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Wednesday, May 25, 2005

This Lady Is Not For Turning

Well, as might have been imagined, the Chinese administration are giving the US senate a very politite 'no'. Politics, as I understood it was the art of the achieveable. Making demands on others that they aren't going to comply with may only expose your own vulnerability. With Iraq already giving a major dent in global confidence that the US can deliver on what it promises, I can't help feeling we could have lived without this latest embarassing incident. Elitist as it sounds I have the feeling that it is far more productive to address these problems patiently behind the closed door meeting of the G7.

China rejected on Tuesday a detailed prescription from Washington for a quick move to a more flexible exchange rate system, beginning with a 10 per cent revaluation of the renminbi.

A foreign ministry spokesman, in response to questions about a Financial Times report that the US Treasury had made a revaluation demand via unofficial envoys, said many US visitors had come to China recently carrying “such messages” about revaluation.

But he repeated Beijing's view that it would not bow to foreign pressure on the issue.

“China will not do this when internal conditions are not ripe, no matter how great the external pressure is,” said the spokesman, Kong Quan.

5 comments:

ivan said...

China can do three things:

1. give in and move to a flexible exchange rate system (eventually);
2. give in by increasing export taxes on textile exports even more;
3. not complying with U.S. (and European) demands

Option 3. would not adress current imbalances and would not relieve protectionists sentiments in Europe and the U.S. Option 2. could help but i'm afraid that the cure is worse than the disease. And how high should those taxes be before we can be certain that demands for protectionism would cease? I think that Option 1. would be the best solution, even for China itself. But the U.S. should do it's part also.

Edward Hugh said...

I agree with you, 2 is s stop gap measure, undesireable, and not particularly useful.

3 is what we all want, including I imagine the Chinese. The question is the how, and by how much.

Do you know Roubini/Setser paper?

They say a correction of 40% may be needed. This is impossible, and maintain a stable China. The issue is much bigger, because of the link between China and the US.

http://www.roubiniglobal.com/archives/2005/02/my_new_paper_wi_1.html

There is quite a good ongoing discussion of these issues on Brad Stsers blog.

The danger is that this gets too politicised. Then China may start to think strategically: look at Uzbekistan. If you push China too hard politics will override economics. Remember there will be pro and anti reformers in China too.

That's why in the end I'm normally pragmatic on these things.

ivan said...

Yes, i've read Roubini/Setser. I also read F. Bastiat who once said that if goods don't cross borders, soldiers will. I think we should give Chinese goods the possibility to cross boders, at least for a while. Analysts from Rand have told the American Senate that China's political regime is anything but stable and that we should welcome a prosperous China and that it would be in our interests if the Chinese knew that we would not block their attempts to become prosperous.

Edward Hugh said...

"it would be in our interests if the Chinese knew that we would not block their attempts to become prosperous."

Game theory :).

BTW I've mailed you. Possibly at an old address. If you don't get it mail me.

ciao.

valueprep.com said...

It is something that you don't want to mess with (china) they don't play with little countries to well look at the little island just east of them.
They could help themselves if they just maintained instead of getting into all of this.
regards,
B
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