Marketplace Report: Chinese Trade and Currency
MADELEINE BRAND, host:
Back now with DAY TO DAY. I'm Madeleine Brand.
China's economic power is still growing according to foreign trade figures released today. The country's trade surplus with the rest of the world tripled last year to more than $100 billion. The figures are likely to fuel further concern here in the US where critics claim that the Chinese have an unfair trading advantage. Joining us from London, home to the world's biggest currency market, is "Marketplace's" Stephen Beard.
And, Stephen, what do analysts there say about those figures?
STEPHEN BEARD reporting:
That they confirm what we all know, that China is experiencing the fastest industrial revolution in history, that is becoming like Britain in the 19th century and the US in the 20th; the workshop of the world. And it's flooding the US, Europe and Japan with cheap but increasingly good-quality products.
BRAND: But is it doing all this with an artificially low currency?
BEARD: Yes, the yuan is low. It's pegged against the dollar; it's held down against the dollar. As a result of American pressure, the Chinese allowed it last year to appreciate fractionally, but some economists here believe that if it were floating freely, we could see maybe a 10-percent increase in the yuan, maybe more, and that would obviously make Chinese products more expensive and perhaps less desirable in the US and in its other export markets.
BRAND: And that would help reduce America's trade deficit, right?
BEARD: Yes. Although actually we should say there doesn't seem to be any sign that the Chinese authorities are going to do it. And it must be said China doesn't account for the whole of America's trade deficit; it accounts for only about a quarter.
You know, there's been a tendency in the US in some quarters to demonize the Chinese and their impact on the world economy, but Neil McKinnon of the ECU currency management group here says that in many ways the Chinese effect has been benign.
Mr. NEIL McKINNON (ECU Currency Management Group): Many consumers in the US and elsewhere have benefited from the low prices of consumer goods that China has been producing, but it's also attributed to keeping global inflation at a relatively low level.
BEARD: And that has helped keep global interest rates low, too. And because they've been holding the yuan down against the dollar by plowing their dollars back into US government bonds, the Chinese have helped keep long-term US interest rates especially low as well.
BRAND: And so do the figures today suggest that China's trade surplus will continue to expand?
BEARD: No. There are separate figures for December, which suggests that imports into China are rising faster than exports. So the surplus, in fact, could narrow during 2006. Some analysts here are forecasting quite a sharp decline in Chinese export growth over the next year, but that's not necessarily good news for the US I'm afraid. It's predicated on a decline in American demand because of a cooling of the US economy.
BRAND: Stephen Beard of public radio daily business show "Marketplace." And "Marketplace" is produced by American Public Media.