Why is everyone picking on China?
By MATHEW INGRAM
Globe and Mail Update
The South Park animated movie advised everyone to "blame Canada" for their problems, a satirical tagline that came complete with a catchy jingle. But it seems that both the U.S. and many European countries would rather blame China for their economic problems. Why? Because China's currency is too low, they argue, and this subsidizes the Chinese economy at the expense of both the U.S. and the EU. The pressure has been building on Beijing to revalue the yuan, but so far China has said that it doesn't see any good reason to do so — and it may just be right.
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If this sounds familiar at all, it should. In the 1970s and 1980s, the U.S. put pressure on Japan to revalue the yen, arguing that the low value of the currency was hurting the U.S. manufacturing sector, and under the 1985 Plaza Accord Japan agreed to increase the value of the yen. Some economists say this increase in valuation played a large part in the bubble that later developed in the Japanese economy, a bubble that eventually burst and left Japan in the doldrums for more than a decade.
Needless to say, China isn't in a hurry to suffer that kind of fate — and has made it plain that it doesn't think its growing economy should be sacrificed for the benefit of the United States or Europe, or even Japan for that matter. As Xiao Guoliang, an economist at Beijing University, put it recently: "If they are sick, why let China take the pills?" Chinese officials have also pointed out that the United States was more than happy to have China maintain its peg in the late 1980s, when a currency crisis was spreading through Asia. In that case, China's peg was a bulwark against further panic.
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