October 17, 2005
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A Question Of Maturity
BCH offers the least of many reasons China should not radically revaluate the yuan, as the Bush administration is asking.
Administration officials say the plan is part of an effort to put the yuan into a broader debate over China's lopsided reliance on exports as the main source of economic growth. The plan, to be discussed in two days of talks here and in Beijing, calls for China to speed up the privatization of state-owned companies, including banks; to develop a Chicago-style futures market for currency trading; to establish an independent credit-rating agency; and to crack down on bailouts for banks left holding bad loans.
David Barboza offers an illustration of what revaluation means for Chinese companies.
Led by such trade gains, China's economy has been sizzling hot, bringing in so much money that Fitch Ratings said on Friday that China could in 2007 become the first country with more than $1 billion in foreign reserves; as of the end of last month they totaled $769 billion, the central bank said on Friday. Beijing is worried that strengthening the currency rapidly and sharply could be too much of a shock for the economy, perhaps even forcing companies to lay off workers.
According to Bloomberg, FDI trends are already mixed. In short, China's economy has already reached a point of maturity, but just as in previous periods of growth in its history, economic development is uneven.
Furthermore, as William Pesek, Jr. points out, the Bush administration is just wrong about comparing China to Japan or the former Soviet Union.
China is considerably less wealthy than Japan, and far more reliant on trade. So if Snow thinks his trip to China this month will result in a further strengthening of the yuan, he is mistaken.
So, stop calling the Bush administration bullies. They're idiots!
Cross-Posted at Barbarian Envoyposted by Infidel on 10.17.05 at 09:38 AM in the China economy category.
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