Money matters: China battles it out with US over value of yuan

The statistics that are worrying the US are: The loss of 2.6 million US manufacturing jobs since March 2001. China’s $100 billion trade surplus with the US last year, which makes China America’s third-largest trading partner. China’s exports of $125 billion to the US, accounting for 9.3 per cent of all US imports. The fact, that if China’s exports to the US continue growing at the current rate of 20 per cent per annum, the US trade deficit with China would reach $330 billion in the next five years.

The rest of the world, and certainly China, knows that America’s strident demands are more a political rather than an economic manoeuvre. In the run-up to next year’s presidential elections the US is trying to politicise the yuan issue and make it the scapegoat for the poor performance of the US economy. The fundamental fact remains that even a 40 per cent appreciation of the yuan will not be able to cover the manufacturing wage differential of almost $28,000 between the two countries. An average Chinese factory worker earns $1,182 a year versus the US counterpart’s $29,000. The low-end manufacturing jobs that have left the US are gone for good.

China has defended its fixed exchange rate policy by arguing that, especially in the current economic climate, a stable yuan benefits not only China but the region and the rest of the world. Furthermore it has emphasised that a country’s exchange rate policy should be determined by the nation’s own economic situation and balance of payments, and not international opinions.