Currency manipulation’?
China's exporters are doing rather well, buoyed by what critics call China's "currency manipulation" – a policy of keeping the yuan undervalued in order to make China's exports cheap, and imports expensive. It’s brought the U.S. and China to the brink of a currency and trade war.

The latest trade figures (for August) show China's exports to the U.S. have reached $35 billion dollars, compared with U.S. exports to China of $7.3 billion. That's opened up a record trade deficit.

Not surprisingly, the buyers here are in a good mood: "The price is good," said one from Chicago, as he examined a mosquito trap. "It's excellent, it couldn't be better. That's why we are here."

And most of the exhibitors said sales were rising sharply, although they expressed concern that if the yuan rises further it could hurt their business.

"If the yuan goes higher, it will be a problem for us," conceded one woman, who was selling tires.

The Chinese currency already has appreciated slightly – two to three percent – since the early summer. But as the dollar has tumbled, most other major currencies have appreciated far faster.
Most countries allow their currencies to fluctuate relatively freely, but the Chinese authorities set the rate.

This has rankled Washington, but also other emerging economies which compete directly with China for exports. Several are now looking at ways of stemming the rise of their currencies – hence the rumblings of a looming currency war.

On Friday, the U.S. Treasury delayed a report that was expected to label China as a country that keeps its currency artificially low to gain an unfair trade advantage. The report, which would have been like throwing lighter fluid on an already volatile trade dispute, is now expected to come out in November, after a G-20 summit and long after the U.S. election. China’s currency has become a hot-button issue in U.S. domestic politics, with some blaming China for lost jobs in the U.S.

‘Next move for me is India, not Indiana’
But even if China did allow its currency to strengthen sharply tomorrow, would that help the U.S. deficit or bring more jobs to the U.S.? Not necessarily.

It could boost U.S. exports, but apart from aircraft, there are not that many U.S. goods in big demand in China. And it wouldn't bring back lost manufacturing jobs.

"I don't think the U.S. will ever produce low-end manufacturing goods again," said Dong Tao, Managing Director, Non-Japan Asia Economics at Credit Suisse in Hong Kong.

He told me the looming currency war is the result of the dollar "falling off a cliff" not Chinese manipulation. "The problems in the U.S. will not be fixed by the Chinese exchange rate," he said, blaming loose U.S. monetary policies.

"It’s U.S. deleveraging of debt, and the need to increase savings and competitiveness that will matter."

Ben Schwall was even blunter: "Even if all the factories here burned down tomorrow, it’s not going to bring the lighting industry back to America."

Schwall is veteran import-export broker, who knows southern China well. He sources light fittings for U.S. retailers, but is always on the lookout for business opportunities. He says costs are already rising in China because of sharp wage rises. "If the yuan appreciates and China loses its competitiveness then the next move for me is India, not Indiana."

That is the reality of a cost-sensitive business surviving on low margins, which covers a good deal of the products on display at the Canton Fair.

Walking the pavilions here does leave you rather in awe of China Inc.

Yes, they are helped by a distorted exchange rate. And that does makes an easy target in the run-up to the U.S. election. But finding a realistic rate for the yuan alone would not solve America's economic problems.