July 27, 2005

CHINA'S YUAN REVALUATION:  A CAUTIOUS AND 'SYMBOLIC' BEGINNING

 

KEY FINDINGS

 

**  Dailies split on whether PRC's exchange-rate reform is "historic" or only "symbolic."

**  Revaluation of yuan designed to offset U.S. pressure and dampen China's hot economy.

**  Small change in yuan's value against dollar portends "negligible" effect on trade.

**  Writers scold China for "creating many uncertainties" with "opaque" currency regime.

 

MAJOR THEMES

 

'Fundamental change' or mere symbolism?--  China's revaluation of the yuan received mixed commentary in global media, which labeled it anything from "marking a new era for the world economy" to a "tempest in a teapot."  China's official China Daily hailed the change as "a significant move in the country's market-oriented reforms" while papers in Canada and Singapore called it an "historic milestone" and "no small thing."  Dutch and Australian writers termed the revaluation "mainly a symbolic action" and a "cautious" step towards a more flexible exchange rate.

    

'Deflecting' U.S. pressure--  France's left-of-center Liberation spoke for many when it declared the revaluation was "more political than economic" and was designed to "defuse tensions with Washington and pave the way" for Chinese President Hu’s trip to the U.S.  The readjustment, claimed an independent Hong Kong economic journal, was "due to political pressure from the U.S. and Western countries."  Canada's liberal Toronto Star disagreed, asserting "the move by China's central bank...was prompted much less by U.S. bullying than domestic concerns, notably inflation."  A Dutch outlet echoed that view:  "A more expensive yuan," it argued, can slow down exports "and so allow the Chinese economy to cool off a little bit."     

  

'Two percent is nothing'--  While a few editorialists warned the revaluation "is going to make a lot of things more expensive," most commentary viewed the fact that the yuan rose only 2.1 percent against the dollar as signaling "a small revolution" likely to have a "negligible effect."  German analysts concluded the change "will not be enough to considerably reduce the gap between U.S. imports and exports," adding that "the wage gap between America and China is so wide that it cannot be leveled" with exchange-rate adjustments.  China's official press alerted trading partners that they shouldn't expect a further rise in the yuan, as this "could throw the economies of China and many other Asian nations into chaos."  Thailand's independent Nation believed the yuan move "holds the promise of greater regional economic stability" but Japanese dailies said the upward revaluation was "not enough."

 

'From transparent to opaque'--  Though praising the PRC for adopting a policy that will help it "ease its economy further into the mainstream," many commentators criticized the currency regime's "many unclear points."  China deserves "some credit" for the change in policy, said Britain's conservative Times, "but not for its enduring opacity."  Conservative papers also reminded China that it is "badly mistaken" if it thinks further reforms are not necessary, as market pressures "will not go away, nor will pressure from the U.S. Congress."

 

Prepared by Media Reaction Branch (202) 203-7888, rmrmail@state.gov

 

EDITOR:  Steven Wangsness

 

EDITOR'S NOTE:  Media Reaction reporting conveys the spectrum of foreign press sentiment.  Posts select commentary to provide a representative picture of local editorial opinion.  Some commentary is taken directly from the Internet.  This report summarizes and interprets foreign editorial opinion and does not necessarily reflect the views of the U.S. Government.  This analysis was based on 40 reports from 17 countries July 22-25, 2005.  Editorial excerpts are listed from the most recent date.

 

EUROPE

 

BRITAIN:  "Enter The Dragon"

 

The left-of-center Guardian commented (7/22):  "China's awakening has been the most remarkable economic event of the past decade.  Its effects can be seen everywhere, from the high price of oil to the low price of clothing.  That success has lifted swathes of China's population out of poverty.  But the full fruits of that transformation have yet to filter out.  A floating yuan should help accelerate that process, by making China's consumers more wealthy and more valuable."

 

"Chinese Puzzle"

 

The conservative Times argued (7/22):  "China deserves some credit for a significant change in policy, but not for its enduring opacity.  Instead of being pegged against the U.S. dollar, the yuan is to be fixed against a basket of currencies, but there was no guidance as to which currencies would be in Beijing's basket and whether a chosen currency would remain permanently in said basket.  As ever, those determined to divine China's precise intentions run the risk of becoming basket cases."

 

"Making Sense Of China's Choice"

 

The independent Financial Times observed (7/22):  "Market pressure will not go away.  Nor will pressure from Congress and the U.S. administration.  If Beijing understands that further revaluation and other reforms must follow swiftly, all well and good.  But if it thinks it can rest here for a year or two, it is badly mistaken."

 

FRANCE:  "A Monetary Reform To Calm Washington"

 

Pierre Haski wrote from Beijing in left-of-center Liberation (7/22):  "The purpose of China’s monetary reform is more political than economic in order to defuse tensions with Washington and pave the way for the Chinese president’s upcoming trip to the U.S.  Considering the initial reactions from Washington, this maneuver has been successful....  Only 48 hours ago President Bush was still calling on China to 'change the way it evaluates its currency.'  The EU hesitated to follow the example of the U.S. vis-à-vis China and finally fell in behind....  But Washington’s satisfaction with the Chinese government’s decision may be short lived."

