Opinion / Op-Ed Contributors

US trying trick for its trade

(China Daily) Updated: 2011-12-09 08:35

Appreciation of the yuan would not help the American economy and would be detrimental to the global recovery

Some Western countries are renewing pressure on China to let the yuan rise as they grapple with their own struggling economies, but a host of experts warn that this will not cure the global economic imbalance and will instead impede the fledgling recovery.

Yuan is not undervalued

Chen Zhiwu, a Yale University economics professor, said that in terms of purchasing power, the yuan should actually be depreciated, as many necessities such as food, clothing, appliances and furniture are more expensive in China than in the United States.

Yao Shujie, an economics professor at the University of Nottingham, said he believes its exchange rates have now reached equilibrium levels.

Should the yuan be tagged undervalued just because of China's trade surplus with the US, as Washington reasons, then many other countries with favorable balances with China would deem the Chinese currency as overvalued, he said.

Yukon Huang, a senior researcher at Carnegie Endowment for International Peace, noted that the yuan has for years seen an annual appreciation of 5 to 6 percent and that the ratio of China's trade surpluses to GDP has dropped significantly over the past five years.

He said that the deeper cause of the US trade deficit with China is because half of Chinese exports are assembled products whose components are manufactured by others, including the US itself.

Pressure on yuan is generated by political needs

Jim O'Neill, chairman of Goldman Sachs Asset Management, told CNN in a recent interview that the US is just playing politics when pressing China on the yuan's rise.

China's trade surplus with the US used to account for 10 percent of GDP, but now it accounts for only 2 percent, which shows that the US trade deficit problem with China has witnessed considerable positive development, he said.

US policymakers should realize that the political trick of pressing China on the yuan is an unnecessary and useless strategy, he added.

Andrey Ostrovsky, deputy director of the Far East Institute of the Russian Academy of Sciences, said the main purpose behind the US calls for the yuan's appreciation is that the US hopes to reduce its trade and balance-of-payments deficits through a rapid rise of the yuan.

Ostrovsky pointed out that a more practical approach for the US would be to increase its exports of high-tech and high-value-added products to China.

Such views were echoed by Toshiki Kanamori, managing director of Japan's Daiwa Institute of Research Ltd. Kanamori said that any appreciation of the yuan is unlikely to fundamentally solve the domestic economic problems of the US.

Sharp rise in yuan would be harmful to global economy

Yuri Tavrovsky, a professor at Moscow Friendship University, said that against the current global economic backdrop, Western countries, especially the US, are likely to increase pressure on China to appreciate its yuan even faster.

However, any rapid appreciation will harm China's economic growth and eventually hinder the global economic recovery because the Chinese economy is an important engine for world economic growth, he said.

The Chinese government has the right to manage its own currency and the US attempts to force China to appreciate the yuan will not succeed, Tavrovsky added.

Tavrovsky pointed out that people have not forgotten the forced appreciation of the yen in the 1980s, which proved to be ruinous for Japan's economy.

Ostrovsky said the European debt crisis and the US economic crisis are likely to linger for a long time, which increases the likelihood that the West will put more pressure on China over the yuan, but that does not mean China will automatically increase the value of the yuan, as China has reiterated on many occasions that it opposes rapid and irrational yuan appreciation.

It is quite obvious, he said, that rapid appreciation of the yuan would result in a huge influx of speculative capital that would have a huge impact on China's financial system.

Huang from the Carnegie International Peace Foundation said the global imbalances should be addressed through multilateral approaches and cooperation, instead of by unilateral moves such as passing a bill to force China to appreciate its currency.

Huang also expressed the belief that, in the future, trade tensions will not be created by such issues as yuan appreciation and currency wars, instead they will focus on other aspects including technology transfers and profit-sharing plans.

Yao from the University of Nottingham said China-US trade is a win-win interaction. The two countries are both important forces in bringing the world out of the current crisis, so instead of confronting each other, they should cooperate for the benefit of the whole world,

The US economy registered a better performance in the first three quarters this year, which helped push the world economic recovery and the role of the Chinese economy in driving the world economy toward recovery has been significant since 2008, Yao added.

Zhang Yesui, the Chinese ambassador to the US, has said that the yuan's exchange rates did not cause the trade imbalance between China and the US and that its appreciation alone would not end the high US unemployment.

Zhang stressed that the trade imbalance was caused by a combination of factors, including structural trade and investment differences, divergent patterns of savings and consumption and the international division of labor, rather than the issue of the yuan's exchange rates.

The story is from the Xinhua News Agency.

Most Viewed Today's Top News
New type of urbanization is in the details