Beijing let the yuan rise 21 percent against the U.S. dollar between July 2005 and July 2008 before effectively repegging the currency, also called the renminbi, near 6.83 to the dollar to help the economy through the financial crisis.
The United States’ deficit in trade with China fell to $227 billion in 2009 from a record $268 billion in 2008,. but the Obama administration is keen to lift exports and employment.
Wu Xiaoling, a Chinese lawmaker and former central bank vice governor quoted by the People’s Daily international edition, said the root of the problem was not a cheap yuan, but the relatively low cost of labor and resources in China.
“That people feel the renminbi is undervalued is in fact because many price factors in China, including resources and labor, have not reached international levels,” she said. (via China economist sees “room for talk” on currency row; Updated on Monday, April 05, 2010, 20:40)
You scratch … I scratch
An experienced US stalks China, waiting behind high walls of US$2500 billion foreign exchange reserves. There will be much too and fro. Much will said and retracted. Much will showbiz. In the end, it may be as,
Li Daokui, another new member of the advisory body, said China should scrap its peg to the dollar before September.
“One way of relieving pressures on the renminbi exchange rate is to make an adjustment on China’s own initiative,” Li, an economist at Tsinghua University, was quoted by Caijing magazine as saying.
Li singled out September as a deadline so that political debate over the yuan does not boil over in the run-up to U.S. mid-term elections in November.
In a cover story, Caijing cited unidentified sources as saying that Beijing was studying the option of dropping the yuan’s peg as soon as next month.
Curiouser and curiouser, said the Cat to Alice.
Amid harsh rhetoric, Chinese Vice Commerce Minister Zhong Shan and U.S. Treasury Secretary Timothy Geithner sounded some conciliatory notes on Wednesday.Mr. Zhong, making a 30-hour visit to the U.S. to try to ease bilateral tensions, expressed confidence that politicians from the two countries “have the wisdom and ability to resolve existing problems.“Mr. Geithner said he be- lieved China would allow its currency to appreciate over time, according to a CNN interview transcript. While the U.S. “can’t force them to make that change…I think we can work through the tough things we have together,“ Mr. Geithner said.The stakes are high for both sides. The U.S. and China are among each other’s biggest trading partners, and numerous U.S. companies have investments in China. The U.S. is increasingly looking to China to cooperate on international strategic issues, such as nuclear nonproliferation and the fight against terrorism. (via WSJ ON YUAN – China and U.S. soften tone on yuan).
Let the games begin!
The Dragon and the Eagle are squaring off! An experienced US stalks China, waiting behind high walls of US$2500 billion foreign exchange reserves.
The US-China game has started in earnest. US, egged on by ‘macho’ voters and a cheering media, will:-
- Act tough
- Behave in a morally outraged and indignant manner
- Commentators will prescribe a trade war and sanctions
In parallel, analysts, academics, think-tanks, journalists will talk-up China. Like Greenspan talking-up the US dollar or Dow Jones. They will: -
- Hold up China an nation-exemplar
- Write books analysing on China. Such books will start pour out of our ears
- Make movies and novels about the ‘dominant’ Chinese in the US
- Study, extol Chinese culture /tradition /history, and hold forth as a shining example.
And China will be ‘uncompromising’! Act as though, they have a choice.
The change in dollar-yuan exchange ratio will happen. Peacefully, or with violent side shows. Assuming that the dollar-yuan revaluation will happen smoothly, is fraught with risk. That it will happen, without any significant disruption, is one, big, huge, slippery assumption. What will follow the Chinese moment in the sun?
What remains to be seen
What could set off economic mayhem in China? Crime in China (a simmering threat), terrorism in Xinjiang (remote possibility), real estate bubble (a real scenario)?
Will the Chinese Government be able to ride this storm? Without a war with India? Which side of the fence will China fall? Answers to these questions will be worth waiting for! And prepared with!
Last time …
It would do well to remember that last time when China had a problem, it resulted in the India China War of 1962. Just after the disastrous Great Leap Forward and before the equally disastrous Cultural Revolution.
The Great Leap Forward began in 1957-58, saw famine and hunger across China. After the Communist takeover of China, land seized from land owners, was given to peasants in 1949. Ten years later, in 1959, the Chinese State took away the same land from the same peasant. Food shortages, starvation followed. Western (questionable) estimates are that 30 million people died during this period. War with India followed in 1962 – a diversion from the domestic Chinese catastrophe.
What will it be this time?