Tuesday, June 22, 2010
Regarding China's Annoucement of Currency Appreciation
China recently announced that it is going to announce the appreciation of its currency against US dollar. A lot of speculations have been surfaced on the ground regarding this announcement and stock markets around the globe have once again shaken. Among all of those hue-and-cry, this post sounds deserving for me. China did this just to pacify recently-surfaced mistrust between these two countries regarding currency speculation to benefit their respective economies but the US is not going to gain much. What do you think?
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The appreciation of the Yuan will have very little impact on the global recovery. Reducing china’s trade surplus to stimulate domestic growth is simply not the answer. I believe the revaluation has potential negative implications with the U.S. consumer and businesses that largely rely on importing goods from China. With nearly two-thirds of our nations GDP made up of consumption, a currency appreciation by the Chinese could have a lasting effect on many sectors that rely heavily on importing foreign goods. The revaluation policy would make many producer goods more expensive and ultimately reduce gross margins. The pressure that has been put on the Chinese government over currency manipulation is nothing more than political rhetoric from the government. The outlook for unemployment remains very grim and failed promises by this administration have been a constant. China is being pushed to revalue their currency because much of the industrial sector in developing nations are fleeing to low wage countries, such as China. In an overheated economy, an appreciation of the Yuan could actually lead to a distinct advantage for China. The overall rate of inflation will fall and the Yuan could actually be put into position to oust the U.S. dollar as the reserve currency.
ReplyDeleteFor several years, we have been concerned about inflationary pressures and asset bubbles in China. If markets are truly efficient, then the Shanghai index is telling us that bubble has already burst. From a personal perspective, I think we should be more concerned about the rising deficit and the irresponsible monetary policy (and soon to be fiscal policy with the Bush tax cuts set to expire) in our country before we start criticizing foreign policies. China is doing nothing more than utilizing free trade and open market policies to stimulate growth. If the U.S. government is so possessed to reduce Chinese exports and exacerbate the trade imbalance, then why not impose a Tariff? The simple answer would be China would probably stop financing our ridiculous budget deficit by purchasing U.S. treasuries.
Brian Frisch
It seems as if all the socialist/communist governments have a love affair with currency manipulation against the U.S. dollar. The Soviets artificially manipulated the Ruble, but after the fall of the Iron Curtain, the economic forces sent the country into a massive inflation. Of course, China is different is one crucial respect; it makes products the America is actually willing to buy. As stated in Robert Reich’s article, China’s primary goal is to grow its industries, and its output, ahead of consumption and welfare of its citizens. In that regard, the appreciation of the Yuan is probably the correct move, since the foreign investors and corporations will get more bang for their buck. Yuan’s appreciation is unlikely to create more new job in the U.S. however, since according to Reich, most major U.S. businesses operating in China have built factories, and research and development centers in China.
ReplyDeleteMichael Kinsley
There has been great controversy over the manipulation of the Chinese currency and the announcement of these upcoming adjustments will do little to quiet the disputes. As far as the United States is concerned, I am not confident that we will realize any gains from the appreciation of the Chinese Yuan. In theory, an appreciation of the Yuan will reduce US imports of Chinese goods, help our domestic producers, and make our exports more competitive. Things are not so cut and dry however. This article accurately identifies several of the challenges the United States faces when it comes to China, and it is important to note that the Chinese government is only acting in its own self interest. The massive investments in China over the past decade have been far more beneficial to the Chinese than to the United States. The Chinese open trade to our goods, but the majority of them are produced on their soil (ex. General Motors). They are partnering with US firms to create infrastructure and gain expertise that they will no longer need once everything is established. The bottom line is that the Chinese economy is primarily industrial, and the suppression of their currency’s value helps them sell their products to the world. They will allow their currency to appreciate only in an effort to prevent political backlash and import quotas/tarrifs. Things will really get interesting when a weak currency no longer benefits them and they allow it to float free of any manipulation.
ReplyDelete-Matthew Moore
I am in agreement that the U.S. will not gain very much from the appreciation of China’s currency to the US dollar. The reason being, there is a huge difference between the values of these two currencies; therefore, unless the rise in China’s currency against the U.S. dollar is substantial, it will have no real impact to the American economy. As a matter of fact, I believe it has the potential of hurting the US economy. I believe this to be true because, if Congress was seriously considering some type of regulation restriction of Chinese imports, because they believed China was manipulating the currency, then whatever economic relief any regulation would have provided will be either delayed or denied if Congress does not act because they feel it would be inappropriate to do so because of China’s willingness to appreciate their currency against the US dollar. China is a huge economy and they have made it clear that they will develop economic policies appropriate for their economy. Therefore, comments that they are ready to be more involved in shaping the global economy should not be seen as they have a desire to address the imbalance of trade; particularly since Yi, China’s central banker has been quoted as saying that China has “room to maneuver so that we can loosen or tighten whenever we see appropriate.” (Bloomberg, Businessweek, June 26, 2010) I interpret this comment to mean business as usual for China.
