RMB appreciation pressure harmful to interests of China, EU

15:46, October 09, 2010      

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Of late, the issue on the Renminbi (RMB) exchange rate appreciation has once again been the focus of international attention. After the U.S. House of Representatives, or the lower house of U.S. Congress, passed a bill targeting China for the so-called "currency manipulation" on Sept. 29, the Euro Group "troika" also put much pressure on the RMB exchange rate revaluation at the meeting that took place on the sidelines of the two-day eighth Asia-Europe Meeting (ASEM) Summit held in Brussels on Oct. 4-5. And it is conspicuous that is unwise.

The Euro Group "troika" refers Euro Group President and Luxemburg Prime Minister Jean-Claude Juncker, European Central Bank President Jean-Claude Trichet and EU Economic and Monetary Affairs Commissioner Olli Rehn.

The Euro-zone has also imposed much pressure on the Chinese currency appreciation and made the same error as the United States did. Difficult economic recovery in the European Union and the United States led to the weakening euro and US dollar. The current RMB exchange rate against euro and the dollar, however, is definitely not the result of normal economic conditions, and so the EU and the U.S. cannot ask China to bear the costs for creation of their domestic employment on the pretext of their economic difficulties, and there are four ensuing reasons here to be illustrated:

First, the resulting world trade imbalance does not rest with the RMB exchange rate, but with the global investment and trading structure, which is an inevitable outcome of globalization and industrial division. To view the relevant data available, the trade surplus derives mainly from multinational corporations in the manufacturing industry, just as the appreciation of Japanese yen, which could only halt the growth of Japan's own economy rather than producing any other effect.

Second, the appreciation of RMB will not only fail to resolve any problem but make things even worse. If the RMB currency appreciates dramatically in a short time, China's export companies will go bankrupt and tens of millions of workers will be out of work, and this would affect social stability and impair stability of the financial sector and be detrimental to Chinese economy.

China contributed 50 percent to the world's economic growth rate in 2009, whereas the EU exports to China grew four percent despite an overall decline of EU exports worldwide in the same year, and the EU exports to China rose by 42 percent in the first half of 2010. If problems emerge in Chinese economy and society, it will bring disaster to the world and, in such circumstances, EU is also hard to have a narrow escape.

Third, the recent fluctuation of the euro exchange rate is caused by a "weak dollar" policy. At present, the world's biggest problem is not to revaluate the RMB but to stop depreciating the US dollar. The proposed plan of President Barack Obama's government for doubling the US export is, nevertheless, not to hinge on raising production efficiency and technological innovation to expand exports, on opening markets or reducing restrictions to export more. On the contrary, the proposed plan is designed to raise expectations for depreciating the dollar and lower the prices of traditional manufactured goods, so as to compete with other industrialized nations and emerging market countries.

Owing to the proximity of their industrial structure, European nations have inflicted more severe damages from the dollar devaluation, and both EU and China are victimized by a "weak dollar" policy. In opposition to the "weak dollar" policy, China and EU should concert efforts to counter the currency war the U.S. deliberately provoked to shift the crisis onto others and to jointly resist American hegemony, and work together to build a new international monetary and financial order, which is fair, just, inclusive and orderly.

Fourth, the EU is China's strategic partners and so China did not "look on with folded arms" in global financial meltdown over the past two-plus years. China did its utmost within its capability to help Greece, Iceland, Spain, Portugal, Italy and other EU countries to tide over the crisis; China also sent numerous buying missions to a couple of European nations to help restore confidence for the recovery of their manufacturing sectors; China's firm support helped European economy get out of the dilemma.

EU is China's largest trading partner and China is EU's important export market; if Europe pitches in the moves to add more pressure on the RMB appreciation, it will undoubtedly harm or damage the Sino-EU trade ties and, provided the overall situation is taken into full account, China and EU should stand in the same frontline.

We sincerely hope and believe that insightful figures, including EU leaders, entrepreneurs, politicians and business leaders, to face the reality fairly and objectively with their"sober mind, wisdom and courage", and come to recognize remarkable successes China has scored in its economic restructuring, import growth, balanced economic growth, the RMB exchange rate reform and to recognize the shared broad interests of China and EU. Proceeding from its own interests or from the present reality, EU should on no account join the U.S.-led international chorus for pressurizing China for its currency appreciation. This not only conforms to the EU interests and China's interests but is also in the interest of global economy.

By People's Daily Online and its author is Shi Jianxun, an especially PD-invited PD invited guest commentator and an ace professor of economics and management at elite Tongji University in Shanghai


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