Wednesday, November 28, 2007

Why China will not leave yuan to float

From the Times of London:

At least France sold the Chinese a couple of nukes. It could be all that Europe gets out of this week’s EU-China summit in Beijing.

An order for two nuclear plants, built to the latest French design, and vague pledges over a large fleet of Airbus jets. President Hu Jintao’s welcome gift to his guest Nicolas Sarkozy secured a somewhat ill-tempered response; in return, the French President treated the Chinese leader to a stern lecture about the iniquities of his country’s managed exchange rate policy.

The link between the yuan and the sinking dollar is costing eurozone exporters dear and Peter Mandelson, the European Trade Commissioner, laid into the Chinese yesterday in an article in the China Daily, calling for the policy to be scrapped. In an unsubtle hint that China might find itself in formal dispute with the European Union over a whole range of issues, from intellectual property theft to steel dumping, Mr Mandelson demanded that Beijing comply with the rules of the World Trade Organisation.

In response, Beijing officials quickly delivered a promise to cooperate with the eurozone countries and to “step up structural economic adjustments, prevent big swings in foreign exchange rates and make a contribution to an orderly adjustment of global imbalances”.

It’s words. The simple solution of letting the yuan float upwards to its natural level is out of the question....MORE