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Tag Archives: yuan

As China’s wages rise, export prices could follow–this article makes a convincing case that Chinese export prices will probably rise in the near future.

The effect of higher wages is pretty clear, but I doubt the claim that domestic demand will increase much, especially for imports into China. Even with the higher wages here, workers are still much cheaper than in the west.

The salaries of factory workers in China are still low compared to those in the United States and Europe: the hourly wage in southern China is only about 75 cents an hour. But economists say wage increases here will eventually ripple through the global economy, driving up the prices of goods as diverse as T-shirts, sneakers, computer servers and smartphones.

Yeah, prices for Chinese exports will be driven up. likely leading to inflation pressures in the US and Europe.  The short-term effect on the Chinese economy is probably not so bad, as exporters will still find price advantages overseas. As more Chinese workers are attracted to work in the east coast factories, I believe Chinese products will maintain a price advantage compared to manufactured goods in the west.

But Chinese policy makers also favor higher wages because they could help ease a widening income gap between the rich and the poor.

Big manufacturers are moving to raise salaries because they are desperate to attract new workers at a time when many coastal factory cities are struggling with labor shortages.


Again, the US is trying to convince China to increase the value of the Yuan against the dollar. As some of the comments to this article attest, the cost of the change would be to American consumers. There are also many US companies that do not like the idea, because they have operations in China, based on taking advantage of the cheap labor and resources.

Not all American companies favor pushing for a stronger yuan. Executives of multinationals with big operations in China tend to favor keeping currency rates steady.

“The stable yuan is obviously easier for managers to cope with,” says Kevin Wale, president and managing director for General Motors China Group, which sources 85 percent of its parts locally.

The political pressure in the US is based on job creation, and some economists–not all–argue that maybe a million jobs could be created in the US if the dollar were cheaper.

China, meanwhile, argues that a revaluation would not have a significant effect on trade balances, and the drop in the Euro has already put pressure on Chinese manufacturers.

Chinese policymakers insist that adjustments in the yuan’s value will have little direct impact on the trade balance with the United States, and some fret that the yuan’s nearly 15 percent gain against the euro is already too great a burden.

“A revaluation would not bring any good to our economy, as our exporters already are under heavy cost pressures. It would be dangerous to revalue,” said Yi Xianrong, an economist at the government-run Chinese Academy of Social Sciences in Beijing.

I agree with Treasury Secretary Timothy Geithner, who said that China will do what they think is best for themselves, and that will probably include a revaluation sometime in the future.

“I think it is, of course, China’s decision about what to do with the exchange rate — they’re a sovereign country,” Geithner said. “But I think it’s enormously in their interest to move, over time, to let the exchange rate reflect market forces, and I’m confident that they will do what’s in their interest,” he said while visiting Boeing and other exporters in Washington state.

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A Chinese think tank has come out with an essay that argues against pressure to increase the trading value of the Yuan. The general argument–a bit self serving–is that an increase in the exchange rate will hurt China’s growth and hinder the recovery of the global economy.

The essay also asserted that lifting the value of the yuan would not help narrow China’s trade surplus with the United States, as the Obama administration has claimed it would.

China’s cheap goods have helped foreign consumers facing hard times, and raising the value of the yuan could hinder global economic recovery, said the think-tank.

The last argument is the one that makes sense to me. Paying less for imported goods–especially when demand is inelastic–means consumers will have extra income left over for the purchase of other goods. Yes, that would help foster global recovery.

rmb100bNot sure how important this is for the U.S.–but it seems a significant story–that China has recently been striking deals with many South American countries to allow more trade. Nice for the Chinese need for  resources, like oil, and nice for the potential market of exported consumer products. Encouraging the deals, the Chinese are making development funds available to several countries.

All this is interesting because of the relative absence of U.S. influence in the region. The US economy is also greatly dependent on trade, so it seems strange that they would ignore the needs of nearby markets.

“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”

One of China’s bigger deals was with Argentina, giving them easy access to the Yuan and encouraging the import of Chinese manufactured goods. It cost the Chinese 10 billion dollars, and recently they made similar deals with South Korea, Indonesia, and Belarus. It is said to “lead the way to China’s currency (becoming) a reserve currency.”

Is it worth it? Nice to encourage growth in export industries, but what is the value of your currency being used as a reserve currency? It will help your money from losing value during wide-spread recession.

So what?

china-exportsLast month’s exports from China dropped by 17.5% from a year earlier.

This is frightening because it will put more pressure on China to keep the value of the Yuan as low as possible, in addition to lowering export tariffs and minimizing manufacturing costs. All that is well enough, but the western world–especially the US– is already hell-bent on protectionist policies, like mentioned here by Pat Buchanan. 

Active export promotion in China will fuel the protectionist fires even more. Then we really will be in this recession for a long time.

Chinese Premier Wen Jiabao has defended Chinese money policy against accusations from the new Obama administration that the Yuan’s value is being held artificially low.

He acknowledged that global currencies were facing dramatic fluctuation — comparing the ups and downs to a “rollercoaster” — but sharply rejected charges that China was exercising undue influence over exchange rates.

“The fault is not with China,” he said.

Right he is. In fact, the relatively high value of the dollar is rightfully blamed on doubt over the world’s economy and the continued value of other currencies.

In fact, why not blame the Brits for this–

Dollar skyrockets on UK bank woes


I am glad the Chinese are standing up for themselves. The US wants some kind of concession from the Chinese, but would not dare ask the same from the UK or Europe.