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First, no country including US has the right to tell other countries to appreciate their currency.|
In my view the yuan/dollar "peg" symbolizes the most powerful de facto trade alliance in history.
A strong China is good for the world including US!
But, with the new global trade Dynamic, even China cannot stand alone.
There is no doubt that an increase in the value of the renminbi would help alleviate some of the pressure on the US economy.
China’s economy is overheating as asset bubbles and inflation pressures build, posing a “major risk” to global growth, “Growth below 6% in China is a red alert in 2010.”
Beijing's technocrats are caught in a trap. The rest of the world--with some justification--demands an adjustment of the renminbi, but the Chinese cannot make the adjustment in increments without aggravating bubble conditions. On the other hand, they cannot make the adjustment at one time without causing a shock that would cripple the all-important export sector of the economy.
There is no disagreement in China as to a need for a currency leveling and they have indicated a willingness to do so, at an appropriate time. What the Chinese message has been very clear about of late, is that the west needs to get their own house in order, in particular as regards banking regulation and deficit management.
The Chinese take great pride in their nation being a trade powerhouse and China is pleased to announce that it would run a trade deficit of more than $8 billion this month, something it hasn’t done since April 2004.
One could argue that the renminbi may not be as undervalued as people think.
From this viewpoint, the trade deficit could not have come at a better time because Washington appears to be on the verge of doing something about the renminbi. After two decades of trade deficits with China, (i.e., the last surplus with that country was in the early 1980s), the tide of expert opinion is turning in favor of more pressure.
Up to now, those counseling patience with Beijing have prevailed. But at this moment a new consensus is beginning to emerge.
But before we get carried away by the logic of Grandpa Wen, I can assure you that China has been on a buying spree never before seen in their modern era. Commodities and foreign acquisitions have certainly been front and centre lately as they expand their Global trade footprint.
However, China's overall trade surplus is on an unmistakable downward trajectory.
The trend, which obviously worries Beijing, is a reflection of the declining outlook for exports. Exports plunged 16% last year. Why, then, should China stockpile commodities to create what is called a "record trade deficit"?
One explanation is that Chinese officials think exports will recover this year. After all, Beijing reported export increases in December, January and February.
But Minister Chen himself has indicated that the recent bounce is not so significant. Early this month he said it will probably take two to three years for exports to reach 2008--in other words, pre-crisis--levels. Moreover, the winding down of the government's stimulus program will inevitably reduce demand for raw materials.
Therefore, the restocking of commodities in large quantities at this particular moment may not be in response to internal demand. So the buying spree does not make sense. Perhaps, China is trying to alleviate the potential for new rounds of pressure from the U.S. regarding the value of renminbi.
Beijing, conceivably, could be manufacturing a trade deficit.
What has changed in U.S.--China relations? The U.S. economy has tanked, with China holding more than $2.4 trillion in U.S. Treasuries and other assets, which means the U.S. needs China's cooperation in order to stabilize its economy.
China needs the U.S. export market, investments and technology; America needs the low-cost daily necessities made in China to fill its stores.
The world's monetary and political problems require both countries to take parallel policy paths. Cooperation will continue, and relations will move forward, regardless of periodic conflicts.