 

"Coded Message"

 

Pascal Aubert commented in centrist, business-oriented La Tribune (7/22):  "The message is coded, as always when it comes from China.  By opting to revalue its currency when it was the least expected, the Chinese authorities have sent a clear message to the rest of the world that it is useless to try and influence or intimidate China.  Beijing will make decisions in spite of international pressure...but the cat and mouse game is far from over."

 

GERMANY:  "Yuan As A Coolant"

 

Center-right Frankfurter Allgemeine had this to say (7/22):  "It is a example from the diplomatic bag of tricks that will take out the a bit of the wind of the protectionists' sails:  China revalued its currency towards the dollar by two percent.  The short-term consequences of this maneuver are negligible...but as of today, politicians and industry lobbyists will have difficulty accusing the Chinese of unfair competitive practices and a lack of responsibility for the global economy.  Beijing will now tell its critics:  we have made the first step.  Further steps will follow, but we will determine the pace of future developments....  This may be good, since an exchange rate that is left to the market forces is an important price signal for a national economy...but in a developing nation, which China still is, it can be dangerous to set in motion such a process overnight.  A total release of the yuan would be detrimental to Asia as a whole since its jobs depend to a high degree on exports....  Does this mean, America will be footed the bill for China's development in the form of excessive trade deficit?  The question is wrongly posed, since the link between high export surpluses and the artificially lowered Chinese currency is not as compelling as Washington has suggested again and again.  The wage gap between America and China is so wide that it cannot be leveled through adjustments in the exchange rates....  To put it briefly:  the revaluation of the yuan is a necessary step in the right direction.  No more and no less."

 

"Cautious Beginning"

 

Jörg Eigendorf stated in right-of-center Die Welt of Berlin (7/22):  "If the Chinese government allows a revaluation of the yuan to the dollar by 2.1 percent, this may look like a tempest in a teapot....  But Western governments are well advised not to attack the Chinese government.  Several times before, Beijing proved that it wants to determine such development on its own and that too much pressure is counter-productive.  In addition, the Americans cannot be interested in a rapid and drastic revaluation either.  Strong turbulence at the financial markets would the consequence....   For Europe, in turn, it is good news that China no longer wants to peg the yuan to the dollar.  The yuan will now move more in accordance with the euro, which is also good for Germany's export economy.  The concrete implications of this first step may be minor, but China signaled after all that it is willing to move in the right direction.  And this allows the hope to expect more."

 

"Risky Move"

 

Sebastian Dullen declared in business daily Financial Times Deutschland of Hamburg (7/22):  "As a matter of fact, China's pegging of the yuan to a basket of other currencies is a considerably better solution, from China's viewpoint but also from the viewpoint of the rest of the world, than pegging it to the dollar.  But unfortunately, this change was done in a way that will possibly create new problems for China without eliminating the global imbalances in global trade....  The change by the Chinese will not result in a true correction of the U.S. trade deficit, thus reducing the risk of a plunge of the dollar either.  Even if other Asian countries followed suit and allowed a minor revaluation of to the dollar, like Malaysia, the two percent correction...will not be enough to considerably reduce the gap between U.S. imports and exports.  As regrettable as it is:  China's revaluation of the yuan has made the global finance system considerably unsafer.  Only if the government in Beijing succeeds in controlling the consequences of its change, can the world profit in the long run from the revaluation in Asia."

 

ITALY:  "Yuan And Reforms"

 

Francesco Giavazzi concluded in centrist, top-circulation Corriere della Sera (7/22):  "The revaluation of the currency might cause the gap between cities and the country to widen....  China’s big problem today is to redress the growth balance, without bringing it to a halt....  If growth were interrupted, the regime’s days would be numbered....  The solution is a great plan for social, education, retirement and healthcare reform, to reduce the risks for families....  In a country that has practically no public deficit, it is possible to finance such a project."

 

NETHERLANDS:  "Well-Understood Self-Interest"

 

Influential liberal De Volkskrant editorialized (7/23):  "It has already been called the largest economic event of the year, the decision of the Chinese government to make the yuan a little more expensive versus the American dollar.  No matter how important this step is in intention, it still remains mainly a symbolic action.  It is not enough to really make a difference....  For 10 years, China has been supporting its growing export by keeping the yuan fixed to the American dollar, at a rate so low that it boosted sale of Chinese products all over the world...but on Thursday, China suddenly announced that it will make its yuan 2.1 percent more expensive compared to the American dollar.  But the yuan is not free-floating because it will be linked to a 'basket' of currencies of undisclosed large trading partners.  By doing so, China is creating many uncertainties.  Not only is a 2 percent revaluation rather modest--economists say that yuan is at least 15 percent undervalued vis à vis the American dollar.  It is also unclear what the consequences are of the new exchange rate policy as long as the content of the basket and the bandwidth within which the yuan will fluctuate vis à vis these currencies, remains unknown.  It is also unclear whether this is a victory for President Bush as many initially said...for China has a long list of valid domestic economic reasons to make its yuan more expensive.  For example, the exploding economic growth caused rapidly rising prices because the Chinese thirst for oil, steel, and other products need to be quenched in dollars.  A more expensive yuan would make these products a little more affordable.  Moreover, a more expensive yuan can also slow down exports and so allow the Chinese economy to cool off a little bit.  It was also too risky for China to hold on to the piles of dollars in reserves which it had to keep on buying to keep the yuan at a lower value.  And so, Beijing is not giving in to Bush.  China, as it suits a self-confident superpower, is mainly acting out of well-understood self-interest."

