Reports on U.S.-China talks are interpreting
Chinese President Hu Jintao's statements as a positive sign of the country's willingness to revalue the yuan. While he made no firm commitments, Hu stated that China would move "steadily" toward exchange-rate reform. If
China did move in this direction, that would be big news: this was one
of the two key talking points for Secretary of State Hillary Clinton on
her trip (the other being North Korea).
- Don't Get Your Hopes Up, says 24/7 Wall St.'s Douglas McIntyre. Hu Jintao, he points out, "gave no timetable and did not indicate how much easing his country may make. In other words, he made no commitment at all on a subject that [China and the U.S.] have tussled over publicly since March." McIntyre says the U.S. is "already viewed as weak on the yuan issue," and clearly this isn't going to help.
- Translation China "will look after its own recovery first and foremost, with an eye toward necessary domestic rebalancing," offers The Economist's Ryan Avent. But given recent research, he acknowledges that the benefit of currency revaluation at this point is pretty "uncertain."
- Revaluing Might Not Be Good Idea, Anyway The recent research Avent looks at comes from the Inter-American Development Bank. Eduardo Lora and Alessandro Rebucci
of the IADB summarize it at a Financial Times blog. Traditionally,
economists have reasoned that "a stronger renminbi will induce a change
in the composition of Chinese growth, away from exports and toward
domestic consumption, while giving the rest of the world and Latin
America a competitive boost." That's not right, they argue: a currency
appreciation would cut Chinese GDP more than previously anticipated,
leading to adverse consequences for the rest of the world:
A revaluation alone has historically created excess capacity and slowed growth in China. And given China's present grab in the world economy, a stronger renminbi today would mean weaker economic growth in Latin America and the rest of the world. It could even jeopardize the already weak recovery of the United States and the eurozone.