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Delicate balancing act for Beijing as Chinese yuan appreciates,[link widoczny dla zalogowanych]
For the moment,[link widoczny dla zalogowanych], China seems to have defused growing international complaints - voiced with particular anger in america Congress - it keeps its exports artificially cheap and it is imports unreasonably expensive by deliberately holding down the value of its currency, the renminbi (RMB), which the yuan may be the principal unit.
However the move last weekend to unpeg the RMB in the US dollar and let its value fluctuate a little am cautiously framed that "it won't make any big changes to the Chinese economy," says Zhao Xijun, deputy dean of Renmin University's School of Finance. And any hopes that the change might turn back flow of jobs to China are "wildly overoptimistic," adds Paul Cavey, of Australia's Macquarie Bank.
The yuan closed now with a .53 percent uptick,[link widoczny dla zalogowanych], to 6.79 to the dollar, setting a brand new high from the US currency within the modern era. Few analysts expect the RMB to rise more than 3 % this year, in a managed float that officials say is going to be gradual.
"The cause for large-scale appreciation of the RMB exchange rate does not exist,[link widoczny dla zalogowanych]," the Central Bank said in announcing that market forces will be permitted to play a larger role in setting the RMB's value.
Plenty of contention in small revaluationEven a small revaluation has proved highly contentious, with reports of fierce debates in the highest degree of the federal government. Critics of the move fear it'll render large swaths of low-cost, low-profit-margin Chinese industry uncompetitive by looking into making its exports more costly.
"If the exchange rate rises too much,[link widoczny dla zalogowanych], a lot of companies goes bankrupt,[link widoczny dla zalogowanych]," warns Xiang Songzuo,[link widoczny dla zalogowanych], an economist. "And when unemployment rises, a fiscal problem will become a social problem."
The Chinese government makes it an objective to move the country's manufacturing up the value chain,[link widoczny dla zalogowanych], from low-margin exports for example shoes, clothes, and toys. "But the federal government must be very careful to keep the total amount,[link widoczny dla zalogowanych]," Professor Zhao points out. "They want to change the structure of exports,[link widoczny dla zalogowanych], but they do not want exports to fall a lot that growth is negatively affected."
Low-end industries will have to relocate years aheadWhen the RMB was last permitted to float within limits, between 2005 and 2008,[link widoczny dla zalogowanych], it gained almost 20 percent in value. Low-end manufacturers stayed open by boosting efficiency, says Arthur Kroeber, head of the Dragonomics consultancy. "But they've squeezed as much efficiency … as they can,[link widoczny dla zalogowanych]," he adds. "This time a rising currency will quickly make this option less competitive. Within the next five years, low-end industries is going to be leaving of China." Mr. Kroeber does not expect the RMB to gain enough value to cause "large-scale havoc" for exporters.
Some begin to see the change in policy as a sign of self-confidence. "Generally speaking, it means the government thinks the economic crisis is over for China" and that it will take risks again, says Zhao.
Most economists say Beijing acted only because the June 26 Number of 20 meeting had threatened to become a China-bashing free-for-all also, since the White House had warned Chinese leaders it could not counter a move in Congress to sanction China for currency manipulation.
Certainly the policy carries risks. It'll make exports more costly, and therefore harder to sell, at a time when China's biggest foreign market, the European Union, faces grave economic difficulties.
China attempts to go speculationAnd if investors expect the RMB to increase and rise, they will likely pour speculative "hot money" into RMB assets. That will undermine government efforts to deflate red-hot property prices, and threaten a stock market bubble.
China Central Bank has been trying to dampen such expectation, moving the RMB's official trading band down in addition to up in daily fixes in order to create movement within the exchange rate,[link widoczny dla zalogowanych], and stressing the modesty of their ambitions.
That will disappoint foreign critics,[link widoczny dla zalogowanych], a number of whom claim the RMB is undervalued by 25 to 40 %.
Though that might have been the situation some years ago, says Mr. Cavey, China's trade surplus has become running at only half its 2008 rate and the government continues to be printing money to fund its stimulus bundle. "Under these circumstances it is tough to understand why the RMB ought to be an extremely strong currency,[link widoczny dla zalogowanych]," he points out.
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