Who Is Boosting a Revaluation of RMB?

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Last updated at: (Beijing Time) Wednesday, July 23, 2003

Who Is Boosting a Revaluation of RMB?

During the 1997 Asian financial crisis, China stood up to pressure for keeping the Renminbi (RMB) from devaluing. In 2003, China is faced with international pressure demanding the appreciation of the RMB, which is as strong as the previous one and even more difficult to resist. The present difference is: there are no more fresh flowers and applause, China has become the object of criticisms from the United States and Japan.

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During the 1997 Asian financial crisis, China stood up to pressure for keeping the Renminbi RMB) from devaluing, and thus won praises from various countries around the world. In 2003, China is faced with international pressure demanding the appreciation of the RMB (People's Currency), which is as strong as the previous one and even more difficult to resist. The present difference is: there are no more fresh flowers and applause, China has become the object of criticisms from the United States and Japan.

According to the July 22 report of Wall Street Journal, US Treasury Secretary John Snow plans to testify at a Senate committee on the question concerning the exchange rate of US dollar against Chinese currency (Renminbi), but when will the hearing be held is still unknown at the moment. This indicates that the voice about driving the appreciation of the Renminbi is becoming louder. On July 21, Japanese newspaper Asahi Shimbun pointed out gloatingly, "In dealing with China's exchange rate policy under which the exchange rate of the Renminbi against US dollar is almost unchangeable, an international encirclement net compelling China to adopt a flexible policy is being tightened up".

A strong wind calling for the revaluation of the Renminbi has been blowing hard overseas since the beginning of this year. First of all, Japanese finance minister, at the seven-nation finance ministers conference, submitted a document similar to the "plaza agreement" directed against yen in 1985, which called for the appreciation of the Renminbi. Later, US Treasury Secretary Snow also indicated that the Renminbi should be revalued. Because the US dollar is going down, some European and East Asian countries, worried about the competitive impact generated by China's exported commodities, have, to different extents, also joined the ranks demanding the appreciation of the Renminbi. As a result, there has appeared a strong force pressing the revaluation of the Renminbi.

In this so-called "international encirclement net", Japan serves as the vanguard lashing out at China, ranking Japanese officials have repeatedly charged China with exporting deflation and "hollowing out" Japan's labor market. It is meaningful that Japan's words and deeds were refuted by world-renowned economists before the Chinese stepped out to make explanations. During his visit to Japan early this year, Nobel prize winner economist Robert Mundell, known as the "father of Euro", pointed out bluntly that China should stand up to the pressure of Japan demanding the appreciation of the Renminbi. Recently, this honest economist once again warned the Chinese that the negative effect of the revaluation, if any, of the Renminbi on the Chinese economy would surpass that of SARS. During his visit to China in the first 10 days of July, Chief Economist Stephen Roach countered Japanese saying when he pointed out that nothing was more abnormal than Japan's saying, he told Japan that the low-cost, high-quality imported Chinese goods had greatly enhanced the purchasing power of Japanese consumers who are facing great difficulties-just like the benefits brought by Japan's exported machines to the world during the 70s and 80s of the 20th century.

However, Japan doesn't therefore "shut up". What's hardly understandable is that Japan felt the acute pain caused by the disastrous consequence of the forced appreciation of yen, then why does it so energetically urge China to follow the same road? Under US pressure, Japan signed the "plaza agreement" in 1985, after that, the value of Japanese yen rose two-fold in 10 years. It is generally held that this move finally led to Japan's bubble economy. If the Renminbi were to revalue, it would possibly bring the same consequence: it would be harmful to China and hardly beneficial to the world.

It is against such a background that Japan has cooked up "the theory that China exports deflation" at a time when the Chinese economy is experiencing high-speed growth, and forces the Renminbi to appreciate, this action cannot but cause people to doubt about its motive. At any rate, the Japanese should be clear about this point: sacrificing the Chinese economy will bring Japan no benefit.

Originally, Japan's declining economic status and its low international influence make it entirely unnecessary for China to heed its unreasonable charge. But the present situation is different, because the world's number one economic power, the United States, has also joined the ranks calling for the revaluation of the Renminbi. Worse still, whether the Renminbi should be revalued or not is originally an economic problem, now it is being evolved into a political problem within the United States. Charge Shumer, a senator of the Democratic Party of US New York State and three other senators recently sent a letter to John Snow, requesting that the Finance Department investigate whether the practice of the Chinese artificially forcing down the exchange rate of the Renminbi has generated impact on the US employment market. An important reason why some officials of the Bush administration now continuously demand China to decontrol the exchange rate of the Renminbi is the US general election, because they are well aware that the manufacturing industry now in straitened circumstance in the United States is key to the 2004 presidential election. Based on this, these officials have two reasons why they attack China, in 2002 China outdid the United States to become a global country with the largest attraction to foreign capital; US deficit of trade with China reached US$103 billion last year. The development of China's manufacturing sector has grabbed the Americans' rice bowls.

Anything, once pulled into US domestic politics, especially involved in presidential election, will be doomed to be a very complicate, thorny problem. In order to keep his presidential throne, Bush will ingratiate his targeted electors at all cost. The Reminbi will possibly become the victim of US domestic politics. Many Chinese still clearly remember that the very evil influence caused to Sino-US relations by US linking the granting of the most-favored nation status to China with the human rights issue in order to meet the political needs of parties and factors. Just as Economist Huang Yiping with the City Group pointed out Japanese voice for revaluing the Renminbi doesn't carry much weight, but Chinese decision-makers may react to the pressures from the United States and Europe.

Why is it necessary to boost the revaluation of the Renminbi?, Even many economists could not make clear the real intention of the international forces. Chief Economist Stephen Roach pointed out that breaking the link of the Renminbi with the US dollar would cause damage to the supply chain necessary for the global new production model. It will cause serious negative influence on Japan, the United States and Europe who take the lead to go purchasing in China. The pressure exerted by the industrial world demanding China to change its monetary policy will actually run counter to their desire, it will only reduce the fruits of their own efforts to nothing. Stephen Roach really cannot figure out the reason for insisting on boosting the revaluation of the Renminbi despite to their disadvantage. He cannot but make such an assumption: Certain countries do not want to bear their own responsibilities. Wealthy industrialized countries have found China to be a scapegoat for their slowly recovering economies.

A forex tactician with the Bank of America warned that the act of the United States of politicizing the question of revaluing the Renminbi will possibly turn out to be just the opposite. He pointed out in his research report that the more the United States tries to politicize this question, the more impossible for China to accept its opinion.

By People's Daily Online

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