 

SPAIN:  "Chinese Flexibility"

 

Left-of-center El País editorialized (7/22):  "The significance of the decision (to allow a more flexible exchange rate) lies in its economic consequences for China...Europe and the U.S.  The first effect will be the decrease of the pressure of Chinese exports on the dollar and euro area.  It will not be the only one.  Another important effect will be that European economies will not have to pay the cost of U.S. commercial imbalance due to the fact that, until yesterday, the dollar, which was not able to depreciate against the yuan, did so against the euro.  There also abundant currency benefits.  The careful appreciation by China...will allow other Asian currencies such as the yen to more freely operate in the markets."

 

MIDDLE EAST

 

SAUDI ARABIA:  "Buyer's Market"

 

The pro-government, English-language Arab News commented (Internet version, 7/23):  "China has revalued its currency, the yuan.  No big deal, readers in Saudi Arabia may conclude:  China's economy is of no concern to them.  It should be.  The revaluation of the yuan is going to make a lot of things more expensive, not least clothes.  The Chinese have become tailors to the world.  Whether it is Riyadh, Rio or Rome, or London, Paris or New York, the chances are that the shirt, the jacket or any other piece of clothing being sold was made in China.  Not just clothes; there are no consumer goods that the Chinese do not export.  This flood of Chinese goods onto the world market has happened in a remarkably short space of time."

 

UAE:  "The Tail That Wags The Dog"

 

The English-language, expatriate-oriented Gulf News had this to say (Internet version, 7/25):  "The revaluation of China’s currency marks new era for the world economy.  The yuan's revaluation against the dollar is being seen as the submission of Chinese will to U.S. pressure.  It should really be seen as the day the balance of power shifted to the East.  The U.S. has long argued the Chinese currency has been pegged to the dollar at an artificially low level.  While a mere 2 percent upward revision of a currency believed to be 30-40 percent undervalued can only have a negligible effect, the hope of U.S officials is that this will be the first revaluation of many, with some hoping for a 30 percent increase by the end of the year.  This is going to prove to be wildly optimistic.  China relies on exports for growth, the creation of jobs, and, ultimately, political stability.  Nothing will be done to threaten this virtuous trinity.  Changes to the yuan will be to a timetable of China's making.  This represents the true significance of last Thursday's decision.  The revaluation demonstrates China's increasing confidence to take decisions, its growing awareness of its place in the world economy, and the world's recognition of a seismic shift in economic, and political, power to the East."

 

EAST ASIA AND PACIFIC

 

AUSTRALIA:  "China Manages Its Economic Miracle"

 

The national conservative Australian contended (7/23):  "China's central bank has chosen the year of the rooster to do some overdue crowing about the nation's extraordinary economic growth rate, by revaluing the national currency....  This small revolution won't outprice China's export boom.  And it will provide a modest boost for Australian miners as their exports become cheaper for Chinese producers.  More importantly, Beijing's currency play shows that those in control of the commanding heights of China's economic boom are taking steps to avoid a bust.  Given our stake in China's growth and the prospect of a Sino-Australian free-trade deal, the cautious steps towards a more flexible exchange rate are good news."

 

CHINA:  "Central Bank Announces More Flexible Exchange System"

 

Zhang Xudong commented in the official Xinhua Daily Telegraph (Xinhua Meiri Dianxun) (7/22):  "This is a opportunity to reform the RMB exchange rate system.  China has gradually relaxed the foreign exchange control.  The foreign exchange market construction is strengthening.  Various financial reforms have made progress and macro-economic regulating and controlling measures have made obvious achievements.  The world economy develops steadily and the dollar’s exchange rate increases steadily as well.  All these conditions provide a beneficial condition for reform of the RMB exchange rate system....  There are more advantages than disadvantages overall for RMB exchange rate system reform.  It is helpful to ease the foreign trade imbalance, to enlarge domestic demand and to increase Chinese companies’ international competitiveness.  A spokesperson for the People’s Bank of China said reform of the exchange rate system could temporarily reduce economic growth and job creation rates, but overall there are more advantages than disadvantages."

 

"Renminbi Will Not Appreciate Further In Two Years"

 

Liu Bin commented in official China Business Times (Zhonghua Gongshang Shibao) (Internet version, 7/22):  "The central bank may take the market equilibrium exchange rate as the center and readjust the weight of currencies [in the basket] at any time so as to keep a fairly tiny fluctuating range for the renminbi's equilibrium exchange rate and maintain the renminbi's relative stability....  [The renminbi will not appreciate significantly within two years because] China has to consider the tolerance of foreign trade enterprises and the need for readjusting the foreign trade strategy.  So far, China's exports have relied primarily on low prices.  The appreciation of the renminbi, plus growing international trade protectionism, is bound to affect the competitiveness of China's exports.  To allow its enterprises to adapt to the new market environment and to change export strategies, China must maintain a relatively stable renminbi for some time to come.  Second, China has to allow its commercial banking system to adapt to the new exchange rate regime and to let the monetary administration familiarize itself with the formation of an exchange rate regime with reference to a basket of currencies, so as to avoid excessive fluctuations and impact arising from mismanagement and to maintain the stability of the banking system and the macro-economy."

