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Dichotomy of a revalued renminbi
By Zou Hanru (China Daily)
Updated: 2006-07-28 06:53
Something unprecedented happened last week. But with the world's attention focused on the Middle East crisis, it passed off almost unnoticed.
On July 21, the renminbi (or yuan) traded at 7.9845 to the US dollar, its highest level since last year's revaluation. The new rate beat the previous post-revaluation high of 7.9850 yuan a fortnight ago.
…….
But some US politicians continue to claim that the yuan is undervalued, allowing China to keep its export prices artificially low. Their main concern seems to be Chinese exports, which have been rising as a result of demand from US consumers and importers.
What they deliberately ignore is that, despite their technical and industrial superiority, US entrepreneurs have been unable to compete with their Chinese counterparts. Their contention is that "cheap" Chinese products threaten jobs in US industrial heartlands.
China has been doing all it can to maintain a balance in global trade, which is supposed to be governed by WTO norms.
The United States, however, seems to have a skewed view of free trade. When it comes to its own exports, it readily falls back on the WTO. But Washington pretends the WTO doesn't exist when it comes to exports from China or other developing countries, never mind its own farm subsidies. And that is precisely why the Doha round of world trade talks were suspended in Geneva on Monday.
…..
The United States has tried every trick in the book to stall Chinese exports. It pushed for restrictions on Chinese textile exports and had them imposed last year. That, however, has not stopped US manufacturers from alleging that the "undervalued" yuan continues to give Chinese exporters an alleged unfair advantage. They claim China's huge trade surplus of more than US$200 billion is partly a result of that, and demand that the yuan be appreciated by as much as 40 per cent.
But China's trade surplus has also made it one of the largest buyers of US Treasury bonds which help to fund Washington's large budget deficit.
This is where the Americans face their greatest dilemma. If the yuan were to be appreciated disproportionately, as the United States wants, then Chinese exporters may end up getting lower dollar returns. Also, many of China's overseas investors may find it much more expensive to build or buy factories on the mainland, triggering a slowdown in its rate of economic growth.
But would this benefit the United States? A disproportionately appreciated yuan, if financed by the sales of US Treasury bonds, could trigger a run on the greenback. That, in turn, could mean higher inflation and higher interest rates in the United States a possibility that sends shivers down American spines.
Are the Americans ready for that?
Email: zouhr@chinadaily.com.hk
(China Daily 07/28/2006 page4)
By Zou Hanru (China Daily)
Updated: 2006-07-28 06:53
Something unprecedented happened last week. But with the world's attention focused on the Middle East crisis, it passed off almost unnoticed.
On July 21, the renminbi (or yuan) traded at 7.9845 to the US dollar, its highest level since last year's revaluation. The new rate beat the previous post-revaluation high of 7.9850 yuan a fortnight ago.
…….
But some US politicians continue to claim that the yuan is undervalued, allowing China to keep its export prices artificially low. Their main concern seems to be Chinese exports, which have been rising as a result of demand from US consumers and importers.
What they deliberately ignore is that, despite their technical and industrial superiority, US entrepreneurs have been unable to compete with their Chinese counterparts. Their contention is that "cheap" Chinese products threaten jobs in US industrial heartlands.
China has been doing all it can to maintain a balance in global trade, which is supposed to be governed by WTO norms.
The United States, however, seems to have a skewed view of free trade. When it comes to its own exports, it readily falls back on the WTO. But Washington pretends the WTO doesn't exist when it comes to exports from China or other developing countries, never mind its own farm subsidies. And that is precisely why the Doha round of world trade talks were suspended in Geneva on Monday.
…..
The United States has tried every trick in the book to stall Chinese exports. It pushed for restrictions on Chinese textile exports and had them imposed last year. That, however, has not stopped US manufacturers from alleging that the "undervalued" yuan continues to give Chinese exporters an alleged unfair advantage. They claim China's huge trade surplus of more than US$200 billion is partly a result of that, and demand that the yuan be appreciated by as much as 40 per cent.
But China's trade surplus has also made it one of the largest buyers of US Treasury bonds which help to fund Washington's large budget deficit.
This is where the Americans face their greatest dilemma. If the yuan were to be appreciated disproportionately, as the United States wants, then Chinese exporters may end up getting lower dollar returns. Also, many of China's overseas investors may find it much more expensive to build or buy factories on the mainland, triggering a slowdown in its rate of economic growth.
But would this benefit the United States? A disproportionately appreciated yuan, if financed by the sales of US Treasury bonds, could trigger a run on the greenback. That, in turn, could mean higher inflation and higher interest rates in the United States a possibility that sends shivers down American spines.
Are the Americans ready for that?
Email: zouhr@chinadaily.com.hk
(China Daily 07/28/2006 page4)
I noticed.
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