Attempts to force renminbi to appreciate hit stone wall
Two major Western media outlets recently chided efforts to force the renminbi into appreciating, which shows such attempts, politicized by some, don’t hold much support, even in the West.
Articles posted on the websites of Forbes magazine, an American publication, and the British Daily Telegraph both criticized efforts to compel the renminbi, or Chinese yuan, to appreciate.
Shaun Rein, founder and managing director of the China Market Research Group, a strategic market intelligence firm, wrote in the Forbes story that revaluing the Chinese yuan now would “jeopardize the world’s fledgling economic recovery.”
Jeremy Warner, assistant editor of The Daily Telegraph and one of Britain’s leading business and economics commentators, argued in his blog that the Western press united in an attempt to thwart China’s approach to currency reform.
Regarding the revaluation of the renminbi, Warner said it was perfectly reasonable for China to do it at its own pace.
It is quite understandable that efforts to pressurize the renminbi to appreciate have run into a stone wall, even in the West. That’s because the rationale behind the move is barely convincing and the motives dubious.
China has implemented a series of measures to fight the global financial crisis ever since it erupted more than one year ago. Among those measures are efforts to keep the renminbi’s exchange rate relatively stable.
The Chinese economy has rebounded strongly in the past few months and China has played a positive role in helping the rest of the world pull out of recession. This strongly justifies the anti-crisis measures China has taken.
As Stephen Roach, chairman of U.S. investment banking giant Morgan Stanley’s Asia operations, said in October, claims that the renminbi was undervalued was a political topic initiated by some in the United States to divert attention from other problems.
Under current circumstances, to force the renminbi to appreciate could risk the nascent global economic recovery.
Although most experts believe the world economy has seen the worst of the crisis, the recovery remains fragile and still faces substantial downward risks.
The appreciation of the renminbi would harm Chinese exports, which are key to the Chinese recovery, and if China stumbles, the rest of the world will also bear the brunt.
At the recent Asia Pacific Economic Cooperation (APEC) meeting in Singapore, Roach said concerns over China’s currency policy were “seriously overblown.”
He said critics should let China decide how it wants to manage its currency to ensure growth as drastic appreciation of the renminbi would hurt China’s economic recovery.
As efforts to force appreciation of the renminbi run into strong opposition, China’s currency policy has won more understanding worldwide.
Many appreciate China’s efforts to dampen market expectations that the renminbi would eventually appreciate sharply. Such expectations would drive billions of speculative U.S. dollars into China and pose considerable risks to its financial stability.
Myron Scholes, a Nobel economics laureate from the United States, said in a speech in Beijing last month that a sharp appreciation of the renminbi would hit Chinese exports hard and erode China’s vast holdings of foreign exchange reserves.
He added that China’s interests should be taken into consideration when it comes to debating currency policy and that China should not be forced to pay for the global financial crisis.
Many economists have argued an appreciation of the renminbi would not help the United States reduce its trade deficit if the country does not carry out economic structural reform, namely rebalancing consumption and production.
Due to outsourcing, the United States stopped manufacturing many products long ago. Even if appreciation of the renminbi prevents the U.S. from buying from China, it will still import from other countries.
The world economy is still fighting the lingering adverse effects of the global financial crisis. Many economists fear the seemingly quick recovery might have shifted attention from more urgent underlying problems with the world economic and financial system.
At this moment, policy-makers and business leaders should do some serious soul-searching to figure out how the world economy emeshed itself in the crisis and what reforms are needed to avoid similar crises in the future.
Attempts to force the renminbi to appreciate have diverted attention from this more urgent debate and will harm efforts to reshape the world economy and to achieve sustainable development in the post-crisis era.
Tags: economy, foreign-investment