 

"Exchange Rate Reform In Long-Term Interests"

 

The official, English-language China Daily editorialized (Internet version, 7/22):  "China's overhaul of its foreign exchange system...represents a significant move in the country's market-oriented reforms.  By unpegging the renminbi from the U.S. dollar and linking it to a basket of currencies, the country has made a fundamental change in its management of an important aspect of its economy.  The reform is indispensable in the country's pursuit of a more mature, sophisticated market economy....  The move is also partly in response to calls from the country's trade partners.  Reform of the foreign exchange system and the renminbi's revaluation is beneficial to the country's major trade partners and the stability of the world's economy....  Expectation for a bigger appreciation of the yuan's value was, and will be, unrealistic.  An exceedingly drastic response to the change could throw the economies of China and many other Asian nations into chaos, which would be bad news for everybody....  A revalued yuan will certainly attract new speculative funds betting on further appreciation.  This could complicate the rectification of the real estate sector, where a large amount of hot money is believed to be hiding....  Internationally, reform will naturally increase the interrelation between China and other economies.  There will be a need for more exchanges between China's economic decision-makers and their counterparts in other countries on macroeconomic issues.  The exchanges will be crucial in coordinating a healthy economy and will be beneficial in China's progress towards a more open and sophisticated economy.  However, these talks should be sensible. China's trade partners should refrain from pressuring China to make changes that will damage the country's economy."

 

CHINA (HONG KONG SAR):  "Exchange Rate Has Changed"

 

The independent Chinese-language Hong Kong Economic Journal noted (7/25):  "In his speech, Nobel economics laureate Robert A. Mondale reiterated his 12 reasons for why he thought that the yuan appreciation would bring a series of disastrous consequences.  First, delaying the convertibility of the yuan; second, cutting down on the inflow of foreign direct investment; third, slowing down economic growth; fourth, worsening the banks' bad loan problem; fifth, worsening unemployment; sixth, increasing deflationary pressures on the agricultural sector; seventh, facilitating speculators; eighth, destabilizing currencies in Southeast Asia; ninth, crippling the external role of the yuan; tenth, breaking WTO promises; eleventh, worsening the debt problem of its neighboring countries; twelfth, slowing down the development of Asia....  All these prove that the yuan revaluation is not the best solution to the problems no matter whether from the economic or financial angle or from the angle of solving international trade imbalance.  Hence, the readjustment of the exchange rate mechanism at this moment--which is actually equal to the yuan appreciating--is not due to economic and financial factors, but due to political pressure from the U.S. and Western countries."

 

"Yuan Revaluation Will Not Lead To Interest Rate Rise"

 

The mass-circulation Chinese-language Apple Daily News remarked (7/23):  "China has always had U.S. dollars as its foreign exchange reserve currency and most of this reserve is used to buy U.S. treasury bonds.  The market fears that after the yuan is linked to a basket of currencies, China will no longer eagerly buy the U.S. dollar for its foreign exchange reserves.  Thus, the demand for U.S. treasury bonds will drop.  It will put a lot of pressure on U.S. Treasury bonds, and the interest rate will rise....  However, the scale of the adjustment of the yuan is limited.  It is expected that similar adjustments will continue.  Hence, in the short run, hot money will still flow into China and a lot of this hot money is U.S. dollars....  Since the People's Bank of China may possibly use this hot money to buy U.S. treasury bonds, we believe that the adjustment of the yuan will not put pressure on interest rates in the short run."

 

"Challenges And Opportunities Of The New Exchange Rate Mechanism"

 

The pro-PRC Chinese-language Ta Kung Pao took this view (7/23):  "The first challenge that China has to face is how to handle economic management properly under the flexible exchange rate system....  Secondly, how to rearrange currency control policies and let the fluctuations of the exchange rate share some duties of financial and currency policies....  In order to be independent, China should seize the opportunity to enhance currency cooperation with its neighboring countries and to pave the way for a yuan currency zone.  Actually, the yuan has been circulating in many of its neighboring countries.  And its neighboring countries are following China's lead.  Following the setting up of a free trade zone between China and ASEAN and the strengthening of economic and trade cooperation of the Shanghai Cooperation Organization, the economies between China and its neighboring countries are more closely aligned.  Besides, China should use the gradual liberalization of the yuan' exchange rate as political capital to bargain with Europe and the U.S.  Since China will shoulder a greater responsibility in improving global economic imbalances, Europe and the U.S. should make corresponding changes. Of course, they should reduce protectionism measures and change China's non-market economic status."

 

"Is The Yuan Revaluation A Show For The U.S.?"

