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Reflect on 'China's Responsibility' Theories
UPDATED: October 21, 2010 Web Exclusive
Economist: Yuan Is Not Undervalued
All the accusations that the renminbi’s exchange rate has been manipulated to stay at a low level and keeps going down are totally groundless and untrue

First, the criticism stems from the demands of U.S. domestic politics. When the economy is fragile and the unemployment rate remains high, it is very tempting for politicians to find other countries as scapegoats. During the campaign for the upcoming midterm election, in order to maintain its majority in the House of Representatives, the Democratic Party needs to try all-out to woo working-class voters by using job creation as a slogan. Usually, creating jobs requires increasing government spending to reduce employers' taxes and provide them with subsidies. The Obama Administration needs to spend between $30 billion and $50 billion to create jobs for 2 million people. But the huge deficits of the federal government make this unaffordable. Therefore, blaming China for the job losses is a convenient excuse to grab votes.

Second, it is out of the U.S. need to shirk its responsibility for causing the international financial crisis. The crisis started in the United States. However, there have been some odd opinions that China and the United States should each take equal responsibility for the global financial crisis, arguing that China's trade surplus led to excess liquidity in the United States. Some people go even further, saying that if China won't accept such a theory, it has failed to undertake its responsibility as a major country and should be blamed for future crises.

These accusations are ridiculous. Even if we ignore that it is impossible to calculate how much of China's trade surplus has become liquidity in the United States, without the greed of Wall Street and the lack of financial regulation, the subprime mortgage crisis would never have happened.

Third, it is out of the U.S. need to contain China. The historical lesson is Japan's lost decade after it agreed to let the yen appreciate under pressure from the United States. However, unilaterally forcing a sovereign country to make sacrifices cannot be repeated, and China will never sacrifice its own development in submission.

Facts prove that the renminbi's exchange rate has not inhibited the recovery of the world economy. The history of the last two decades tells us that dramatic fluctuations in the international currency market are always followed by economic turmoil or recession.

Currently, the foundation for global recovery is still weak and the European debt crisis is only starting to show signs of stabilization. China and other large economies should jointly keep exchange rates between major currencies stable and prevent financial speculation from arising again in order to create the basic environment needed for the stabilization and rebound of the world economy and international trade. Moreover, China has to maintain its stable and strong economic growth to provide the confidence and market for global trade. These will make China a responsible power.

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