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| China-Japan-Koreas |
| US, China headed for possible currency clash |
| 2008-12-04 |
| BEIJING (AP) - The deepening world economic crisis and a possible spat over currency levels hung in the air as the United States and China sat down Thursday to discuss the future of their economic relations. U.S. officials say Treasury Secretary Henry Paulson will press Beijing to let its yuan rise against the dollar to ease trade tensions at the two-day Strategic Economic Dialogue. American companies contend that China keeps the yuan undervalued, giving its exporters an unfair advantage and adding to its swollen trade surplus. But with China's exporters suffering, the yuan plunged Monday in government-controlled trading—a possible message to Washington to go easy on the issue. "The signal China sent on Monday is: We also have our own political problems and issues in a slowing economic environment," Frank F.X. Gong, chief Asia economist for JPMorgan Securities Ltd., said in a report to clients. State media said Thursday a rapid rise of the Chinese currency would harm the global economy further as it would hurt Chinese exports and increase unemployment. "China's foreign exchange policy should be aimed at helping domestic economic growth, for which the yuan should not rise too fast against the U.S. dollar now when the global financial market is in turmoil," said a report Thursday in the China Daily, an English-language newspaper aimed at foreign readers. The twice-a-year dialogue, launched in 2006, is meant as a relationship-building exercise rather than a forum for negotiation. But Treasury Undersecretary David McCormick told reporters this week that officials at the dialogue would urge China to continue allowing the yuan to rise—a key issue for American lawmakers who are pressing for punitive action if Beijing fails to take faster action on trade complaints. Both economies are struggling—the United States with a recession and China with a sharp slowdown in growth—and how well they keep one of the world's biggest trading relationships stable and productive could be of global importance. "The need to coordinate and collaborate gets even more urgent as the current recession bites deeper," the China Daily said in an editorial Thursday. |
| Posted by:Steve White |
| #3 This crisis is not possible, it is inevitable. The only question is when and at what cost. It will be pretty funny if the commies are thrown out due to their desire to hoard dollars. |
| Posted by: Nimble Spemble 2008-12-04 15:31 |
| #2 newc, I would have thought the opposite, but not being an economist, maybe I've got it a*se about. A rise in the yuan would make things quite expensive in China and things are already rocky there. A free floating yuan would skyrocket against the dollar pushing down the value of the dollar, making imports more expensive in the US and less expensive in China, This is an area that Keynes spent his whole life trying to solve, summarized by his dictum "Paradox of Thrift" If China sells of it's US bonds, the Yuan would plummet as that is the only thing holding their currency up. They are not likely to, as they need a strong US dollar to buy the outputs of their factories. This paradoxically, makes things more expensive in China. The Chinese want assurance that their US investments will be safe. This is an interesting situation as along with the oil ticks and Germany they are holding up the dollar. They have an unacknowledged seat at the table in treasury, therefore influencing the US economy and political landscape. Were the US to go down the protectionist path, they would exercise the nuclear option i.e withdrawing all their support for the dollar, which would lead to massive inflation in the US. Think the Wiemar Republic scenario. There is no way they can maintain a lower yuan without things spirialing out of control. |
| Posted by: tipper 2008-12-04 14:59 |
| #1 This is a tough one. A rise in the yuan would make things quite expensive in China and things are already rocky there. If China sells of it's US bonds, the Yuan would plummet as that is the only thing holding their currency up. The Chinese want assurance that their US investments will be safe. There is no way they can maintain a lower yuan without things spirialing out of control. Rock and hard place. |
| Posted by: newc 2008-12-04 12:39 |