China Vows Not to Bow to Currency Pressure
Senior Chinese officials warned at a summit of the Group of 20 leading economies that they will follow their own economic needs in considering currency reform.
The value of the yuan, or renminbi, is a major irritant in Chinese relations with the United States. China’s comments came ahead of a meeting between President Barack Obama and Chinese President Hu Jintao.
Obama was expected to raise U.S. worries about an undervalued Chinese currency that American manufacturers say gives China’s exporters an unfair advantage and swells its trade surplus.
In an effort to head off complaints, China announced before the G-20 summit that it would start allowing its currency to rise in value against the dollar. Critics have said the move doesn’t go far enough.
And from the Wall Street Journal blog, “Number of the Week: Yuan Revalue Is No Panacea for U.S..”
First, why has the renminbi been allowed to rise in value by only half of a percentage point in the first week of the new regime?
Why not let it soar, perhaps by the full 20 per cent that many analysts think it’s undervalued?
That’s easy. China is moving gradually for the same reason that the U.S. is moving gradually to cut spending and raise taxes.
When you make changes that affect people’s lives in a big way, you give them a chance to adjust. Just as deficit-cutting will cost some jobs in the U.S., so will revaluation cost some jobs in less-efficient Chinese factories. A higher renminbi means that China’s export prices rise, making such plants less competitive.