The Chinese come bearing checkbooks
- From: ** <**@.org>
- Date: Fri, 04 May 2007 08:24:13 +0800
The Chinese come bearing checkbooks
By Olivia Chung
HONG KONG - Chinese Vice Premier Wu Yi will visit Washington on May 13 to attend
the second round of the semi-annual Sino-US Strategic Economic dialogue with US
Secretary of the Treasury Henry Paulson. China will also send a huge business
delegation to ink deals worth some US$12 billion to show its sincerity in
narrowing its trade surplus with the US.
But few believe Wu will deliver the present at the top of Washington's wish list
- a stronger yuan - to the US. Without a
strong yuan, however, experts doubt that China's purchase of US goods would
significantly change the overall trade imbalance between the two countries.
China's exports soared 27.9% to $252.1 billion in the January-March period,
earning a surplus of $46.4 billion, $23.1 billion more than the same period last
year.
"We believe the significant increase in the trade surplus, both in terms of its
levels and the year-on-year growth rate, continues to put the yuan exchange rate
under the spotlight,'' investment firm Goldman Sachs recently wrote in a note.
"Faster yuan appreciation is a more efficient policy measure to eventually
reduce external imbalances and the need for large-scale sterilization operations
while preserving domestic demand growth," it said.
But Beijing has resisted calls to let its currency appreciate faster. The yuan
has gained a mere 7% since it was unhooked from a dollar peg in July 2005 and
allowed to float within managed bands.
But some US politicians have fixed on the yuan exchange rate as a key factor
underlying China's huge trade surplus. They argue that Beijing is keeping the
currency artificially low, making imports from China cheaper than they would
otherwise be.
Vice Minister of Commerce Gao Hucheng said the main reasons for China's trade
surplus are structural problems in its industries and the global migration of
industry. Given that about 50% of China's imports and exports are related to
processing industries, its trade surplus will remain for some time. China's
international payment imbalance has become the government's top priority and
triggered some disputes, Gao said.
A Chinese delegation signed about $16 billion in import deals with their US
counterparts on products ranging from aircraft to soybeans and other goods
during President Hu Jintao's tour to the US in April 2006. This time Vice
Premier Wu will buy about $12 billion worth of goods when China's strategic
economic dialogue with the US resumes in Washington this month.
Wu, who co-chairs the strategic economic dialogue with Paulson, will be preceded
on her trip by a commercial delegation led by another senior commerce official,
Ma Xiuhong, who plans to visit the cities of Atlanta, Chicago, San Francisco,
and Washington, DC.
As well, about 30 large Chinese companies, including the Bao Steel Group and
China National Arts and Crafts, will be invited to this year's International
Sourcing Fair in Shanghai and encouraged to spend as much as $10 billion on
foreign imports. The procurement fair is scheduled for September 25-27.
However, Ha Jiming, chief economist of China International Capital Corp,
mainland China's biggest investment bank, said the purchases could hardly have
any significant impact on the overall US-China trade imbalance, and the
situation will not change until 2015, when China becomes an aging society and
has to direct more resources to social costs.
To boost imports, the Ministry of Commerce recently lifted embargoes on more
than 1,600 categories that were previously banned from entering the country. At
the same time, Beijing has moved to discourage exports by cutting export-tax
rebates from 8% to 5% on 76 products and has abolished rebates on 83 products
since the middle of April.
While experts including many at home say speeding up yuan revaluation is the
most effective way for a balanced trade, the Chinese government is expected to
stand firm on its gradualist approach. Chen Xingdong, deputy managing director
and chief economist of BNP Paribas Peregrine Securities, said in Beijing that
given many uncertainties, yuan appreciation might not be an efficient measure to
reduce external imbalances.
"First, one has to ask by what percentage the yuan has to increase to reduce the
competitiveness of Chinese exports. Second, if the yuan were left to appreciate
faster and that did not have any significant impact on the US-China trade
imbalance, the value of yuan would have been under the control of other
countries who would never be satisfied with the rise," Chen said.
Chen reminded of the painful lessons learned by Taiwan in the 1980s and early
1990s when it was called to raise the value of its currency. Taiwan lost control
over its money supply in 1987 and eventually succumbed to market pressure by
letting the exchange rate float. Since then, its economy has not recovered its
double-digit growth, Chen said.
"With the 17th Communist Party Congress in the autumn, at which a leadership
reshuffle is likely, the central government leadership needs to be very careful
in with the steps it takes to cool down the economy," he said.
"At the same time, in order to reduce the competitiveness of Chinese exports and
to reduce the trade surplus, Chinese government has other measures to achieve
its aims. For example, it could scrap export-tax rebates on resource-intensive
and highly polluting products and ban processing trade of some categories in a
bid to slow down export growth," he said.
"So why don't we have a look at the effectiveness of these measures before
resorting to the yuan appreciation?" he asked.
Olivia Chung is a senior Asia Times Online reporter.
.
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