The People’s Bank of China may be on its way to looser monetary policy. To start with, its been a while since the central bank raised its interest rates, and Chinese premiere Wen Jiabao is urging financing for small businesses. Moreover the Financial Times points out an interesting trend.
Back in August 2008, when China pegged its currency to the dollar, the yuan moved up and then plateaued. It officially de-pegged from the dollar in June this year, and the currency began to appreciate, but in September it slid 0.1% against the dollar. Soon after the 2008 peg, China announced a 4 trillion yuan stimulus which helped the flagging world economy. So markets expect a similar move now. In the absence of such a stimulus the criticism is likely to get overwhelming.
Meanwhile, the U.S. is furious that the yuan isn’t appreciating at a faster pace and is pushing a China currency bill that would exact duties on imports from countries that manipulate their currencies.
In a new paper for the Heritage Foundation however, Derek Scissors argues that American unemployment has nothing to do with Chinese currency manipulation:
“From the American perspective, the yuan’s 24 per cent rise against the dollar since June 2005 has coincided with a rising bilateral trade deficit, in stark contrast to the predictions of those calling for revaluation. More broadly, for nearly two decades, there has been no real connection between the value of the yuan and U.S. unemployment. This is not a surprise—American unemployment is naturally determined by American policies, not Chinese.
…Rather than wasting still more time, the U.S. should now turn to the true problem with Chinese policy. As should be expected in a huge economy with many forms of state intervention, Chinese subsidies will not be easy to roll back. …The U.S. should identify and measure—and continuously update the measurement—the extent of subsidies.”