The Hot Zone
China's newly announced air defense identification zone over the East China Sea aims to shore up national security
Current Issue
· Table of Contents
· Editor's Desk
· Previous Issues
· Subscribe to Mag
Subscribe Now >>
Expert's View
Market Watch
North American Report
Government Documents
Expat's Eye
Photo Gallery
Reader's Service
Learning with
'Beijing Review'
E-mail us
RSS Feeds
PDF Edition
Reader's Letters
Make Beijing Review your homepage
Hot Links

cheap eyeglasses
Market Avenue

China's Currency Dispute
China's Currency Dispute
UPDATED: February 5, 2010 NO. 6 FEBRUARY 11, 2010
Crisis Focus: Unsafe Appreciation
Economist in China pointed out the risks of abrupt renminbi (yuan) appreciation

After a researcher at the Chinese Academy of Social Sciences (CASS) proposed a 10-percent increase in the Chinese currency to upgrade the industrial structure, many economists in China disputed his statement and pointed out the risks of abrupt renminbi (yuan) appreciation. Zhu Daming, an independent economic analyst in Shanghai, published his concerns in the Economic Information Daily. Edited excerpts follow:

When the CASS researcher [Zhang Bin] proposed the 10-percent appreciation, he must have been very confident about the Chinese economy—even more pompous than the Japanese in the 1980s. More than two decades ago, Western countries forced the Japanese to sign the Plaza Accord, in which Japan voluntarily proposed to cut the value of the yen by 10 percent. This signing led to a "lost decade" for the Japanese economy. The country's economy has been stagnant and mired by deflation for more than 10 years now and has not totally recovered.

There are six risks with Zhang's proposal.

First of all, the renminbi (yuan) has been appreciating at an increased pace since 2005 when China adopted a controlled floating exchange rate, placing enormous pressure on the manufacturing industry. Even though our exports have picked up, it does not mean external demands have stabilized. The 10-percent hike will lead to a 5-percent increase in consumer prices, which would be devastating for the manufacturing industry in our country.

Although people have questioned the export-oriented economic mode, we have to admit it works since it's so hard to motivate domestic demand. Therefore, before the domestic demand is fully boosted, a partial freeze in exports would damage the national economy. Coupled with the currency appreciation, the consequences would be unimaginable.

Renminbi (yuan) appreciation would cause massive layoffs. With rising costs, the comparative advantage of the Chinese manufacturing industry will be hampered. It is certain factory owners will be forced to use advanced machineries to upgrade their facilities. But eventually, millions of workers will lose their jobs due to these technological advancements. Meanwhile, the influx of imports will take up a huge market share, leaving less room for domestic producers.

International competition, in and of itself, is cruel and cutthroat. Compromise or total surrender is not helpful in easing trade disputes. Even if foreign competitors let go of the renminbi (yuan) appreciation issue, they will find troubles in other areas, for instance, imposing unreasonable carbon emission standards.

Appreciating the currency is not the only way to raise the crisis awareness of domestic companies. A large number of exporting companies in our country are privately owned, and their owners and investors are conscious of the crisis. State-owned enterprises might be able to survive a major meltdown thanks to the government back-up, but privately owned companies may face greater difficulties.

Finally, some economists attempted to persuade the public of relieving inflation pressure by raising the value of the yuan. They tend to believe when the central bank lacks the room for more interest rate hikes, yuan appreciation is a quick solution to inflation. But the experience in 2007 and 2008 shows that the yuan had risen dramatically but inflation had also spun out of control. Clearly, currency appreciation cannot keep inflation in check. I think a lot people, like myself, expect a yuan appreciation, but this procedure should be taken slowly and stably. We will not allow Western countries to manipulate the Chinese economy as they did 20 years ago with the Japanese.

Top Story
-Protecting Ocean Rights
-Partners in Defense
-Fighting HIV+'s Stigma
-HIV: Privacy VS. Protection
-Setting the Tone
Most Popular
About BEIJINGREVIEW | About beijingreview.com | Rss Feeds | Contact us | Advertising | Subscribe & Service | Make Beijing Review your homepage
Copyright Beijing Review All right reserved