ReplyDeleteAvadella White
Last week China ended its 23-month peg against the US dollar and formally announced its intentions to gradually let its currency yuan appreciate.
ReplyDeleteAs yuan appreciates, products priced in American dollars would be more affordable for the Chinese consumers, benefiting US exporters.
On the other hand US (which imports Chinese goods), would witness an overall increase in the consumer prices, which would lead to higher inflation rates. This situation will also force the US to source from other low cost exporting countries like India, who compete with Chinese exporters in the global market.
For US this opportunity could help is reducing the trade deficit with China. On the other hand this would help china control its rising inflation rate.
********** ANTARA MAJUMDER ****************
China’s announcement to gradually appreciate their currency against the US Dollar has been praised by many including President Barack Obama who thinks their strengthened currency will help the country to recover and to promote a more balanced global economy. The appreciation of their currency needs to happen slowly and gradually. This will be the key to the appreciations success. Making the Yuan stronger against the dollar means China’s goods will be more expensive to foreign customers. With that being said I thing a gradual climb will help stimulate the economy. The increased value of the Juan will promote increased lending and investments both foreign and domestic and increased spending. The main concern for China and their foreign customers is the history of dependence on products made in china for their value. A rise in the value of the currency could affect their export which is their “bread and butter.” This is something that many countries including the United States have to come to rely on China for.
ReplyDeletePetrica Molnar,
ReplyDeleteReading this article made me think. The last time I checked we do a lot of importing from China. From Christmas trees to random toys, it seems like everything is made there. This is because labor is so cheap relative to many other countries and China happens to be one, if not the largest exporter of goods in the world. This is assisted by the value Yaun. You see China's population consumes very little and saves a whole lot, this also contributes to the low demand of their currency keeping the value relatively low. If Yaun where to gradually increase in value, the cost of labor in China, and consequently the cost of their goods would slowly rise. Which makes some sense because though its more expensive it is probably going to remain relatively cheap compared to the U.S. So we will continue to import goods, and they will make even more money. A sort of price fixing.However because of the greater increase in pay for labor consumption will increase in some sort of way. Something China also is trying to do. These effects may be minimal if they don't market their changes and plans, so that the right direction is taken. Remember information is only as strong, as its ability to reach its receiver.
Since the Yuan, unlike the dollar, doesn't trade freely against other currencies the Chinese government has had a decisive hand in setting the Yuan's value. Many believe the Yuan is undervalued against the dollar, prompting politicians and others to criticize China because of the unfair advantage they have from an artificially cheap currency. Considering the fact that a cheaper currency can, among other things, help boost exports by making them less expensive, china has benefited for almost two years by pegging the Yuan to the dollar.
ReplyDeleteI feel as many do that the last thing that China wanted to happen was to be perceived by the G20 and the world be significant contributors to a weaker world economy.
Renell Anderson
Way back in 1994, China began to explicitly peg its currency, the yuan, to the dollar at a set, low rate. No matter if the dollar rose or fell, the Yuan remained in place with the dollar. And since then the Chinese economy has been growing faster than the U.S. economy, with the result being that the yuan has remained significantly undervalued. This makes China’s exports to the U.S. relatively cheaper than they should be and also makes U.S. exports to China more expensive. The main consequence is that a flood of artificially cheap Chinese imports has driven many domestic U.S. manufacturers out of business. China’s previous policy of currency manipulation was intentional, and had helped it become the world’s leading exporter. As long as China’s currency remained significantly undervalued, they would continue to enjoy very sizeable exporting benefits. The repercussions of this is a growing distortion in world markets and drawn ire from certain countries that has led China to appreciate its currency against the dollar. However, the US is not going to gain much in terms of new jobs and hence a better economy because China is and always will be a larger producing economy, even large American firms basically have pulled anchor and have operations in China. Although the imported goods that Americans demand from China will be more expensive, new jobs to produce those goods in America will not be created because it does not have the capability and producer oriented infrastructure that China has been developing since it became industrial.
ReplyDelete-Javier Janbieh