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Home >> Opinion
UPDATED: 15:16, April 21, 2005
It's a mistake to force revaluation of RMB: Interview
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The US Senate recently passed an amendment, demanding that the exchange rate of the Renminbi (RMB, or People's Currency) must be revalued within six months. The amendment put forward by two senators calims if China disagrees to revaluation of the RMB, a 27.5 percent surcharge of punitive tariff will be imposed on all commodities China exports to the United States. Regarding this, PD correspondent Tang Yong had a telephone interview with some American economists. During which they expressed their views as follows:

Roach: America should not blame China on the issue of exchange rate.

Morgan Stanley Chief Economist Stephen Roach said that he was not surprised at the recent series of anti-China practices by US Senate. He revealed that as early as several weeks ago, some Washington politicians told him that this year will see the most strained US-China trading relations in the past 10 years. Roach who has always been concerned with China indicated that he "was worried" about the development of US-China economic ties.

In the opinion of Roach, the United States should not censure China on the issue of exchange rate, saying that it is a big mistake to regard China as a scapegoat of US trade deficit. He said diametrically contrary to the impression of Americans, the rapid increase of China's exports is not boosted by China's local companies, but is spurred mainly by the branches of transnational corporations in China as well as by Sino-foreign joint ventures. Roach worked out an account for the reporter. He said in the past 11 years, China's export volume surged 650 percent, shooting up from US$91.7 billion in 1993 to US$593.4 billion in 2004. Among increased volume, 62 percent came from foreign-invested enterprises, these transnational enterprises came respectively from the United States, Europe, Japan and some other Asian countries. This figure shows that China's strong export capability consists mainly of the energies of Western (including the United States) enterprises.

Roach said the main reason for the huge trade deficit and the current account deficit of the United States is that the savings level of the American nationals is too low. Statistics show that since the beginning of 2002, the net savings ratio (after deducting the factor of the devaluation of the US dollar) of the American nationals has dropped to a record low, accounting for only 1.5 percent of GDP. Due to insufficient domestic savings deposits, the US government cannot but attract foreign capital through huge current account deficit and trade deficit. If a country must have trade deficit, it is best for it to carry out trade with low labor cost countries. This is a most natural thing. China occupies the greatest share in US trade deficit, this actually is a good thing for the United States. It provides US consumers with an opportunity to buy cheap but excellent Chinese commodities.

In view of the above-mentioned reasons, Roach added, even if the RMB is revalued by 10 percent, it cannot fundamentally solve the problem related to US current account deficit and trade deficit. Although the politicians of Washington understand this logic, under the pressure of the voters, however, they cannot but pretend to be confused though they are clear-headed.

Famous US economist Lyndon La-Rouche: Calling for the establishment of a new Bretton Woods system

The famous US economist repeatedly and successfully foretold financial crises in various parts of the world, including Brazilian, Russian and Asian financial crises. In a recent telephone interview with the correspondent, this economist said bluntly: US Senate lost its reason in doing so! He said it should not impute the problem emerged in the US economy to the exchange rate of RMB. The Senate's unilateral antagonist conduct with the odor of imperialism is simply unhelpful to a solution of the problem.

He also said in the tone of a prophet: It is necessary to perform a major surgery to solve the problems emerged in the US economy. In his opinion, the financial and monetary systems of the world today has been rotten to an incurable state and so must be thoroughly reorganized, it cannot be remedied only by reform. The ultimate goal for its thorough reorganization is to set up a new Bretton Woods system.

Snow: "Financial diplomacy" is the best choice

Not only many American economists oppose an appreciation of the RMB, even many senior officials of the US government also express their dissatisfaction over the Senate's practice. It is reported that at a hearing held recently by the banking committee of the Senate, US Secretary of Finance John Snow indicated that he was in favor of solving the RMB problem by diplomatic means.

Snow said: It is a "serious mistake" for the Senate to attempt to force a revaluation of the RMB, because acting with undue haste would possibly damage China's financial system. Snow stressed: China continues to reiterate its intention to introduce a more flexible exchange rate and would allow an appreciation of the RMB, but "financial diplomacy" is the best way to solve this problem.

By People's Daily Online

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