Zhang Zhouxiang

China can't pay US' bills

The revaluation of the yuan will surely be the hottest topic at the Sino-US Strategic and Economic Dialogue (S&ED), Ma Xiaoye, a senior expert with China Foundation for International & Strategic Studies, said recently. "The US will not stop pressuring China on the yuan as long as its trade deficit (with China) and high unemployment rate continues."

A few days before the third S&ED, US Treasury Secretary Timothy Geithner repeated that the "yuan is undervalued" and asked China to adjust the exchange rate at a faster pace in order to correct the problem. His remarks echo US Senator Charles Schumer, who said he was "dissatisfied" with China's failure to promise a faster revaluation of the yuan during his recent visit to the country.

The truth is Washington's "economic structure and policy are responsible for creating the problems", Ma said. "How can the US count on a foreign currency to solve them?"

Zhang Yansheng, director of and professor at the Institute for Foreign Economics, affiliated to the National Development and Reform Commission, voiced a similar opinion: "The US wants China to pay its economic bills by raising the value of the yuan. This is preposterous."

Having suffered heavy losses during the global financial crisis, the United States has decided to boost its exports and revive its manufacturing sector. Zhang and Ma both said this was a good move, because manufacturing industries are relatively stable and can create more jobs than other industries. But the US can realize this objective only by adjusting its domestic industrial structure, not by pressing China to revaluate the yuan.

The "inner trade" that multinationals indulge in grabbed the lion's share of the trade surplus in China's name. Chinese enterprises have not gained much, Zhang said.

A faster revaluation of the yuan will not help reduce the US trade deficit substantially. Nor will it boost the US manufacturing sector. "Even if the yuan rises appreciably against the dollar it cannot save IBM, Siemens or other Western companies," Zhang said. "The US should take responsibility for its own policies, instead of asking China to pay for it."

Some experts have said that a faster revaluation of the yuan could ease inflation. But Ma said that would be the case only if the flow of hot money into the country can be controlled. The yuan has already risen against the dollar from 6.82 last year to about 6.5, but China's consumer price index (CPI) in April was still as high as 5.2 percent.

The problem is that the US' quantitative easing (QE) policy is still pushing huge amounts of hot money into emerging economies. Zhang said the US creates some bubbles "every time it implements a new QE policy".

On Nov 22, 2010, weeks after the US Federal Reserve announced a QE policy, US-based National Association for Business Economists published a survey in which 51 economists raised concerns over inflation. China is still suffering from the consequences as the high CPI shows, and needs time to recover, Ma said.

With unemployment rate as high as 4.1 percent, and high pressure from the slack money market, raising the yuan's exchange rate could create more difficulties for Chinese enterprises, Ma said. It could even increase the unemployment figure. And we should be especially careful about the outcome of the ongoing social reforms.

The right thing for China to do is to make an "independent decision after analysing the external pressure and internal conditions minutely", Ma said. After all, the exchange rate is an important policy tool of the State to exercise macro-control over the economy and its consequences would be mostly felt within the country. The US has to find its own solutions to the problems it has created, instead of relying on a faster revaluation of the yuan.

(China Daily 05/09/2011 page9)