Few Takers In China For U.S. View On Currency Value

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A woman examines two 100 renmenbi notes.

The U.S. is pushing China to revalue the renminbi, but experts say an appreciation in the value of the Chinese currency would make Chinese goods more expensive for U.S. consumers. Ng Han Guan/AP hide caption

toggle caption Ng Han Guan/AP

The Obama administration faces a deadline Friday on whether to formally name China as a manipulator of its currency.

The decision comes up every six months, and so far the president has decided not to take the controversial step. While critics continue to push Beijing to revalue its currency, the issue is seen differently in China.

It is an article of faith for many in the U.S. that China's undervalued currency is responsible for many of America's economic woes. Similarly, it is an article of faith in China that American politicians are twisting a complex economic issue for political gain ahead of midterm elections.

"The issue has become completely politicized," says Lu Zhengwei, a senior economist at the Industrial Bank, one of China's major banks. "Congress sets trade policy, and congressmen pay no attention to the international economic situation. So they are just not interested in talking to us."

It's not just Chinese analysts who reject the suggestion that appreciation of the yuan, also known as the renminbi, would save American jobs.

Andy Rothman, a strategist with the CSLA brokerage in Shanghai, says Americans need to be careful not to shoot themselves in the foot — or in the pocketbook.

He says a stronger Chinese currency would mean more expensive Chinese goods in the U.S. And those aren't necessarily goods that can just be made in the U.S. instead.

"When was the last time you saw a factory in the U.S. making a laptop or a DVD player or flat-screen TV?" Rothman says.

He says recent slight appreciations in the rate of the yuan are not just small adjustments ahead of crucial meetings; they are the restarting of a slow currency appreciation process begun by the Chinese government in 2005 -– indeed, exactly what some in the U.S. are demanding.

"I think this is a long-term structural change," he says. "If you go back to 2005, the Chinese government decided that gradual appreciation of their currency against the U.S. dollar was in their interest, and so the currency appreciated by 21 percent over three years.

"Then they suspended the process after the global financial crisis, and now they are going back to that again. And so I expect it to appreciate still on a 7 percent annualized basis."

That won't be fast enough to satisfy critics on Capitol Hill, especially ahead of the midterms.

But Chinese and Western analysts warn against the emotionalism of the pre-midterm China-bashing frenzy. They say the last time the U.S. put pressure on a major economy for a one-time large-scale appreciation of its currency was with Japan in the 1980s, and that move backfired and even contributed to the decline of the Japanese economy.

Chinese economist Sun Lijian says that in the global context, U.S. actions are selfish.

"China's economy has made a large contribution to the global recovery, and China is leading the world economy in a better direction," he says. "So beating up on China over its currency will be very bad for the world economy as a whole, and will slow down the whole global recovery."

Analysts say pressure to appreciate the yuan will not help the U.S. deficit with China, either. They say that between 2005 and 2008, as the yuan was appreciating by 21 percent, the U.S. trade deficit with China actually increased by 50 percent.

Chinese economists say the way to solve the deficit is not to push China to revalue its currency, but to help lift more Chinese people out of poverty and into the nascent middle class, so they can buy more U.S. products.



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