Political Pressure to Lower Value of China's Yuan
ALEX CHADWICK, host:
It's not just the economics of currency revaluation that are complex. It's the politics, too. Here's NPR's China correspondent Rob Gifford.
ROB GIFFORD reporting:
China's peg to the dollar has been good to me. I live in Beijing, and that peg has protected my salary from what would have been a substantial depreciation over the last couple of years. That, however, is probably not the reason why China's economic gurus have kept the Chinese yen pegged to the dollar. Perhaps it's more to do with intense national pride and the survival of the Communist Party.
First of all, no country in the early 21st century wants to be seen to be doing the bidding of big, bad America. Asian analysts say that Washington's turning the issue from an economic one into a very public, political one is not a smart way to deal with the Chinese. They say China knows it needs to revalue, but from here in Beijing it seems blindingly obvious that if US politicians would just stop talking about Chinese revaluation for a few minutes, the Chinese might do it right away.
Secondly, export growth creates jobs. As long as China's currency is undervalued, its products remain cheaper than those made in other countries. This means more orders and more Chinese jobs created. This, in turn, absorbs some of the workers laid off from the old, inefficient, state-run factories as well as some of the tens of millions of peasants who are moving to the cities in search of work. If Beijing revalues its currency, it fears there will be fewer orders because its products will be relatively more expensive. This might mean layoffs, which in turn might mean more risk of social instability. There are already regular demonstrations around China by workers and peasants alike.
The third problem is exactly how to do it. In one fell swoop revalue as much as is needed or gradually, in stages? One of the problems here is that currency speculators hoping to make a quick buck have poured money into China as the expectation of a revaluation has risen. This has boosted the Chinese economy for now, and the government is loath to give that up. But if, as expected, Beijing does revalue in stages, even more speculative money might pour in after the first tweak in expectation of the further tweaks down the road.
Truth is all that money has already created something of a bubble in sectors like real estate. And if there's one thing Beijing needs less than a bunch of angry, unemployed factory workers, it's a bunch of angry, middle-class homeowners whose bubbles have burst. So hold on to your hats for the likely economic and political showdown of coming weeks or months, as I hold on to mine and prepare, sadly, for that almost inevitable revaluation of my salary. Rob Gifford, NPR News, Beijing.
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