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This post was edited by abramicus at 2014-9-25 11:48|
That being said, what is needed at the PBOC is a change of policy, especially the Exchange Rate Revaluation Policy that has been implemented at great loss to China in terms of GDP as well as in the growth of its Foreign Currency Reserve, which has been misused to buy up Yuans in order to prop up its exchange rate. This policy in times of a speculative attack on the Yuan or HK Dollar as in the 1997 Currency Crisis is correct. But at this time, when China is trying to grow internationally into a major trading partner of every country on earth, where it is trying to grow its domestic economy into a consumption-oriented economy, it cannot afford to overvalue the Yuan to the point its manufacturing sector cannot sell abroad due to overpricing of its products in dollars, AND at the same time, unable to sell domestically, due to overpricing of it products in Yuans (as foreign imports will be underpriced in Yuans instead). This fundamental error in exchange rate policy is the ROOT of China's faltering GDP growth rate, and cannot be corrected by more stimulus money that only gets misused further in fueling inflation of fixed assets and commodities. Two wrongs do not make a right. It is simpler and more effective to correct the initial mistake first, i.e., devalue the Yuan to 6.20 first, aiming for 6.80 in the longer run, and then, later on, if still need be, inject a large stimulus money to help production going once it has a market for its products abroad and at home.
Of course, I respect the wisdom of President Xi in choosing who should take over the reins of China's monetary policy. First of all, you can trust Xi to do whatever is best for China, from the bottom of his heart. This is the most important basis of credit. Trustworthiness is everything. Secondly, you can depend on him to do the smartest thing as well, because he thinks very deeply in everything he has done so far, and has outplayed all those who have or will harm China's national interest. As for knowledge of western economics, that is really nothing to carp about, Chinese economics is grounded in reality, not in theory, and reality does not mislead, theory often does. Deng Xiaoping, the father of China's reform, was not a Western trained economist, but he correctly decided that the market economy will be good for China and took concrete steps to make it happen. Zhu Rongji was not a western-trained economist, but he navigated the 1997 Currency Crisis with unparalleled confidence and pragmatism that made the Soros crowd weep, and run away in total disgrace, strengthening the monetary side of the Chinese economy for more than 15 years now, leading China's foreign currency reserve to a growth of 1000%.
Now is not the time to make a historic monetary mistake in overvaluing the Yuan, which serves no purpose, as it cannot create a domestic economy nor increase China's trade with the world. Instead, an overvalued Yuan shrinks China's international market, and also shrinks China's share of its own domestic market, tying its capable manufacturing sector's hands, and letting foreign manufacturers squeeze and punch the life out of China's manufacturing sector. This has gone on for too long, and too far also. If China does not start devaluing the Yuan toward 6.50 or higher, its manufacturing sector will begin collapsing, first with defaults on loans, and next with layoffs of workers, and finally with closure of its factories, which will take another five or ten years to bring back to life, if ever at all. Today, China is at the crossroads, and it is very fortunate to have President Xi at the helm to guide it towards stability, security, and continued prosperity.