 

The independent Chinese-language Hong Kong Economic Journal commented (7/23):  "Some commentators think that China's 'symbolic' change of the exchange rate mechanism is just a show for the U.S.  China is actually manipulating the exchange rate in another style.  Whether their comments are true or not, we have to see how effective the new mechanism will be....  One hour after China announced the exchange rate reform, Malaysia immediately ended its peg to the U.S. dollar.  The Japanese yen and other Asian currencies recorded increases.  It can be seen that Asian countries follow China's lead in the issue of the currency's revaluation.  If the trend can be maintained, the global economic imbalance may have a new vista and it will no longer be easy for U.S. politicians to make a fuss about the trade issue."

 

"Yuan Switch Will Ease Trade Tensions"

 

The independent English-language South China Morning Post held (7/22):  "China's long-awaited revaluation of the yuan is a good move which will help ease worsening tensions with its trading partners.  It also proves Beijing's determination to press on with reforms to make the economy more flexible and market based....  But the real significance of Beijing's move lies in the fact that this is a first step towards making the yuan a completely free-floating currency.  The liberalization of China's exchange rate regime is in its best interests because that will remove a host of economic distortions and permit its finance officials to pursue more rational policies....  A high growth/low inflation economy is a rare phenomenon for the mainland, which has been more accustomed to dizzy swings between overheating and deflation.  Although government analysts predict the economy will slow down in the second half, many private-sector economists expect strong growth with modest price upticks to continue all year.  But the mainland's goldilocks economic cycle, as Goldman Sachs calls it, will inevitably make a turn for the worse at some point.  So Beijing should remain vigilant about potential dangers ahead--and not let up on its effort to upgrade the economy.  The reform of the currency regime is a big step in that direction.  But many challenges remain."

 

"Resolute In Reforming The Exchange Rate"

 

The independent Chinese-language Hong Kong Economic Journal noted (7/22):  "The Chinese government's exchange rate reform is very thorough.  The new exchange rate mechanism is entirely different from the old one and it has responded to the call of the U.S. for the revaluation of the yuan.  In the past, the U.S. accused the Chinese government of deliberately keeping the exchange rate low and pegging the yuan with the U.S. dollar.  Yesterday, the People's Bank of China canceled them all at once.  It can be said that the debates over the yuan exchange rate between China and the U.S. should be solved satisfactorily.  However, although Sino-U.S. debates have been rounded off, the speculations on the yuan may have just begun....  To implement a flexible exchange rate is the first important step for China to move toward marketization and internationalization....  After the opening up of the yuan exchange rate, the last obstacle for China's market economy will be removed.  There is no reason for the U.S. and Europe to refuse to recognize China's status as market economy.  In the long run, after the exchange rate reform, China will then be truly and completely integrated into the global economic system."

 

"The Revaluation Of The Yuan Is Just The Beginning"

 

The independent Chinese-language Hong Kong Economic Times commented (7/22):  "In the short run, the reform of the yuan may not be able to drive out the hot money speculating on the yuan.  In contrast, it may attract the inflow of hot money....  In the long run, it is important to avoid following Japan's same old path to ruin and avoid the continued revaluation from dampening the economy....  Learning a lesson from Japan, China must follow three principles when reforming the exchange rate.  First of all, it must take the initiative.  Secondly, it must keep reform under control.  Thirdly, it must introduce the reform progressively.  In the meantime, China should also drive for the financial reform and the reform of national enterprises in order to strengthen its economy.  Only in this way, China can survive and move forward in the global financial market's fierce waves."

 

"The Revaluation Of The Yuan Cannot Resolve All Difficulties In Sino-U.S. Relations"

 

The mass-circulation Chinese-language Apple Daily News remarked (7/22):  "By revaluing the yuan, China can temporarily ease part of the pressure on Sino-U.S. relations.  There are still many 'landmines' in Sino-U.S. relations waiting for removal.  The U.S. political circles are very anxious about the ascendancy of China and its ever-growing strength.  Hence, they have to set up defenses.  Just take CNOOC's bid for UNOCAL as an example, many Congressmen and people in the political circles said that the acquisition would jeopardize U.S. national security.  Hence, the acquisition has come across with many difficulties.  The recent 'China's Military Power Report' by U.S. Defense Department also described China as a threat to Taiwan and to other regional armed forces.  Taking China as a threat will not only influence the U.S. administration's China policy, it will cast a shadow over Sino-U.S. economic and trade relations.  More clashes between China and the U.S. may result.  It will finally lead Sino-U.S. relations in a bad direction."

 

"More Advantages Than Disadvantages By Reforming Of The Yuan"

 

The pro-PRC Chinese-language Wen Wei Po observed (7/22):  "The yuan reform is not just about revaluation, it is the realization of the results of Chinese economic and financial reform.  In the meantime, it also shows that China is a responsible country.  During the Asian financial crisis, China insisted on keeping the exchange rate of the yuan steady.  The move successfully prevented a crisis resulting from the devaluation of Asian currencies.  Now, the People's Bank of China has launched the reform of the yuan.  It has taken care of the economic development of other countries and regions.  It has shouldered the responsibility of maintaining the economic and financial stability of the Asia-Pacific areas and the world....  When the external and internal conditions are ready, China introduced the reform of the yuan.  It shows that China is independent in launching the yuan reform and it has taken the endurance of all sides into consideration.  The yuan reform is good for the Chinese economy to keep its prosperity and for the stable economic and financial development of the world and its neighboring countries....  There are more advantages than disadvantages with the reform of the yuan.  However, it will have some impact on short-run Chinese economic growth and employment."

