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So are China and the US friends now?
Still, the United States and China are not quite pals. Obama wants China to adopt a “market-oriented” approach to the value of its currency. That’s too radical for the Chinese who have traditionally seen a cheap yuan as necessary to protect jobs and the country’s huge export trade. Both sides are stubborn, but these issues will at least now be discussed multilaterally, including at the G20 meeting in June.
How might China change its tune?
Still, there are good reasons for China to allow its currency to strengthen soon. Doing so would increase the affordability of its imports, largely made up of commodities and industrial machinery. It would also spare the central bank the task of mopping up billions of dollars of foreign currency every month.
So how much might the yuan move?
A sharp revaluation, of the 25-40 percent order suggested by China’s harshest critics such as the Peterson Institute and economist Paul Krugman, is pie in the sky, at least in the short run. With China’s economy recovering but fragile, and stability the top priority, short sharp shocks are in no-one’s interest. The last seismic shift, when China moved towards a “managed crawl” in 2005, came with an initial 2.1 percent revaluation. This time, even that kind of one-off move might be too much to expect.
Will a stronger yuan rebalance the world?
A bit — but mostly it will help rebalance China. By increasing the affordability of imports, and decreasing the competitiveness of exports, China would over time reduce its destabilising trade surpluses. Beijing sits on some $2.5 trillion of foreign exchange, which it has to reinvest somewhere. Doing so without distorting global markets becomes ever more of a headache.
For the United States, the results may not be so gratifying. There is no guarantee that a pricier yuan would restore American jobs lost to China’s low-cost manufacturing sector, whatever some of its politicians say. Other low-cost countries such as Vietnam and India might win business from China, merely shifting the United States’ imports bill elsewhere. Over half of China’s exports to the United States are merely assembled or processed in the People’s Republic.
Will Yuan Appreciate? Yes. Slowly. Chinese yuanThe clash between the US and China over the freedom of the yuan’s movement continues. China indeed allowed its currency to appreciate but the US are obviously unpleased with pace of the appreciation and demand from China to let the yuan float more freely. Is the yuan really undervalued and will it appreciate in the future?
The US officials claim that China’s currency is below the level, which can be considered the fair market value, and is hurting the US economic recovery.
The US President Barack Obama stated: “What we’ve said to them is you need to let your currency rise”. He was supported by Timothy Geithner, the Treasury Secretary, who said: “The pace of appreciation has been too slow and the extent of appreciation too limited. We have to figure out ways to change behavior”. The opposite viewpoint expressed more often, not surprisingly, by the Chinese themselves.
Jiang Yu, a spokeswoman for the Foreign Ministry in Beijing, voiced the Chinese view on the situation in response to the US demands: The appreciation of the renminbi cannot solve the trade deficit with China” and can’t fix the US unemployment problem. Pressure cannot solve this issue, rather it may lead to the contrary.
Wen Jiabao, China’s Premier, claimed that the problems are in the US itself, not caused by China:
The main cause of the US trade deficit is not the exchange rate of the Chinese currency, but the structure of investment and savings. There’s a trade imbalance between the US and China, which is not something we want to see. China doesn’t pursue a trade surplus intentionally. More balanced opinion also exists: the fixed rate for the yuan isn’t the major reason for the US troubles but it has its influence.
The example of such opinion is the words of Mark Dow, the manager at the Pharo Management LLC:
I am sympathetic to the Chinese argument that the exchange rate doesn’t explain all the problems of the trade imbalance, but it contributes to the problems. Obama is becoming impatient. They are forced to be more vocal. Obama isn’t ready to expend his political capital to buy time for China to move its currency. So, will yuan appreciate further? Most certainly. Will the appreciation increase its pace? That’s more difficult to predict.
China is likely to continue its policy of slow advance of the yuan but, on the other hand, the US will continue to demand the faster appreciation. The demands had little success thus far but if the other countries would join the US demands, and this topic will be presented at the meeting of G-20 next month, the situation can change.
The political issues of China, like the territorial dispute between Japan and China, which intensified after the detention of the Chinese captain by Japan, may also play their role as the deteriorating relationship between China and other countries acts in the favor of the US. Most analysts think that the yuan retain its present trend, unless major change of the economic or political conditions would occur, and will appreciate about 2 percent over the next year.
