Stiglitz says yuan appreciation a threat to Chinese jobs

21:40, October 15, 2010      

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Any further appreciation of the Chinese currency yuan would make the position of China's manufacturers even more precarious, a leading U.S. economist Joseph Stiglitz said Friday.

At Columbia University, Stiglitz, a winner of the Nobel Prize for economics in 2001, told media that China had also allowed wages to rise, which was already making Chinese goods less competitive. Further appreciation of the yuan would harm China's manufacturers more.

His remarks follow frequent calls in recent months by the United States that China should urgently appreciate the value of the yuan. It claims China pegs the yuan to the U.S. dollar at an artificially low rate. The weaker yuan makes it cheaper for the United States to import Chinese goods, and relatively more expensive to export its own goods, it says.

The consumption of Chinese goods by American and European consumers has fuelled growth in China's manufacturing sector, and created hundreds of thousands of jobs. However, the slowing demand for Chinese exports in the West, caused by the latter's stagnating economies, has hurt Chinese manufacturers.

"There are a lot of Chinese factories on the verge of lack of profitability," Stiglitz said, "If the exchange rate goes up, and they cannot charge the same price, many of them will go bankrupt, many workers will lose their jobs, and that will lead to problems in China. And Chinese leadership obviously cannot countenance high unemployment."

In July 2005, China took measures to revalue the yuan and adopted fresh modest measures months ago to further revalue it. The currency has strengthened by 22 percent against the U.S. dollar since July 2005.

Yet, in September, the U.S. Congress passed legislation that could punish countries whose currencies are perceived to be fundamentally undervalued. The legislation, which could label China as a currency manipulator, is awaiting approval by U.S. President Barack Obama.

Stiglitz doesn't think that merely increasing consumption in China, that is, getting it to import more goods, as some economists suggest, will help the world economy much.

"Asia, India, China, are too small to rescue Europe and America," he said, "Consumption in India and China together are just 12 percent of global consumption. Even if they grow faster, it is not enough."

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