China holds the value of yuan steady

By Li Hong (chinadaily.com.cn)
Updated: 2009-02-03 12:53

Premier Wen Jiabao is right in suggesting that China will act responsibly and consistently, as it did in the aftermath of the 1997-98 Asian financial meltdown, by resisting temptation to devalue its currency, the yuan.

His predecessor Zhu Rongji won China respect from neighboring Asian partners for holding the value of the yuan steady in the last crisis to stop Asian-wide competitive currency devaluation. Now it is Wen's turn.

The proponents of a weaker currency assert that protecting export shipments to others' shores will safeguard jobs at home, which are now urgently needed by Beijing. More than 20 million Chinese migrant workers have lost jobs because 300,000 coastal enterprises have shut their doors amid the chilling winter of the global economic downturn, according to the result of a government survey. The thought that the growing numbers of unemployed laborers could jeopardize stability has unnerved many here.

Nevertheless, China, as the third-largest economy and accountable world player, is not supposed to act solely in its own interests. As numerous jobs evaporate in the land of our trading partners too, we need to hold steady the value of our currency. And, equally important, we need to keep our shores opened to goods shipped from our partners, and keep resisting protectionism.

Only a concerted effort by the entire world can beat the crisis of this unprecedented magnitude.

Premier Wen, who just concluded a landmark European tour, has announced that Beijing will dispatch government and corporate shopping delegations to Britain, Germany and Spain to purchase European equipment and technology to aid the shrinking markets there, and get ready to launch a colossal 4-trillion yuan fiscal stimulus at home. The planned shopping tours are a manifestation of China's good will.

And, I believe that similar groups would be sent to the United States, once the leaders of the two countries meet and reach consensus on bilateral relations.

The yuan has risen in value against the American dollar by 21 percent since July 2005, when China reformed its currency valuation regime. It instituted a market-oriented flexible formation system, targeting a basket of major currencies including the yen, the euro, the pound, the won, and the US dollar. Many in China believe the yuan will continue to gain value against other major world currencies, but it will be a slow and gradual process, keeping in pace with China's growing economic development in the next few years.

In this sense, I believe, any outside pressure for China to increase the value of the yuan at this critical moment of economic crisis should also be resisted by Beijing.

As China's economic boom is gradually moving from a hot furnace fired by exports to a more sustainable one based on domestic consumption and capital investment, any drastic currency policy change will definitely pour cold water on the furnace, or extinguish it all together, sowing ominous seeds of social chaos here in China, and losing an economic engine for the world.

Many felt disbelief and alarm when Timothy Geithner, the new Treasury Secretary for the Obama administration, accused China as a "currency manipulator" before the US Senate last week. This raised the fear of a revival of would-be American protectionist legislation to shut out shipments from China. Experts say that trade wars between the world's two largest partners will surely get both bruised and blue, and result in the world economy further downhill, if not into free fall.

Some say that the economic challenges faced by the world's two most interdependent trading partners, brought on by the current global financial crisis will escalate to a level hardly seen before in history. But any resorting to protectionism or punishing a partner by legislating high tariffs will ignite a trade skirmish that will have profound non-constructive ramifications for the future Sino-US relationship.

In times of hardship and uncertainty we should pass them together hand-in-hand.

China is doing its part by holding steady the value of its currency and vigorously enlarging domestic spending. America is checking its previous policy of poor financial oversight and restoring its powerhouse of technological advancements.