We can expect that yuan will appreciate. Slowly.
in 2007, many countries have started moving out of the Dollar as the basis for international trade settlements, including: * Japan * Syria * Iran * Libya * Russia * Argentina * Brazil * Venezuela and 12 other Latin American countries as well as Cuba * Many other countries
Originally posted by UFOIogy
I agree the title is misleading, also china will never own us and will never invade, we're go to war with them before it gets to that point
Originally posted by Kargun
Wow this means nothing and I bet the dow rises tomorrow. Talk about spreading fear. Go hedge some money if you are scared. China needs oil. Guess what that is traded in. China holds a trillion of US foreign debt. I'm SOOOOOOOOOOO glad that when the dow hit 6500 I bought instead of selling like EVERY ats financial adviser would have had me do.
This site is good for ufo's but the WORST for making money in the market.
Russia, the world’s biggest energy supplier, wants to start selling oil to China in rubles, said Deputy Prime Minister Igor Sechin, who is also chairman of OAO Rosneft, Russia’s biggest oil company. Energy sales in rubles are a “strategic” issue for Russia, he said, adding that oil exports to China over the next 20 years will surpass $100 billion.
Brazil, Russia, India and China agreed yesterday to push for more clout in global financial institutions during what Medvedev called BRIC’s “historic” first summit in the Ural Mountains city of Yekaterinburg. China and Russia have called for a more diversified financial system to give emerging economies a bigger say in economic affairs, including the creation of alternatives to the U.S. dollar as a reserve currency.
“Expanding the use of national currencies in mutual settlements is a separate, important task,” Medvedev said. China has the world’s biggest foreign-currency reserves, almost $2 trillion, while Russia is third with more than $400 billion.
The ruble weakened 0.1 percent to 31.2396 against the dollar in Moscow today after earlier strengthening as much as 0.4 percent. The yuan was little changed against the dollar on speculation China will prevent appreciation to avoid a prolonged slump in the nation’s exports.
It will take “at least a couple of years” to start converting the first contracts into domestic currencies, said Elina Ribakova, Citigroup Inc.’s chief economist in Moscow.
Today’s announcement has “important symbolic value,” she said. “If you take a 10- or 20-year perspective, trade between Russia and China will increase significantly.”
Total trade between the neighboring countries reached a record $56.8 billion last year, according to the Kremlin.
After today’s Moscow meeting, Russia and China signed an agreement worth $3 billion to cooperate in trade and investment in areas including light industries, high technology and energy.
The dollar’s status has come into question as leaders of the BRIC nations consider substituting other assets for their dollar holdings amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. China alone owns about $744 billion of U.S. Treasury bonds among its $2 trillion of foreign- exchange reserves.
Russian central bank First Deputy Chairman Alexei Ulyukayev’s comment on June 10 that Russia may sell some of its U.S. bonds to buy International Monetary Fund notes helped push 10-year yields on Treasuries to the highest level since October.
Brazilian President Luiz Inacio Lula da Silva today denied that BRIC leaders discussed buying each other’s bonds at the Yekaterinburg summit, after Medvedev’s top economic adviser said the matter might be discussed.
Dollar bonds sold by China earned 11.4 percent in the past year, more than double the 4.6 percent for debt in yuan, JPMorgan Chase & Co. indexes show. Brazil’s U.S. currency bonds returned 3.6 percent as real-based notes lost 4.9 percent, and Russia’s dollar bonds outperformed with a 1.9 percent loss compared with a 7 percent drop in ruble debt. India doesn’t have dollar-denominated debt.
To contact the reporter on this story: Lyubov Pronina in Moscow at firstname.lastname@example.org; Alex Nicholson in Moscow at email@example.com
To contact the editor responsible for this story: Chris Kirkham at firstname.lastname@example.org
This may be the necessary trial by fire for America to begin again with a clean economic state. Of course, I have a hard time believing that China will destroy countries that buy its exports. Just doesn't make sense, but what do I know.
Originally posted by mickey2011
the issue is, hat china nearly exports half of its goods to the USA. in my opinion china wont drop the usa as the number one of chinese crap importer. if they do so, they must fear civil unrest, cuz of massive loss of jobs.
chinese ppl now r getting used to normal and wealthy life as we do, so they will be first who will bring forward complaints in a strong and harsh way. just these days the chinese goverment fears that the spark of freedom could irritate chinese global player plans.
>i am german, so excuse any grammar incompetence.<
This is just going to lead to isolationism and better US economy.
Get rid of money? The guy down the street with the cart and blankets did that already. Ask him how well it went You may have to speak loudly because he lost his hearing due to not being able to afford medical insurance. And he does not speak good english either because he couldn't afford a decent education. Good luck learning anything from him. It's easy enough to just watch.
Originally posted by Amaterasu
Hyperinflation here we come!
Ah, I have seen it on the horizon a long while now. Let's get rid of money! Here's how:
www.abovetopsecret.com...edit on 3/2/2011 by Amaterasu because: typo