Re-considered: The Approach of Chinese Exchange Rate Policy
Postat den 7th March, 2012, 10:13 av Hubert Fromlet, Kalmar
Chinese exchange rate policy has been criticized many times in the past few years for being too cautious and leading to persistent undervaluation of the currency renminbi (RMB).
However, since summer 2005, when the hard Chinese linkage to the American dollar was abandoned in favor of a gradual appreciation process, the RMB has been appreciating by about 30 percent vis-à-vis the American dollar – apart from the stabilizing policy during the period of the worst days of the American subprime crisis and its global contagion.
Since June 2010, when China decided to move back to the stance of appreciating its currency quite cautiously, the RMB has been strengthening by 8 percent – not so bad at the end of the day.
Perhaps, we currently see something like the “end of the day” or rather “the end of the appreciation days” – at least for the time being. First, American currency pressure on China has become much softer. Second, China’s export performance has weakened substantially in the past months. Third, the U.S. and Europe may see its potential need of deficit-financing support from China nowadays more clearly than in the past. Forth. The U.S. administration may have understood by now that steady complaints about the too weak RMB won’t help – a conclusion that I have pointed at many times in the past. Fifth, can we be quite sure that the RMB still is so much undervalued when looking closer at all the structural problems of China? Some of them were clearly stressed by Prime Minster Wen Jiabao at the start of the annual National People’s Congress (NPC).
In other words: The calculation or estimate of a kind of equilibrium exchange rate for the RMB has become even more difficult. Apart from this, we have recently seen some slowing down of the surpluses in the current account and of the accumulation – or even stagnation – of the currency reserves. It is by far too early to say whether this may be the beginning of a new trend – but the phenomenon as such deserves more analytical attention.
Considering this development, it is only logical, from a Chinese perspective, that China at least for some time wants to keep the exchange rate “basically stable”- as announced by Mr. Wen – which also includes at least theoretically more two-way flexibility, i.e. short-term moves in the weakening direction – particularly if the obvious problems for China’s export industries will go on.
No doubt, Chinese leaders feel concerned about the current export problems. However, I have a feeling that the previous forecast and trend target of 8 per cent GDP growth for 2012 can still be met. But this should not mean that we should underestimate the structural problems that were mentioned quite openly by the Prime Minister. Progress in certain areas – for example the marketization of the financial sector, the way to convertibility of the RMB included – will be much more bumpy and determined by conflicts of interests than the speech of Mr. Wen the other day at the NPC obviously has pointed at.
Hubert Fromlet
Professor of International Economics
Editorial board
Det här inlägget postades den March 7th, 2012, 10:13 och fylls under China