Good Read: Digging a Hole to China

Firstly, a note: Good Read is a new semi-regular feature here at Office of Special Plans. Basically, I’ll be linking, along with an excerpt, to something I’ve read recently that I consider excellent. When you see the Good Read label, rest assured the linked article is a good use of your time. Importantly, this feature won’t take a lot of typing and novel thought on my end, since my not-for-profit writing time has been somewhat limited these days.

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James Fallows is one my all-around favorite dudes working in journalism today, and his piece on the peculiar economic co-dependency between the U.S. and China in this month’s Atlantic is really wonderful. If you’ve been following the China story, there may not be a lot here that you don’t already basically know. But Fallows’s explanation of the phenomenon is impressively clear, readable and — most importantly, given the dry subject — colorful. And, to be frank, somewhat terrifying. Particularly towards the end.

Here’s a taste:

Let’s say you buy an Oral-B electric toothbrush for $30 at a CVS in the United States. I choose this example because I’ve seen a factory in China that probably made the toothbrush. Most of that $30 stays in America, with CVS, the distributors, and Oral-B itself. Eventually $3 or so—an average percentage for small consumer goods—makes its way back to southern China.

When the factory originally placed its bid for Oral-B’s business, it stated the price in dollars: X million toothbrushes for Y dollars each. But the Chinese manufacturer can’t use the dollars directly. It needs RMB—to pay the workers their 1,200-RMB ($160) monthly salary, to buy supplies from other factories in China, to pay its taxes. So it takes the dollars to the local commercial bank—let’s say the Shenzhen Development Bank. After showing receipts or waybills to prove that it earned the dollars in genuine trade, not as speculative inflow, the factory trades them for RMB.

This is where the first controls kick in. In other major countries, the counterparts to the Shenzhen Development Bank can decide for themselves what to do with the dollars they take in. Trade them for euros or yen on the foreign-exchange market? Invest them directly in America? Issue dollar loans? Whatever they think will bring the highest return. But under China’s “surrender requirements,” Chinese banks can’t do those things. They must treat the dollars, in effect, as contraband, and turn most or all of them (instructions vary from time to time) over to China’s equivalent of the Federal Reserve Bank, the People’s Bank of China, for RMB at whatever is the official rate of exchange.

With thousands of transactions per day, the dollars pile up like crazy at the PBOC. More precisely, by more than a billion dollars per day. They pile up even faster than the trade surplus with America would indicate, because customers in many other countries settle their accounts in dollars, too.

The PBOC must do something with that money, and current Chinese doctrine allows it only one option: to give the dollars to another arm of the central government, the State Administration for Foreign Exchange. It is then SAFE’s job to figure out where to park the dollars for the best return: so much in U.S. stocks, so much shifted to euros, and the great majority left in the boring safety of U.S. Treasury notes.

And thus our dollar comes back home. Spent at CVS, passed to Oral-B, paid to the factory in southern China, traded for RMB at the Shenzhen bank, “surrendered” to the PBOC, passed to SAFE for investment, and then bid at auction for Treasury notes, it is ready to be reinjected into the U.S. money supply and spent again—ideally on Chinese-made goods.

At no point did an ordinary Chinese person decide to send so much money to America. In fact, at no point was most of this money at his or her disposal at all. These are in effect enforced savings.

Read the whole thing. And if the Atlantic’s firewall, which was just curtailed although not eliminated, proves an obstacle to your reading, drop me an email and I’ll see what can I do.

Vanity Fair Unleashed!

Well, I’ve been going on and on about this New Star Wars Videogame — and this Vanity Fair piece is like catnip for my hype receptors. Hype it more…I want to play so bad…really, this is having just the desired effect on me!

To wit:

As the consoles have become faster and better, the software developers have risen to the challenge of designing a better game experience, and one of the reasons I have come to San Francisco is to see two demonstrations of software that LucasArts is excited about incorporating into its next marquee game. The first program is called Euphoria, and was developed by NaturalMotion, a tech company based in San Francisco and Oxford, England. On a projection screen in a darkened auditorium, I watch as a digitally animated Imperial stormtrooper, the comically doomed cannon fodder of Lucas’s Star Wars universe, is lifted by an invisible force and dropped in various ways—on his head, on his back—and over various objects such as steel and wooden crates. Each time he is lifted, he struggles mightily, and then, every time he drops, he reacts differently. Dropped on his head, he grabs it with his hands before going still. And after being dropped on his back, on a metal box, he arches it in a way that suggests he is in agonizing pain.

His reactions are eerily lifelike, and I am told that what I am seeing is not animation but a kind of artificial intelligence generated by Euphoria, which enables the stormtrooper to react with an almost human uniqueness—in real time, no less—to obstacles and attacks. Dropped 100 times, the Euphoria-imbued stormtrooper will react differently 100 times, unless he is dropped in exactly the same way twice. When he is placed at the top of a sloping roof, he struggles furiously to gain purchase as he slides down, and actually grabs and hangs on to its edge for a few moments before falling to his inevitable fate. But the real pièce de résistance of the demonstration is when the stormtrooper is placed on an unsteady surface and actually begins to shift his weight and pedal his feet in order to maintain his equilibrium. “That’s not animated at all,” says Steve Dykes, the LucasArts senior engineer running the presentation. “That is actually a character trying to maintain his balance, physically simulated.”

If such things as the putative future of games is of interest to you, then you will surely be interested in the rest of it.