China Disputes Yuan Rise, Says It Will Go Into
Trade Deficit
Countering the American view that the Chinese yuan (RMB)
is pegged at an artificially low rate against the US dollar,
Chinese economists, analysts and officials state the country's
current growing trade surplus with the US and other countries
will turn into a deficit as it continues to invest in
the country's infrastructure development. When Chinese
premier Wen Jiabao visits Washington on Dec. 7, this is
the main viewpoint he will put forward.
The prevailing American view is dominated by the view
that China is a mercantilist, export-oriented country
seeking to build up its foreign currency reserves, much
like Japan. The Chinese position is that China, while
heavily dependent on trade and foreign exchange in the
past, is a developing rural country which is rapidly urbanizing.
According to Chinese government estimates, more than 200
million Chinese will move from the countryside into cities
over the next 10 years. Their statistics indicate that
this will require China builds one city the size and population
of Philadelphia every month for the coming decade.
According to Chinese economists, this will require massive
infrastructure investments for the society. On the import
side, this will require heavy imports of steel, iron and
other raw commodities to fulfill domestic needs. International
commodity prices have risen this year, largely because
of Chinese import demand.
Economically, this means that the proportion of exports
will go down, and more products will be sold and consumed
domestically by Chinese consumers. Already, the Chinese
government is lowering the amount of VAT rebates for exported
products, and cutting back on other export incentives.
Unlike Japan, which has a population of 120 million,
China has a 1.3 billion population which is undergoing
structural economic changes. For this reason, the Chinese
economy will not be as dependent on exports as the Japanese
to drive economic growth. From the Chinese government's
point of view, the main engine of economic growth will
be China's growing consumer class. As this class is grows
in number and prosperity, Chinese consumers will increasingly
become the engine of world economic growth, replacing
to some extenst the US consumer, which is aging, paying
for increasing healthcare costs, and suffering from job
insecurity.
In a related move, the Chinese government is relaxing
other government controls, and is now stating that investments
under US$30 million will not need to get central government
approval. The move is designed to simplify and stimulate
the investment process.
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