 

TAIWAN:  "One Pebble Splashes High Waves"

 

The pro-unification United Daily News editorialized (7/23):  "The significance of the Renminbi revaluation is manifested in two aspects, and the first is in the political aspect.  No matter whether the Beijing authorities admit it or not, mainland China’s announcement to appreciate the Renminbi prior to Chinese President Hu Jintao’s planned visit to the United States has provided essential bargaining chips to the Bush administration and has removed pressure from the protectionists inside the United States.  Such a move was also made in an attempt [for Beijing] to further strengthen its political ties with the United States.  In addition, Beijing intended to use this move to send a clear message to the international community, expressing its willingness in shouldering certain responsibility for the imbalanced global economy and its interest in sharing the obligations of a major member in the global economic system.  In the meantime, Beijing also wanted to remove any barriers that might block its plan to deepen its relationships with major international economic organizations....  When compared to the fact that it is generally acknowledged by the international society that the Renminbi was undervalued by more than 10 percent, the appreciation of only two percent was really nothing."

 

"Reform Of Renminbi Exchange A Replica Of Taiwan’s Experience"

 

The centrist, pro-status quo China Times observed (7/23):  "Beijing’s timing to appreciate the Renminbi was perfect and the world’s responses to the move were all positive.  The current small-scale appreciation of the Renminbi will be conducive to readjusting the imbalanced economy of mainland China as well as that of the other countries in the world.  Several stocks that focus on China’s market of domestic demand and whose profits are valued in the Renminbi are those that are mostly benefited by the Renminbi revaluation.  But it was bad news for the Taiwan firms that are based in Taiwan and have their products manufactured on the mainland and exported to the United States.  In the short term, the New Taiwan dollar and other Asian currencies will be lifted by the yuan’s revaluation, but their appreciation range will be much lower than that of the Renminbi, so Taiwan people need not panic about it."

 

"Yuan Changes Could Speed Outflows"

 

The pro-independence, English-language Taipei Times commented (7/25):  "The timing of China’s decision last week to revalue its currency and allow it to fluctuate against a basket of currencies came as a surprise, despite widespread expectations that it would eventually happy.  The move does not, however, mark a complete end to China’s decade-long peg to the U.S. dollar, but rather the start of a new currency regime....  While the impact of the yuan’s 2 percent revaluation will take time to assess, the issue of potential capital outflows to China from Taiwan has also caught the attention of the Mainland Affairs Council.  Last week the Cabinet said it would monitor the potential impact on the export sector and help small and medium-sized enterprises hedge against the risk of currency fluctuations....  As China is run by an opaque regime, its next move regarding the yuan cannot be predicted.  For democratic economies such as Taiwan, the change in the yuan’s value has become a regional and global issue we have to face."

 

"[Renminbi] Slightly Appreciates"

 

Wang Li-chuan wrote in the pro-unification United Daily News (7/22):  "Since the beginning of 2005, the international community, especially the United States, has been demanding for the appreciation of the renminbi.  At last, Beijing was no longer able to withstand the pressure and let the renminbi appreciate for a small percentage.  This move can be accounted as giving 'a response' to the United States.  It is also meant to express China's sincerity in improving the U.S.-China trade deficit.  On the surface, China has to demonstrate that it is not succumbing to U.S. pressure.  The reevaluation is moving at the 'Chinese pace.'  It is following the principle of 'proactiveness, controllability, and gradualism,' as instructed by Premier Wen Jiabao.  The scale of the appreciation is quite small.  Whether the United States will accept this or will continue to exert pressure is the focus for observation."

 

JAPAN:  "China Needs Further Revaluation Of Yuan"

 

Top-circulation, moderate Yomiuri editorialized (7/22):  "China finally revalued the yuan by 2.1 percent in a bow to political and market pressures from the U.S. and other countries, which had faulted Beijing's moves to unfairly boost its international competitiveness and enlarge its trade imbalance.  China allowed its currency, which had been pegged to the U.S. dollar, to float against a basket of foreign currencies, including the euro and the yen.  Judging from China's economic clout, however, the margin of the yuan's revaluation is far from enough.  China needs to further revalue its currency.  Speculation had been rife that China would revalue the yuan in August ahead of President Hu's visit to the U.S., scheduled for September.  We suspect Beijing wants to tell the world that it moved up the timing of revaluing its currency of its own accord, not under foreign pressure."   

 

"China's Economic Clout To Be Tested"

 

The liberal Asahi observed (7/22):  "The People's Bank of China has finally decided to revalue the yuan by about 2 percent, altering its exchange policy for the first time in eleven-and-a-half years.  Due to its rapid economic growth, China, whose trade surpluses and foreign reserves keep growing, had been under international pressure to revalue its currency.  Particularly in the U.S., industrial circles and Congress, both concerned about a growing trade imbalance with China, had been calling for the imposition of trade sanctions against Beijing.  It is believed that Beijing's revaluation of the yuan is aimed at deflecting U.S. pressure, with Chinese President Hu set to visit Washington in the fall.  We welcome Beijing's decision to revalue the cheap yuan, which had been seen as an element promoting instability in the world economy.  Given the unlikelihood of U.S. firms immediately relocating their plants from China to the U.S., however, the revaluation alone will not improve the U.S. trade imbalance....  As a major economic power, China's revaluation of its currency could shake not only exchange markets but also financial markets around the world....  The genuine clout of the Chinese economy will be tested."

