Opinion / Zou Hanru
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.
Last year, as part of its commitments to the World Trade Organization
(WTO), China changed its decade-long currency peg, which had been fixed
at 8.28 to the US dollar.
On July 21 last year, freed from its peg to the greenback and tagged to a
basket of currencies, the yuan appreciated by 2.1 per cent to 8.11 to the
US dollar.
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.
China has appreciated its currency further, to 1.57 per cent, against the
US dollar since July 2005. The latest appreciation came after the
People's Bank of China fixed a mid-point exchange rate of 7.9897 against
the dollar, stronger than 7.9918, the rate at which the yuan traded a day
before its historic high of 7.9845 on July 21.
The central bank's move came as part of the central government's measures
to rein in a runaway economy that grew 11.3 per cent in the second
quarter of this year. But despite that, due to its focus on exports, the
Chinese economy is still expected to grow by 10 per cent in 2006.
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)
Hot Talks
� Can one love two grils ?
� N. Korea launches 6 Missiles
� Taiwan's (Irrational) Fear of China
� Former US Treasury Secretary says dump T-Bills
� MC'DONALDS + SINOPEC = FUBAI
Most Commented/Read Stories in 48 Hours
Alibaba is the largest B2B marketplace in the world. Source model ship,
wooden puzzle, one-piece toilet, RC hovercraft, photo album, prom dress,
pocket bike, Vaginal Speculum, Samurai Sword, String Panty and PVC Pipe.
Learn Chinese online, Learning Materials, Mandarin audio lessons, Chinese writing lessons, Chinese vocabulary lists, About chinese characters, News in Chinese, Go to China, Travel to China, Study in China, Teach in China, Dictionaries, Learn Chinese Painting, Your name in Chinese, Chinese calligraphy, Chinese songs, Chinese proverbs, Chinese poetry, Chinese tattoo, Beijing 2008 Olympics, Mandarin Phrasebook, Chinese editor, Pinyin editor, China Travel, Travel to Beijing, Travel to Tibet
No comments:
Post a Comment