Sunday, August 17, 2003
Another take on revaluing the Yuan
A few weeks back, I had posted a note about the highly undervalued nature of the Yuan. It contained links to a couple of articles on the implications of the continued undervaluation of the Yuan, both of which suggested that the Chinese needed to revalue. Last week's issue of Businessweek has a different take.
But boosting the value of the yuan may not be the best way to tame China's capital flows, say a growing number of economists and currency analysts. In fact, it could do more harm than good -- not just for China but also for the global economy. Among the hazards on the Chinese side: a big slowdown in the mainland's export machine. That would depress China's need for imported raw materials and machinery. It also would hurt incomes, which would lower Chinese demand for imported consumer goods. On the U.S. side, a higher yuan would boost U.S. prices for everything from toys to power tools, and trigger a fall-off in Chinese purchases of U.S. Treasury securities.
But boosting the value of the yuan may not be the best way to tame China's capital flows, say a growing number of economists and currency analysts. In fact, it could do more harm than good -- not just for China but also for the global economy. Among the hazards on the Chinese side: a big slowdown in the mainland's export machine. That would depress China's need for imported raw materials and machinery. It also would hurt incomes, which would lower Chinese demand for imported consumer goods. On the U.S. side, a higher yuan would boost U.S. prices for everything from toys to power tools, and trigger a fall-off in Chinese purchases of U.S. Treasury securities.