 

"Yuan Revaluation Holds Key To Future Of Chinese Economy"

 

Economic daily Nihon Keizai editorialized (7/22):  "China has decided to revalue the yuan by 2 percent and float its currency against a basket of foreign currencies instead of pegging it to the U.S. dollar.  We interpret the Chinese move as an act of compliance with strong calls from the U.S. and other Western nations to revalue the yuan, halt economic friction with foreign countries and keep its economy from overheating.  We cannot immediately evaluate China's adoption of a new exchange system, which has many unclear points.  It is difficult to believe a 2 percent revaluation of the yuan alone can completely resolve related issues....  It is quite understandable that Beijing revalued its currency to comply with foreign calls to revalue the yuan and to cool off its overheated economy....  The question is how effectively China will implement this 2 percent yuan revaluation."

 

SINGAPORE:  "China's Future With The Yuan"

 

The pro-government Straits Times opined (7/25):  "There can be no doubt that China's decision to move its currency to a managed float will mean greater flexibility in its exchange rate.  This is no small thing.  For if all it intended to do was to deflect unwanted focus on the yuan's undervaluation against the dollar, a simple re-peg would have done the job.  But to also institute a new exchange rate mechanism, the plan here must be for bigger things.  Indeed, the execution was astute....  The most important thing is that, clearly, mechanisms are in place for further and somewhat more predictable adjustments to the currency's value....  Last week's announcement likely marks the first step towards further liberalization of China's currency.  Indeed, China built broad latitude for itself in its new policy.  By saying that it will 'make adjustment of the (yuan) exchange rate band when necessary according to market development as well as the economic and financial situation', the central bank signals it will be as nimble as required.  Indeed, as China's economy powers ahead, it is now no longer difficult to think that the yuan might one day challenge the U.S. dollar's dominant position."

 

"Political And Economic Impact Of The Yuan Appreciation"

 

The pro-government, major Chinese morning daily, Lianhe Zaobao, editorialized (7/25):  "It is natural to assume that the yuan appreciation is linked to pressure from the U.S. ...  The revaluation of the yuan will certainly help make it clear to the U.S. that China is willing to take measures towards resolving the problem of trade imbalance.  The move is also helpful towards reducing obstacles in high-level exchanges and political cooperation between the two countries.  This will thus take the pressure off President Hu Jintao when he visits the U.S. in September.  However, to a larger extent, the move is a policy decision of an economic nature....  China understands that as its economy develops and becomes increasingly plugged into the world economy, it is only a matter of time before its currency rate is adjusted.  The decision to revalue the yuan shows China's initiative and its desire for stability.  Although it is only a small step, it has helped boost the confidence of others in the decisiveness and competence of its regulating authorities.  However, while welcoming the yuan appreciation, the U.S. and Europe would have higher expectations of China's next move.  Therefore, pressure by the U.S. Congress in the future is to be expected....  However, as a growing economic power, China must take measures to prevent and hedge against major risks in its currency reforms.  If not, it may spell disaster for other Asian countries and even the world."

 

SOUTH KOREA:  "Small Yuan Hike Heralds Big Changes"

 

The conservative Chosun Ilbo editorialized (7/23):  "China’s revaluation of the yuan by 2.1 percent comes mainly as a result of pressure for the past few years by the U.S. and the EU, coupled with the country’s domestic economic needs....  Given that the U.S. has called for a more than 10 percent appreciation of the Chinese currency and that the global markets have expected at least a 5 percent appreciation, the 2.1 percent hike in the Chinese currency will not have much impact on neighboring markets.  However, the significance of the Chinese move should not be underestimated.  Above all, China has abandoned its fixed exchange rate, and, restricted as it is, the exchange rate of the yuan will now fluctuate in accordance with the flow of the world economy.  This now means that there is a great likelihood that the yuan will continue to revalue in the future.  The yuan trend is now emerging as a new variable in the global economy."

 

THAILAND:  "Life After The Yuan Revaluation"

 

The independent, English-language Nation concluded (7/23):  "China’s move holds the promise of greater regional economic stability....  The Chinese currency immediately became stronger under the managed float system.  This move by one of the key engines of the world’s economy will be a welcome relief for economic policy makers in Thailand and those around the world.  Why should this be so?  It is because of a concern for the general stability of the global economy, in particular Asian economies, which were moving onto dangerous ground as a result of a surging Chinese economy under a fixed currency....  Another cause for relief is that this move will likely ease the competitive devaluation practiced by countries with emerging markets that rely on exports for growth and stability....  The revaluation of the yuan will in one respect bring more volatility to the currency market.  But in the long run it will ensure stability if the exchange is allowed to run its course in accord with the market.  The Thai government and monetary and fiscal policy makers can breathe a bit easier with the yuan’s revaluation.  The move should help them work towards achieving economic stability faster and easier; at that point measures to promote growth can be developed."

