Don,
My apologies - wrong thread. I was responding to Mike forgetting that this was the Asia Forum instead of the Hong Kong thread. We discussed this extensively there.
The only real reason for China to consider devaluing the yuan would be to improve exports. As exports amount to only 20% of their economy, they would be aiding a small portion of this 20% to the detriment of the 80%. There are many other ways for them to aid the exporters, most of them thru programs already in place.
Secondly, a devaluation would, at best, provide only short term benefits as it would prompt a new round of devaluations of the other regional currencies.
The Asia Crisis was prompted by China's earlier devaluation of the yuan. At that time, they were looking to bring in foreign currency in the form of export monies and foreign investment. Since then, the growth in these two areas has exceeded all of Asian. The 'crisis' is due primarily to Japan's failure to realize that China would be attaining such a large portion of market share.
China has been ahead of the other Asian countries in responding to the 'crisis'. Already projecting high unemployment from the government layoffs, they are spending billions on badly needed infrastructure. They also have shown a capacity to make adjustments as the situation warrants by slowing the rate of privatizing government owned companies because the Asian Crisis will cause unanticipated unemployment. You can expect them to continue making adjustments, but devaluation has been thoroughly examined and rejected.
I could go on for about 3-4 more pages on why they should and will not devalue related to China's growing domestic economy, privatization plans, imports, raw material exports, property values, loan repayments to foreign creditors (particularly Japan), future efforts to get foreign investment, WTO status, etc. It gets pretty extensive. Leave it that Zhu Rongi has been adamant in this and has stated the reasons.
Hong Kong will also hold the $US peg. The currency traders have made their runs at it and, in spite of the rising $US, Hong Kong has maintained the peg. (There was one very hard run by a group of traders trying to force it down that didn't work) The traders have pretty well given up and the $HK is remaining stable.
When this all washes out, with Japan procrastinating on necessary reforms and the ASEAN countries in chaos, it is possible that China will replace Japan as the dominant economic force in Asia. If - they continue on their current path to Democracy.
Sorry to make this so long. I actually had to cut some things out.
FWIW,
Ron
PS - I see that as I was editing, I got help. Thanks Mike. |
