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BIZCHINA / Weekly Roundup
Long-term RMB reform benefits China and US
By He Fan (China Daily)
Updated: 2007-08-07 17:40
China made such a choice because the former arrangement of pegging to the
US dollar might weaken China's flexibility in monetary policies. And it
has also realized that an undervalued yuan will slow the industrial
restructuring and cause vicious competition among Chinese exporters.
However, this reform is only part of a much bigger effort to upgrade the
country's industrial structure. The exchange regime is not going to
finish the task single-handedly.
First of all, the exchange regime reform is not a solution to tackle
China's trade surplus. China's exports are mainly propelled by the
processing trade, which is not sensible to the exchange rate. Even if the
renminbi does rise dramatically, the processing trade is not going to
drop instantly and the trade surplus may not diminish. Figures from Japan
and China's Taiwan Province, where the processing trade used to dominate,
have also indicated a lasting surplus in the case of an appreciation of
local currency.
The exchange regime's reform will not put the lopsided industrial
structure into balance by itself. Theoretically, a changing rate would
help promote the development of industries that are not trade-orientated,
in China's case, the tertiary sector.
However, China's tertiary sector was fledgling for multiple reasons,
including inadequate supply of qualified talent and underdeveloped
infrastructure. Such factors are not easily improved by the exchange
regime reform.
Special coverage:
RMB Revaluation
Related readings:
?China'won't bow' to yuan pressure
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?Economists warn of risks of continued yuan appreciation
Therefore, an objective view about exchange regime reform is
indispensable when people discuss the renminbi exchange rate.
The exchange rate equals a price between currencies in economic theories.
Price is the key to allocating resources, which would bear remarkable
significance for all resources in the market.
The Chinese government is determined to further this reform, but only
according to its own blueprint. The greater target might be tarnished if
the exchange regime reform is boiled down to the appreciation of
renminbi. How much should the yuan be appreciated? How long will it rise?
Similar questions should find their answers from the progress in related
fields. No one can give definite answers before the progress is achieved.
It would be totally against the rule of the market economy when a
country, through a political course, asks the Chinese government to
change a key price in the economy. It is both unwise politically and
unrealistic to ask China to realize the targets for its long-term reform
in a short time.
The Strategic Economic Dialogue is a constructive innovation to eliminate
bilateral misunderstanding, pinpoint the strategic issues of common
concern and maximize the benefits of Sino-US cooperation. It may cost the
chance of cooperation if the US insists on politicizing China's exchange
regime reform and the political shortsighted doggedness will also lead to
the neglect of more important issues.
(For more biz stories, please visit Industry Updates)
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