Re: More On Yuan Appreciation

["Gary Santos" <evs@xxxxxxxxxxxx>]

Barkley,

What can I say; I agree with what you said. The dilemma is that, as of the
latest I know, China is trying to act on deflation and unemployment which a
rising yuan will tend to aggravate depending on degree. But, I wondered that
if they replaced their emphasis on their export economy with some yuan
domestic spending (building more Three Gorges Dams, a road infrastructure,
nationwide communications, etc.) they may be ableto afford giving their
population more disposable income and insulate themselves somewhat from
whatever deflation occurs in the international markets. But, can China
really change strategy at this point? Only someone with access to current
Chinese macro data can tell.


----- Original Message -----
From: "Barkley Rosser" <rosserjb@xxxxxxx>
To: "Gary Santos" <evs@xxxxxxxxxxxx>
Sent: Friday, June 20, 2003 10:01 PM
Subject: Re: More On Yuan Appreciation


     Well, obviously the Bush team sees his reerection
being guaranteed by getting manufacturing in the
US going again, probably an accurate perception,
and the best way to do that is to get the dollar down,
with the yuan/renmimbi's pegging to the dollar being
an annoying flaw in the plan.
     What I find rather amusing is that when this story
appeared a few days ago in the Washington Post,
the headline read something like "China Contemplates
Floating Yuan," however upon reading the story it
became clear that China was completely denying this
and the entire story was about how Treasury Secretary
Snow was trying to pressure China into doing so.  The
Washington Post is not usually that simplistically a
mouthpiece for administration propaganda.
Barkley Rosser
----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxxx>
To: "EGroup PKT" <pkt@xxxxxxxxxxxxxxxx>; "EGroup TheNewForum"
<TheNewForum@xxxxxxxxxxxxxxx>
Sent: Thursday, June 19, 2003 1:47 PM
Subject: More On Yuan Appreciation


> Posted by PaxWax (Tuesday, June 17, 2003)
> China pressured to sever Yuan-Dollar Peg
>  http://www.bradynet.com/bbs/china/100042-0.html
>
> White House May Press China to Sever the Yuan-Dollar Peg (WSJ)
> While Treasury Secretary John Snow and President Bush continue their
public
> debate over their own policy on the dollar, the Bush administration
quietly
> is confronting another big-bucks foreign-exchange issue: Is it time to
prod
> China to untether its currency from the dollar and let it rise?
>
>
> This might be the only instance of U.S. unilateralism that would draw
cheers
> from Tokyo to Tijuana, from Toulouse to Toledo, Ohio.
>
> China, an export powerhouse, essentially fixes the yuan at 8.28 to the
> dollar. Most other big countries allow their currencies to move up and
down.
> While the dollar has fallen by more than 30% against the euro over the
past
> 16 months, it hasn't budged against the yuan.
>
> That is terrifying manufacturers around the world who are having trouble
> enough competing with China as its exporters exploit the significant
> advantages of cheap labor and, sometimes, of bank loans that aren't
repaid.
> Despite disruptions from the SARS epidemic, China said this week its
exports
> for the first five months of the year were 34% above a year earlier.
>
> Although experts differ on where the market would take the yuan if China
let
> go, most betting is that the currency would rise. China's huge and growing
> foreign-currency reserves, $316 billion at last count, suggest that. And
so
> does the Economist, the British weekly, with its regular comparison of Big
> Mac prices around the world, which rests on the theory that the exchange
> rates should tend to equalize the price of the same goods and services
> between two countries. Since a Big Mac cost on average $2.71 in the U.S.
in
> April, but only $1.20 in China, the magazine figures the yuan is 56%
> undervalued against the dollar.
>
> In the Clinton years, the U.S. Treasury began to push the Chinese to let
> markets have more say in the yuan's value. But the U.S. quickly abandoned
> the effort when the Asian financial crisis hit in 1997, with officials
> fearing that China would devalue and prompt even deeper depreciations of
> currencies in Indonesia, South Korean, Thailand, the Philippines and
> elsewhere in Asia. At that moment, the U.S. saw China's fixed currency as
an
> anchor of stability.
>
> That was then. Like its Clinton predecessors, the Bush economic team
> believes the world economy works much better when exchange rates among
major
> nations are flexible, and parts of the team believe China is supercharging
> its export machine by keeping the yuan low. It regularly tells the
Chinese:
> Over time, as you open your economy to the world, you will want to have a
> more flexible exchange rate. That's a prediction and that's our desire.
> Chinese economic policy makers reply privately: We know this arrangement
> won't last forever.
>
> Then nothing happens, and the two sides recite the same lines when they
meet
> again. This could go on for a while. The Chinese have plenty of reason to
> delay, and the U.S. has few compelling arguments why letting the currency
> float or rise would be in China's interest right now. The White House also
> has higher priorities, such as getting China to help keep North Korea out
of
> the nuclear-arms export business.
>
> It's not just textbook-hugging economists who are pushing this into Mr.
> Snow's briefing books. Domestic politics are pushing the same way.
>
> A stronger Chinese currency, of course, would tend to restrain the growth
of
> its exports and limit the speed of the inevitable increase in the global
> market share of China's manufacturers. That's one big reason China long
has
> resisted outside pressure to let its currency rise, and a reason that some
> big U.S. multinationals that invest and manufacture in China are happy
with
> the status quo.
>
> But it's also a big reason why some Bush administration officials --
acutely
> aware of the weakness of U.S. manufacturers in states that will be key to
> the 2004 election -- are pushing the issue now. Not only would it help
U.S.
> exports compete against China's, but it would help them compete against
> other Asian economies, too. China's neighbors won't allow their currencies
> to rise too much against the dollar as long as arch-competitor China is
> holding firmly onto its currency. If this stuff isn't on the to-do list of
> Mr. Bush's political ace Karl Rove, it will be soon.
>
> All this has some intriguing parallels to Japan, not all of them
comforting.
> "Japan kept the yen undervalued for a long a time, and the U.S. acquiesced
> for a long time," says Clyde Prestowitz of the Economic Strategy
Institute,
> a Washington think tank. But in 1971, worried about U.S.'s deteriorating
> international competitiveness, Richard Nixon muscled Japan to let its
> currency appreciate. The yen rose 17% that year, and further later that
> decade. Stanford University economist Ronald McKinnon argues the
relentless
> U.S. pressure to get the yen up contributed to Japan's financial mess of
the
> 1990s. The one sure parallel is this: The U.S., once preoccupied with
> Japan's exchange rates and economic prowess, is going to be talking about
> China in similar terms for the next several years.
>
>
>
>