China Yuan Revaluation
America and the European Union are mulling steps to impose tariffs on China’s imports, particularly textile. "China-bashing" is the term that captured the headlines. Pressurised by the local business groups (who are important source of votes), the forerunners of free market are starting to eat their own words. Protectionist bills that violate WTO rules nearly got their ways through the Congress.
"America’s Congress is taking a harsher line on trade, particularly with China. The Bush administration is also getting into the act, with the treasury secretary and even the newly nominated trade representative talking tough. Is America turning protectionist?" - The Economist
Speaking at the Boao Forum in southern Hainan island on Saturday,
"If there is more pressure from outside, it will force us to speed up our reform," Mr Zhou Xiaochuan (governor of People’s Bank of China) said without giving a timeframe, the first time China’s government has said it may alter its schedule for the exchange rate because of overseas interests. - The Business Times
In a previous occasion, Chinese Premier Wen Jiabao had also said that yuan revaluation will come as a surprise, at an unexpected moment. But I still regard these assurances, both without specifying a timeframe, as mere rhetoric, to soothe the US or EU with some hopes, as set forth by the columnist,
"Asian mercantilism is all about sacrificing the present for a prosperous future. It makes possible, and is in turn made possible by, the extravagance of the US government and consumers who are equally adept at doing just the opposite: sacrificing the interests of tomorrow’s taxpayers for their financial excesses today. Why should China alter its present before the US rethinks its future?" - Andy Mukherjee, Bloomberg columnist.
"Once this happens [yuan unpeg], the People’s Bank of China can stop stockpiling dollar reserves — meaning its demand for American government securities will also dry up. Critics wonder if Congress, which has made little effort to curb America’s soaring budget deficits, has quite thought things through." - The Economist
And I am glad to find this view that tallies with mine in my previous post on this topic,
"America blames China for the bilateral trade deficit, but America’s trade deficits are a result of its huge fiscal deficits and the fact that Americans do not save. America’s defence that it is doing the world a service by consuming vastly beyond its means is self-serving and rings hollow: US fiscal policies and low savings have become the fundamental source of global imbalances." - Lawrence Lau and Joseph Stiglitz, Financial Times.
On the other hand, the US Commerce Department report, provided to lawmakers in February, reckoned that a rise in yuan would do little to cut the US trade deficit or boost job growth. It would likely only benefit other Asian nations and China’s other competitors.
The above citations have given a glance especially at the relationship between yuan and the US , better than what I can possibly come up with. There is also a pressure of internal imbalance in money supply that might force the central bank to revalue its yuan, but I do not address it here [edited]. It is interesting to see who US will target next to blame for its own shortcoming, if the situation does not improve after China loosens its currency.
