Necessary Dialogue
The fifth U.S. China high level get-together on December 4 and 5, 2008, under their Strategic Economic Dialogue Agreement of 2006, in Beijing was the main event to watch as America changed White House Administrations and its congressional makeup.
The dialogue was conceived as a civilized mellow way of dealing with prickly and sensitive issues without any one at any time ending the process acrimoniously. The dialogue held twice a year in China and the U.S. in turn, have so far achieved 150 agreements ranging from the macro economy to environment protection.
With all the noise and media coverage of the need for China to revalue the yuan, the fact that the yuan has appreciated about 20 percent in the less than three years since it was de-pegged from the dollar has been conveniently overlooked. Granted, but not surprising, the yuan recorded its highest one-day fall against the dollar during the high level meeting. Just a reminder of who controls currency fluctuations. Many economic and political experts speculate that China let its currency weaken to help its exporters during the crisis. The yuan will continue to appreciate with time.
Another significant fact that is overlooked is that for every gain the yuan makes against the dollar, the lesser the value of China’s holdings in dollars become. Being the largest holder of America’s debt, that can be a significant financial hit. Why should China follow in America’s footsteps? Just because America says so? America was again reminded that its un-ceasing pressure to revalue the yuan is tantamount to interference in China’s economic affairs.
It should therefore come as no surprise that Chinese officials urged the U.S. to stabilize its economy and protect China’s U.S. dollar based investments as the two sides opened their first cabinet-level economic talks in Beijing since the global financial meltdown.
China pointed out that it had made important contributions to the global economy by keeping its economic growth steady, adopting pro-active fiscal and monetary policies and raising domestic demand. China also assured America that it would sustain its growth and financial stability. Excessive consumption in the U.S. and over-reliance on debt are the key reasons behind the global financial crisis, said China Central Bank Governor Zhou Xiao-chuan, as he lectured America about its economic frailties.
China expressed its concern over the constantly shifting U.S. regulatory environment which made it difficult for China to invest in U.S. companies. U.S. Treasury Secretary Henry Paulsen, the architect of SED, took most of the criticism on the chin like honest bankers do.
China’s GDP growth dropped to 9 percent in the third quarter of 2008, the lowest in five years. The forecast for 2009 doesn’t look any brighter according to the World Bank. It has slashed it to 7.5 percent, the lowest in almost two decades. Although China also faces a rapidly slowing economy and rising unemployment, the tone of the critical comments reflected the shift in power. China made it clear that it is more productive for China to put its foreign reserves to work in China rather than continue underwriting America’s debt.
The U.S. has no basis to lecture China, or any other country really, about prudent financial policies. It really should devote most of its time to get its financial house in order. Why does China’s agreement to open its markets to foreign banks come across like such a big diplomatic coup? China has seen how incompetent they are and now that it knows it is welcoming them to its financial poker table as it rethinks its view of the U.S. banking system. The U.S. system, once the epitome of modern economic thinking and an example to emulate, suddenly imploded.
The dialogue was conceived as a civilized mellow way of dealing with prickly and sensitive issues without any one at any time ending the process acrimoniously. The dialogue held twice a year in China and the U.S. in turn, have so far achieved 150 agreements ranging from the macro economy to environment protection.
With all the noise and media coverage of the need for China to revalue the yuan, the fact that the yuan has appreciated about 20 percent in the less than three years since it was de-pegged from the dollar has been conveniently overlooked. Granted, but not surprising, the yuan recorded its highest one-day fall against the dollar during the high level meeting. Just a reminder of who controls currency fluctuations. Many economic and political experts speculate that China let its currency weaken to help its exporters during the crisis. The yuan will continue to appreciate with time.
Another significant fact that is overlooked is that for every gain the yuan makes against the dollar, the lesser the value of China’s holdings in dollars become. Being the largest holder of America’s debt, that can be a significant financial hit. Why should China follow in America’s footsteps? Just because America says so? America was again reminded that its un-ceasing pressure to revalue the yuan is tantamount to interference in China’s economic affairs.
It should therefore come as no surprise that Chinese officials urged the U.S. to stabilize its economy and protect China’s U.S. dollar based investments as the two sides opened their first cabinet-level economic talks in Beijing since the global financial meltdown.
China pointed out that it had made important contributions to the global economy by keeping its economic growth steady, adopting pro-active fiscal and monetary policies and raising domestic demand. China also assured America that it would sustain its growth and financial stability. Excessive consumption in the U.S. and over-reliance on debt are the key reasons behind the global financial crisis, said China Central Bank Governor Zhou Xiao-chuan, as he lectured America about its economic frailties.
China expressed its concern over the constantly shifting U.S. regulatory environment which made it difficult for China to invest in U.S. companies. U.S. Treasury Secretary Henry Paulsen, the architect of SED, took most of the criticism on the chin like honest bankers do.
China’s GDP growth dropped to 9 percent in the third quarter of 2008, the lowest in five years. The forecast for 2009 doesn’t look any brighter according to the World Bank. It has slashed it to 7.5 percent, the lowest in almost two decades. Although China also faces a rapidly slowing economy and rising unemployment, the tone of the critical comments reflected the shift in power. China made it clear that it is more productive for China to put its foreign reserves to work in China rather than continue underwriting America’s debt.
The U.S. has no basis to lecture China, or any other country really, about prudent financial policies. It really should devote most of its time to get its financial house in order. Why does China’s agreement to open its markets to foreign banks come across like such a big diplomatic coup? China has seen how incompetent they are and now that it knows it is welcoming them to its financial poker table as it rethinks its view of the U.S. banking system. The U.S. system, once the epitome of modern economic thinking and an example to emulate, suddenly imploded.
posted by Peter de Krassel's Custom Maid Politics at 10:03 PM
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