Blind men and the ele­phant in the room of global fi­nance

China Daily (Canada) - - TORONTO -

Barely had Chi­nese pol­i­cy­mak­ers man­aged to con­vince global in­vestors of the long-term value of the ren­minbi to check un­jus­ti­fied de­val­u­a­tion, than theUnited States called on China to al­low its cur­rency to ap­pre­ci­ate fur­ther to sup­port its eco­nomic re­bal­anc­ing.

TheUS Trea­sury’s lat­est semi-an­nual re­port on eco­nomic and cur­rency poli­cies of ma­jor trade part­ners not only rec­og­nized the fact that the Chi­nese cur­rency had ap­pre­ci­ated against the green­back nearly 30 per­cent over the past five years. It also noted that, against mar­ket ex­pec­ta­tions of a much deeper fall, data sug­gests Bei­jing “sold a sig­nif­i­cant amount of re­serves in Au­gust to stem theRMBde­cline.”

Yet, in spite of th­ese facts, the re­port has come to the strange con­clu­sion that the ren­minbi re­mains be­low its “ap­pro­pri­ate medium-term val­u­a­tion”.

Though the lan­guage may be softer than the pre­vi­ous re­port in April when the US in­sisted that the Chi­nese cur­rency was sig­nif­i­cantly un­der­val­ued, a case that the mar­ket has clearly proven wrong, it does not al­ter the fact that the newre­port is as mis­lead­ing as its pre­de­ces­sor.

On one hand, the US as­sump­tion that it knows bet­ter than the mar­ket and Chi­nese pol­i­cy­mak­ers about what should be the ap­pro­pri­ate val­u­a­tion of the ren­minbi only adds to the frus­tra­tions of global in­vestors, who are pray­ing for fewer un­cer­tain­ties as the global econ­omy en­dures its worst year since 2009.

It is the­o­ret­i­cally cor­rect for the US Trea­sury’s re­port to point out that fur­ther cur­rency ap­pre­ci­a­tion will sup­port the pur­chas­ing power of Chi­nese con­sumers and help shift pro­duc­tion to­ward non­traded goods and ser­vices.

More ser­vice and con­sump­tion-led growth are in­deed needed new­drivers for the Chi­nese econ­omy. But the Chi­nese re­al­i­ties – that ex­ports are slow­ing and con­sump­tion is grow­ing, but not strong enough to take up the slack – nei­ther jus­tify nor af­ford a stronger Chi­nese cur­rency in the near fu­ture.

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