beyondbrics

You say appreciation. I say flexibility.

Last weekend’s widely-praised announcement by China’s central bank that it would no longer peg the renminbi to the US dollar is already attracting a backlash. Paul Krugman, a longtime critic of China’s currency policy, labelled the change “the renminbi runaround.”

Krugman has a point – the clearest evidence of the Rmb’s undervaluation is Beijing’s $2,400bn pile of foreign reserves, the product of systematic intervention in foreign exchange markets over the past decade. Continue reading »

All the planets are aligned for China to make its long-awaited move on its currency, at least on one view of events. After a few months of small trade surpluses and even one monthly deficit, May’s trade figures recorded a healthy rebound in exports. China’s May trade was in the black to the tune of $19.5bn, with exports rising 48.5 per cent year-on-year.

The figure is closely watched in Chinese policy circles. Exports don’t drive economic growth as much as many US Congressmen would have you believe. But trade is hugely important for creating jobs, which is the key to broader social stability. The Commerce Ministry, which has always battled moves to allow the currency to appreciate, will have its arguments weakened by the export sector’s return to rude health. Continue reading »

The public comments by Wen Jiabao, China’s Premier, on the country’s recent outbreak of labour unrest is significant, if for no other reason than the fact they were made and publicised at all. Wen’s decision to speak out on the issue is a sure sign that the labour unrest is a matter of deep concern at the highest levels of the communist party leadership. Continue reading »