For years, politicians in Washington assailed the Chinese government for
undervaluing its yuan (a.k.a Renminbi) currency. It put American exports at a
disadvantage and widened the U.S. trade deficit, they charged. Then,
over the weekend, Chinese officials made a surprise announcement saying they would
increase the "flexibility" of its currency. The remarks were met with skepticism until today when the
currency appreciated by 0.42 percent, the
largest appreciation in five years. Is China keeping good on its promise?
- Change Is Coming in China, writes an optimistic Gady Epstein at Forbes: "China is saying that it has weathered the worst of the global financial crisis, and that it will no longer use the crisis and fears of instability as an excuse to fix the RMB to the dollar. That is a hopeful message."
- A Very Mature Move, writes Peter Boockvar at the Big Picture: "Bottom line, today's move is more symbolic than anything because the revaluation of the yuan will be very gradual and not one off but it is a very important step in China's maturation and global economic relevance... To those critics in the US of China's fixed peg, be careful now of what you wished for. The Renminbi has taken a big step to being a global reserve currency and smaller trade imbalances will mean less Chinese purchases of US Treasuries. At last count they own $900b worth."
- Clever Politicking By China, writes Mike Shedlock at Global Economic Trend Analysis. Ahead of the upcoming G-20 summit, China faced strong opposition for its devalued currency. This small concession was designed to stifle critics, argues Shedlock: "Whether this buys China some time with the protectionists in Congress remains to be seen. However, it is clear that China played its hand as good as conceivable possible with an extremely tough hard-line stance, followed up a day later with seemingly large concession. Had China not played these games, no one would have been impressed with a pissy .37 percent move. Now, everyone is going gaga."
- A Floating Currency Is in China's Best Interest, writes Michael Schuman at Time: "In my opinion, any change in yuan policy that brings into play any degree of flexibility is a good one - especially for China. A more rationally determined yuan will help China make that difficult but crucial adjustment from an invest-and-export economic model to one based more on domestic demand. It will also give Beijing another tool by which it can moderate inflation. China also clearly wants the yuan to play a bigger role in world trade and finance, and a more market-based valuation system will be an absolute necessity to make that happen."
- U.S. Is Already Taking Credit for the Appreciation, writes Marc Ambinder at The Atlantic: "U.S. officials... are already trumpeting the move as a sign that U.S. diplomatic engagement with China helped to precipitate the policy change, which has long been desired by the West, and particularly by China's debtor nations."
- This Is Just a Ploy, writes Gordan Chang at The Daily Beast. Before the currency appreciated Monday, Chang expressed deep skepticism over China's intentions: "Despite the signals from the Chinese capital, don't expect the yuan's value to change much in coming months...Beijing has staked out a position, and it will be difficult to retreat from it. A quick appreciation of the renminbi is unlikely because the Politburo Standing Committee, China's ruling body, is sending its most anti-Western member, General Secretary Hu Jintao, to Canada this week."
- A Stronger Yuan? Here's Who Wins and Loses, writes Jill Schlesinger at CBS News: "Winners would include: U.S. exporters (whose goods will be valued more fairly); U.S. trade deficit (which could narrow on a more equitable exchange rate); U.S. employment (which could rise); the Chinese economy (which can't rely solely on exports to fuel its growth); Chinese consumers (who will have an opportunity to buy global goods); and potentially, Chinese citizens (who could benefit from more government spending at home, because China no longer would have to spend as much money maintaining the artificial currency level). Losers would include: U.S. consumers (who could pay more for China-made goods); U.S. importers (who purchase Chinese goods and sell them in the U.S.); and in the short-term, bears who bet against a stock market rally today after two consecutive weeks of gains."