OVERDRIVE: China, rightly, resists strengthening the yuan
Published on Aug 29, 2003
Increasingly, Americans are pointing the finger at others for their economic woes. This time, they blame the strong dollar for job losses. The fat target is China. From US industry groups to monetary authorities to politicians in Washington, they all accuse China of keeping its exchange rate artificially weak, thus undermining the competitiveness of US goods and exports. This is going to be the most pressing issue in international financial markets, with both economic and geopolitical implications.
The latest pressure on China comes from the National Association of Manufacturers (NAM). It estimates that the dollar is 15 per cent overvalued compared to other currencies. This makes it difficult for US industries to compete against others in global markets. As a result, some 2.7 million US jobs have been lost over the past 36 months.
NAM is now sending its message to the White House, asking the Bush administration to pressure China into letting its exchange rate appreciate. It believes that the Chinese yuan is presently undervalued by 30-40 per cent. China is coming under pressure because it enjoys a trade surplus of around US$100 billion [Bt42 trillion] with the US.
However, most people in this part of the world believe that China is not likely to yield to US pressure. US Treasury Secretary John Snow is to make a trip to Asia and call on China before heading to Phuket to attend the meeting of Apec finance ministers. Snow's most important job is to pressure Chinese officials into altering the exchange rate regime. A more flexible yuan, which has been fixed at around 8.30 to the dollar since the devaluation in 1993, would bring about an upward movement, probably to 6.
Nor is it only the US making this complaint. Japan is also irked at the yuan's weakness. At a recent meeting in Manila, Japan called on China to let loose its currency, but the Chinese representative shot back rather sternly, saying the exchange rate is a complicated matter with macroeconomic and social implications. China is not looking after its currency alone, but its 1.3 billion citizens.
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