Mish, here is my 2 cents<g>
It is not that China does not care about US$ value, it is that China cannot do much about it. Asian CBs now accumulatively hold $2.2 trillion US debt, and only $300 - $350 billion of them is held by China. So it is hard to say how much effect Yuan revalue would have on US$. The main reason for the weak $ is due to the careless printing by the Fed, the huge budget deficit of the US gov, as well as the high debt for individuals and corporations. While it seems that everyone understands this, I am not sure why so many people still give China/RMB so much credit for they do not deserve?
As for more manufacturing jobs move to China, that is not controlled much by China either. Due to the overcapacity and the saturated consumer market in developed countries, the only way for big corporations to keep increasing their profit is to cut down the cost. The easies way to cut down the cost is to outsource to where the labor is cheaper. If it is not China, then will be somewhere else. I read that some Indian researchers claimed that Indian textile workers cost lower than Chinese textile workers in coastal cities ($0.57/hr. in India vs $0.69/hr in China). So after the quota system expired this year, India will benefit more than China.
Furthermore, US outsourcing may not just go east, they might go north (Canada) or South (Mexico) too, although that does not tend to raise much of eyebrows<g>
Message 20932022
So why does everybody just blame China? Isn’t Japan a bigger manipulator in their currency? Hasn't India got outsourcing just as many service/IT jobs as China does in manufacturing jobs? Why do I hear few people blame India but only China?
IMO there is a lot of merit in that third possibility. If so, China has historically proven to be far more patient about things than anyone in the US could ever be. One factor to consider that I did not know until a couple days ago is that China supposedly has to float by 2007 according to some trade agreement. Anyone have details on this? Exact deadline? Perhaps they do not honor it if it does not suit them. The closer they get to the deadline, the bigger the risk of currency speculation pouring in. Judging by official statements, China is very concerned about RMB speculation. If they indeed are committed to act by 2007, I doubt they put it off until the last moment. In that regard perhaps China wants more of a slowdown in its own economy right now, to take pressure off the RMB, so they can float during a global downturn in late 2005 early 2006?
Mish, that is some misunderstanding on Mauldin’s part (he is not the only one, I have seen a couple of them said that). China has never pledges to free float RMB, let alone to pledge doing it by 2007. All China has promised is they will open the Banking sector to foreign investors by 2007. This has nothing to do with the exchange rate of RMB per se. Common sense is that China would have to let RMB flow in order to be able to manage an opened banking sector, but it is completely up to China to do whatever in their own interest. China has since made it clear that their long term goal is floating RMB, but they have never given a time table and never will.
No, you don't have to trust me since I am not an expert on China<g>. The following was a report from a Singapore newspaper named Lian He Zao Bao. The source was the head of China Foreign Exchange Administrative Bureau. Too bad it is only in Chinese.
The news basically said: the head of China Foreign Exchange Administrative Bureau said that China has not pledged to make RMB exchangeable in WTO negotiation, although China does consider it as a long term goal. China’s foreign exchange rate is basically inconformity with WTO rule, so China has never used exchange rate as a key issue to join WTO.
Here is the link for the news (Chinese version):
(2001-11-16)
zaobao.com
And here is what I posted a couple of months ago. It proves that the above should be true.
Message 20795310
NEW YORK - US Trade Representative Robert Zoellick said on Wednesday that he did not think CHINA's exchange rate policy violated World Trade Organisation (WTO) rules.
'There's really no WTO obligation not to have a fixed exchange rate,' he said before speaking to the Asia Society.
His remarks appeared to squash US manufacturers' hopes for the United States to challenge CHINA's exchange rate policy at the WTO.
The Bush administration has leaned on CHINA to move to a flexible exchange rate but has resisted taking any stronger action to persuade it.
A coalition of US manufacturers, farmers and labour groups known as the Fair Currency Alliance wants the Bush administration to challenge CHINA's exchange rate at the WTO.
They claim that Beijing's nine-year-old practice of pegging the yuan at 8.28 to the US dollar gives Chinese exporters an unfair trade advantage by artificially depressing the price of their goods by as much as 40 per cent.
Leading Democratic presidential candidate John Kerry of Massachusetts also has said he favours using the WTO to force CHINA and other Asian economies to move to more flexible currency regimes.
But Mr Zoellick said he did not think CHINA's currency peg violated WTO rules.
'You will recall the United States had a fixed exchange rate until 1971, when we were a member of the Gatt,' he said, referring to the predecessor organisation to the WTO. -- Reuters |
