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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (755)	9/17/2003 5:03:40 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

G-7 shouldn't blame woes on China's currency DAVID CRANE BEIJING—In the 1980s it was Japan Inc. that was seen as the stealer of jobs and investment, the new Asian megapower that would wipe out jobs and industry in North America and Europe. Today, China has become the big target of protectionist forces in the rich G-7 countries that blame it for loss of jobs and investment. China is accused of being an unfair competitor steamrolling over jobs and industries in North America, Europe and now Japan. This is most pronounced in the United States, where China's trade surplus is emerging as a hot issue in the 2004 presidential election campaign. The principal focus is China's exchange rate for its currency, the renminbi or yuan, which is pegged to the U.S. dollar. The charge is that China has kept its exchange rate seriously undervalued, by anywhere from 15 to 40 per cent, in a manipulative effort to gain an unfair advantage. The demand of the G-7 countries, including Canada, is that China revalue its currency to a much higher level, or, even better, adopt a floating exchange rate. Both Finance Minister John Manley and Bank of Canada governor David Dodge have joined in the anti-Chinese chorus. Early this month, U.S. Secretary of the Treasury John Snow flew to China to demand action. While China explained that it would eventually move to a floating exchange rate, it rebuffed any major move at this time, arguing that its own economic problems, including a banking system in serious trouble, high unemployment and the massive need to overhaul state-owned industries, meant that any major change in exchange rate policy now could trigger a financial crisis. This hasn't stopped G-7 pressure. Next month, U.S. President George W. Bush will meet with the Chinese leadership to increase the pressure and gain concessions to help him in his re-election campaign. In the United States, various business lobby groups are demanding the U.S. take harsh action against China. They have tried to get Canadian business organizations to join in. In the U.S. Congress, there are various bills and resolutions threatening action against China. The Americans blame China for the loss of 2.6 million manufacturing jobs. A group of U.S. senators, for example, has introduced a bill that would impose a 27.5 per cent across-the-board tariff on all imports from China unless it significantly raises its exchange rate. Here in the Chinese capital, officials at the People's Bank of China, the Chinese central bank, vigorously reject U.S. and other foreign accusations, arguing that Chinese imports are growing faster than exports, that all of its Asian neighbours have trade surpluses with China, that most of its exports have a high level of imported materials and components, that much of what it exports is no longer made in the rich countries, and that revaluation will do little to alter trade patterns, as the experience of Japan shows. Instead, they contend, a floating rate now would bring sharp swings and instability to the Chinese currency, with repercussions for other countries. The managing director of the International Monetary Fund, Horst Köhler, says while he believed China should take steps towards more flexibility in its exchange rate — something the Chinese don't disagree with — "we don't think we should be part of a scenario where there is co-ordinated pressure on China to take decisions where they are not themselves convinced it's in their interest and it's in the interest, the best interest, of the international community." A report published earlier this year by the International Monetary Fund — China: Competing in the Global Economy — argued that while it was in China's interest to move to a more flexible exchange rate regime, "the move should be gradual and carefully prepared. Current conditions do not support a free float. Instead, a gradual move was necessary to give time for the corporate and banking sectors to adjust, and to develop China's foreign exchange market infrastructure and regulatory framework." Fred Hu, managing director of Goldman Sachs (Asia), is one of a number of international economists who agree with the Chinese approach and contend the Chinese exchange rate is not an important factor in explaining the major problems facing the world economy today. China's economy accounts for just 3.5 per cent of the world economy. G-7 countries' pressure on China is really a political effort to create a scapegoat for their own failed attempts to restructure their economies in the face of the twin forces of rapid technological change and globalization. Weakening China will not solve their problems. -------------------------------------------------------------------------------- David Crane's column appears on Wednesday and Saturday. He can be reached at crane@interlog.com by e-mail or by fax at 416-926-8048. thestar.com