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China reaffirms market-oriented RMB exchange rate reform

By Tian Junrong (People's Daily)

16:15, October 14, 2011

Edited and Translated by People's Daily Online

The Financial Research Institute of the People's Bank of China released a report titled "Review and Outlook on the Reform of the RMB Exchange Rate Formation Mechanism" on Oct. 12, in which it used data and facts to refute the unfounded allegations of the United States about China's supposed manipulation of exchange rates and substantial undervaluation of the RMB.

According to the report, the RMB exchange rate appreciated by about 37 percent from the start of the RMB exchange rate reform in 1994 to the end of September 201. Data released by the Bank for International Settlement shows that the nominal and real exchange rates of the RMB against currencies of China's major trade partners were up about 33 percent and 59 percent, respectively, as of the end of August 2011. Among the 58 types of currencies monitored by the Bank for International Settlement, the appreciation of the nominal and real exchange rates of the RMB ranked 13th and 10th, respectively.

Meanwhile, the U.S. dollar index depreciated 36 percent from January 1971 to September 2011, but the trade deficits of the United States have yet to improve. If the United States seeks to change its international balance of payment through currency depreciation instead of the adjustments to its macroeconomic policy and structure, it will surely fail. The United States has focused on the RMB exchange rate issue in order to find a cover for its internal shortcomings and politicize economic issues, which will fail to solve its domestic economic problems and also severely damper the economic and trade ties between China and the United States and undermine the global economic recovery.

The report said that the RMB appreciation would neither resolve the issue of trade imbalance between China and the United States nor address the unemployment in the United States.

First, the United States' trade imbalance of this round is the extension of its previous imbalance. If the United States does not adjust its macroeconomic policies and structure but only tries to change its international balance of payments by adjusting the exchange rate, it will not succeed.

Second, the trade imbalance between China and the United States reflects the transfer effect of the trade surplus. From 2005 to 2010, China's total regular trade surplus was a little less than 272 billion U.S. dollars and total processing trade surplus was 1.46 trillion U.S. dollars. Particularly, China took over the final processing and assembling chain of the industrial transfers from Europe, United States, Japan and countries of the Southeast Asia. China imported a large part of the semi-finished products from other countries but not from the United States, and China got only a small processing fee from the whole industrial chain.

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