The spat between China and the United States over the appreciation of RMB (Renminbi) exchange rate seems to have the tendency to heat up and expand. The US Treasury will release its annual report on 15 April. In this report, whether China will be blacklisted as a currency manipulator country might decide the future international trade direction.
As the date of the release of the US Treasury annual report approaching, the pressure coming from all directions in pressuring China to raise its RMB exchange rate has also intensified. Recently, 130 members of the US Congress have collectively sent letters to US Treasury Secretary Timothy Geithner and US Commerce Secretary Gary Locke, requesting that the United States should list China as one of the countries that manipulates its currency. In addition EU Trade Commissioner De Gucht also felt that China's RMB is undervalued and that China should allow its currency to appreciate. Then came the World Bank and International Monetary Fund (IMF) that followed through and exerted pressure on China to appreciate the value of its RMB.
Revival of Global Economy
Facing overwhelming pressure coming from the western society, Beijing's tone has also been raised. In his work paper for the "two sessions" this year, Chinese Prime Minister Wen Jiabao announced that the Chinese Government would not yield to external pressure and the RMB exchange rate will remain "basically stable." At a public forum held on 21 March, China's Minister of Commerce Chen Deming also said that if China was listed by the United States as a currency manipulator and if China suffered trade sanction, China would take retaliatory measures against the United States. He made this remarks in response to US corporate executives' questions on this issue at the public forum.
Issue relating to the currency rate of RMB has tremendous impact on the world community. As the world's two largest trading countries, if a trade war really breaks out between China and the United States, it will affect all other countries in the world and it may lead to the gradually reviving global economy back to the valley of economic setback again. Objectively speaking, the RMB exchange rate issue is not without a solution.
However, using high profiled propaganda measure to resolve the issue is not the best way to end the trade conflicts between China and the United States. It is obvious that the policy makers in Washington and Beijing are forced to take their respective stand on the RMB exchange rate issue because both governments are confronted by their respective internal situation and pressure.
US Health Care Reform Bill
Although the Obama Government has had its health care reform bill passed, the effort taken by the Obama administration to get it through has already consumed considerable political capital of Obama. Since becoming the US President, Obama has been actively promoting rational public affairs. But now his bipartisanship appeal has also fallen apart.
However, the unemployment rate in the United States has remained high. With the mid-term congressional election approaching, the White House has no choice but to pay more attention to the public opinion and value the feedback from the public opinions as well as to attend to the pressure coming from the opposition party and the pressure from within the ruling party.
The US public opinions attributed the US unemployment problem to the exchange rate of RMB. They said the RMB was unreasonably depressed by the Chinese authority and that as a result it has become a setback to the US export industries. At this very moment, the US domestic political scene is such that the Obama administration is n the defense side when facing the US public. As such, in dealing with the RMB issue, the weaken US Government has subtly reflected its intention to diverge its domestic pressure onto China's RMB by raising its voice sternly.
Economic Transformation
Similarly, on diplomatic front, China also cannot afford to show its weakness. This is because within China, its economic transformation has been slow, its employment situation is grim and its societal tension is on the rise. Voices coming from China's civil society demanding for societal structural change are continued to be heard. The Chinese Government is now faced with a populist movement. At this period of time when the Chinese Government has to pay full attention to handle domestic challenge, China really cannot afford to show its weakness in public diplomacy.
International pressures can only force the Chinese government to hold firm to its position and will not give in an inch. In other words, policy makers in Washington and Beijing were forced out of the internal situation to demonstrate a strong stance. However such situation will not help to solve the RMB exchange rate issue, but would further weaken each other's room for maneuver.
Trade Problem and RMB Issue
In fact the US-China trade problem and the RMB issue are not as insoluble as reflected on the surface. China's gradual accumulation of inflationary pressures will eventually prompt the Chinese Government to let the RMB to appreciate (but the appreciation rate and speed may not be what the United States intends it to be).
To this end, the Chinese Government has also sent a signal. Chinese Prime Minister Wen Jiabao said that China advocated free trade. He said China would not go for the pursuit of trade surplus. In response to the US concern, he also stressed that China would make effort to expand imports. He said maintaining China-US trade balance should be a long-term efforts and direction.
Earlier, China's central bank governor Zhou Xiaochuan also said China's current exchange rate policy was a temporary strategy in response to the global financial crisis. He said that adjustment of the value of Chinese currency was but a matter of time.
Exerting Pressure on China
Past experience has shown that if the United States publicly and openly exerts pressure on Beijing, it will be counterproductive. EU Trade Commissioner De Gucht has also pointed out that on dealing with China's RMB issue; the US Congress should adopt a cautious approach.
De Gucht believed that exerting pressure on China publicly and openly would only lead to negative and counterproductive result. As such he said he would not recommend that EU and Euro zone should adopt such an open approach to deal with China's RMB issue.
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