 

WESTERN HEMISPHERE

 

CANADA:  "Repegging The Yuan:  Won't Quiet Beijing's Critics"

 

Barrie McKenna opined in the leading, centrist Globe and Mail (Internet version, 7/22):  "China's decision yesterday to abandon its 10-year-old currency peg is an historic milestone.  But...it will likely prove far more important for China than for its grumpy trading partners.  A modest two percent change in the value of the yuan isn't nearly enough to satisfy the likes of [New York Senator] Schumer, architect of a bill that would slap a 27.5 percent blanket tariff on all Chinese imports unless China floated its currency.  Mr. Schumer and a growing cast of China critics in the United States and elsewhere want much more than a baby step....  The move is particularly important as a symbol of where China is headed.  China's leadership has now publicly acknowledged that its decade-old peg to the U.S. dollar no longer serves its interests and that it wants a more flexible exchange rate regime.  More broadly, China has signalled to the rest of the world that it wants to become a global economic power, with all the tools of a modern market economy....  China's move...is being cast by some as a capitulation to U.S. pressure....  But it seems obvious...that the announcement did not come as a complete surprise to top U.S. officials....  Chinese and U.S. officials alike recognize that China's domestic economy and banking system remain highly fragile after 10 years of the [dollar] peg.  The last thing either side wants is to kill the golden goose that has helped drive the global economy in recent years.  China isn't making any firm promises.  But it has created a currency regime structure that will give it the means to ease its economy further into the mainstream."

 

"Move Will Spawn Currency Volatility"

 

Terence Corcoran commented in the conservative National Post (7/22):  "China's currency maneuver...looks too clever by half, and dangerous over the long term, but maybe it will work to stop American politicians from blowing up the world trade system....  If radically volatile currencies are what the world's economic leaders want, they may well get them.  The yuan move garnered unprecedented enthusiasm and endorsements from all corners of the world.  The fact that little of the commentary held together as a coherent perspective on the world economy appears to be beside the point....  Never in world economic history have so many nominal winners been spun off of one currency revaluation, especially one that is so operationally vague and fundamentally incoherent in its theoretical foundation.  The yuan will float within a narrow band that's equal to U.S. 0.6 cents. Not six cents, but just over half a cent....  China's currency regime has gone from transparent to opaque.  More progress!  More speculative currency flows!  Some analysts interpreted yesterday's move to mean the Bank of China will allow the yuan to appreciate on a daily basis, eventually pushing the yuan up by maybe 7 percent or more in the next 12 months.  Maybe, maybe not.  Such an increase, even if it were to occur, would accomplish nothing of value outside of fomenting currency volatility and putting economic growth at risk.  It would not curb the benign trade deficits that rattle U.S. politicians, nor would it do anything to improve economic conditions in China or anywhere in the world.  The economic theorists pushing for revaluation claim China needs to let its currency rise to curb inflation.  But there is no inflation in China.  Others talk about how raising the yuan will curb growth in China, which apparently needs to be slowed....  From here the logic runs way off the rails.  The plan is to slow China to stop its exports.  That will supposedly raise activity in other countries--Canada, Germany, the United States, etc.--which will in turn put more pressure on the Bank of Canada and other central banks to raise interest rates to curb inflation pressures.  The China currency revaluation program may give China some breathing room to ward off trade protectionists in the United States and Europe.  It may indeed keep the protectionists at bay for a bit.  But it does so at considerable long-term risk of increased currency volatility and lost economic opportunity.  That's obviously a minority view.  We shall see."

 

"U.S. May Eventually Rue the Higher Yuan"

 

David Olive opined in  the liberal Toronto Star (Internet version, 7/22):  "Protectionist forces in the U.S. imagine they made China cry 'Uncle Sam'...when Beijing unpegged its currency from the U.S. dollar, but their victory might yet backfire....  The dramatic move by Beijing, which long vowed not to take direction from the U.S. or Europe in its monetary policy, follows months of intensifying U.S. pressure....  Except that China hasn't let its currency float freely against the greenback....  Beijing has merely repegged the yuan to a basket of currencies in which the U.S. dollar will continue to loom large....  Moreover, the immediate effect...is to raise the yuan's value by a mere 2.1 percent--hardly the boost to their competitiveness sought by the U.S. and, to a lesser extent, Europe.  The move by China's central bank, the People's Bank of China, was prompted much less by U.S. bullying than domestic concerns, notably inflation....  The Chinese economy has been on fire so long that debilitating rates of inflation seem increasingly unavoidable.  This risks choking off industrial expansion and job growth for the millions of Chinese making the transition from agrarian toil to urban factory jobs that by Chinese standards represent a significant increase in standard of living....  Beijing is wisely seeking a middle course of creating a sustainable dynamic economy, not one that rages out of control as Japan's did in the 1980s....  Meanwhile...here's what Americans can expect from a stronger yuan:  higher costs to U.S. consumers...an increased outflow of U.S. investment dollars to the People's Republic...U.S. corporate acquisition targets [will be] even cheaper for Chinese predators."

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