Saturday, April 22, 2006

A Not-So-Floating Yuan

Excellent insight here at China Law Blog about the true yuan/dollar situation, derived from a Forbes Magazine article by Paul Maidment. I quote CLB:

[Thanks to for the photo.]

"Maidment argues that China cannot float the Yuan right now because if it did, it would lower the cost of foreign goods in China and drive many rural, state owned, industries out of business.  Because these industries provide so much rural employment, Beijing simply cannot allow them to fail: 

" 'Instead, its [China's] currency imperative is to protect the vast network of bankrupt but job-providing heavy industries that Mao Zedong scatted across China's countryside. They would be destroyed by import competition if the yuan was revalued.

" 'That would exacerbate the social disruption and violent protests breaking out in record numbers in China's poorest regions. Beijing won't countenance that level of political unrest.

" 'That is the political imperative that drives China's exchange-rate policy right now, regardless of how much atavistic chest thumping comes out of Washington, either while Hu is here or after he has left.' "

Ah sooooo. CLB concludes:

"Bottom Line: China is not going to float its currency soon so the United States would be wise to move on to other issues." I'll add that the "other issues" will be trade barriers, unfortunately, and usually I'm agin 'em. But in this case, I admit I'm tempted to put my Wealth of Nations aside for a Senate vote to two -- temporarily of course -- nah, it'd probably do more harm than good.


Anonymous Endo Last said...

Maidment doesn't like protectionism. See this video at the Forbes site.

5:26 AM  

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