China to Stick With Yuan Peg, Won't Allow Big Change

[bemildred]

March 5 (Bloomberg) -- China, the world's fastest growing major economy, will stick with its existing exchange-rate system and won't allow ``large scale'' appreciation of the yuan against the dollar, the nation's top foreign-exchange regulator said.

``It's not possible that we will allow the exchange rate to float freely,'' Guo Shuqing, head of the State Administration of Foreign Exchange, told reporters today in Beijing. ``It will bring serious consequences. It must be a managed floating exchange rate. That policy will not change for a relatively long time.''

China's growth accelerated to an eight-year high of 9.5 percent last year, which fueled a surge in global commodity prices. The U.S., Japan and other countries have pressured China to loosen the yuan's decade-old peg to the dollar, arguing the link artificially depresses the currency's value and gives Chinese exporters an unfair trade advantage.

The yuan, also known as the renminbi, is allowed to fluctuate within 0.3 percent of the pegged rate of 8.277 to the dollar, a system the government refers to as a managed floating exchange rate. China has said it plans to move to a more flexible system, without giving a timetable.

Bloomberg

[Old and In the Way]

1. I'm kind of surprised that don't start a controlled release. Maybe

allow a monetary policy to equalize the valuation over a period of time, say 5 years. Some say the Yuan is 30% under valued to the USD. I can understand that a radical free float would be suicidal for us and China's US investments, but this policy doesn't seem very smart to me, long term. They are making themselves uncompetitive with the rest of the world while maintaining their parity value with the a US economy that seems to be on the descent.

[bemildred]

2. They are still busy buying up the third world with spare dollars. nt

[Warpy]

3. There's still more industry to loot

and this is why they're undervaluing they're currency. They aren't stupid. They know Chinese workers will look a lot more attractive than American workers will simply because of the rate of currency exchange, never mind that Chinese workers are living in prison conditions.

The way Congress has allowed greed to undermine national security by allowing a foreign power to loot strategic industries should be criminal. This is real treason, folks, since it's robbed us of the ability to produce enough goods and services to carry us through the next big war. And yes, there will be one. Count on it.

[Old and In the Way]

4. "Chinese workers are living in prison conditions."

As compared to their living conditions 25 years ago? Yes, there are many factories that have dormatories and provide meals and healthcare to their workers. There are some that provide a lot less than that. And by US standards, $150.00/month is slave wages. But that's a far cry from a generation or 2 ago that made less than a $100/year per capita and subsisted on starvation diets.

We seem so conflicted about this. 25 years ago we were fighting "communism" in SE Asia. We lost the battle in VietNam, but we ultimately won the war. Mao-style agrarian Communism is dead and replaced by good old American entreprenurial capitalism. Kind of ironic in a way. Maybe we should have supported the communists back then?

I don't disagree that our government is complicit with big corporations for the state of manufacturing in this country. I saw this begin back in the late 70's/early 80's when GE started building their large horsepower motors in Mexico. That was my first direct exposure to "outsourcing". But, as an economics professor told us back in school, "capital goes where capital grows." He meant that as a point of discussion of investment strategies in US corporations, but I think the same truism is at play in the world macro-economic picture. Like it or not, investments are being made in 3rd world countrie, because that's where the ROI is. I've no doubt that we may see the cycle return to the US...but it will only be when we've experienced a suitable reduction in our standard of living to make re-investments attractive.

It may well put a dent in our ability to conduct war.....but I'm not so sure that's a bad thing.

[thegreatwildebeest]

7. The reality is not much better

And by US standards, $150.00/month is slave wages. But that's a far cry from a generation or 2 ago that made less than a $100/year per capita and subsisted on starvation diets.

Actually they aren't making 150 in dollars a month. Presuming the fixed ratio of 8.277 yuan per dollar, and looking at the lowest and highest wages according to ILO statistics, at the highest end of the spectrum a Chinese worker makes 192 dollars, where as the lowest worker makes 64 dollars.

Now the disparity mostly is due to the difference in economic sectors that the highest and lowest wages come from. The lowest wages on the spectrum come from agricultural workers, which is no surprise considering even American migrant farmers get barely 50 dollars a day, if there lucky. The highest comes from the financial district, where there is a large amount of multinational investing firms.

Now we take a look at how many people are in respective job sector and we find statistics that are even more dispiriting. Agriculture workers make up 737 million people in China's economy. Financial services makes up 4 million. Unless China becomes a human computer and hires every possible person to become an accountant, development cannot possibly convert even a mild chunk of those 700+ million workers.

Even the other larger economic sectors, such as manufacturing, only offer a 110 dollar per year, and again only employ 83 million people, a still tiny number compared to agricutlural workers.

As long as independent trade unionism is not allowed in China, and other countries, these conditions will continue to exist and there will be little or any reason for multinationals to stop exploiting employees in other countries while they make profit margins off products that are ridiculous.

[Robert Oak]

5. more like trying to figure out exactly how/when to dump their dollars n/t

[German-Lefty]

6. They should just peg to the Euro

We can import their goods just like the Americans. Our currency will probably stay more stable. They don't need to move thier reserves over to Euro, but they shouldn't just keep buying dollars while the Fed pisses on them.

[teryang]

8. They are not going to give up their competitive advantage

Not while they are siphoning off American capital and watching us destroy ourselves in the middle east. It's all part of a plan.

American corporate greed equals American decline.

It's the Marxist theory of labor capital. Their leadership was born and raised on it. By abandoning their ideological scruples they are reducing us to their level.

[bemildred]

9. Yep, no hurry, everything is fine as it is, no need to jump overboard yet.