China let the RMB appreciation makes sense.

<P> While everyone in Washington that the yuan should appreciate, but not every Chinese person thinks so. .Are the Chinese people is right? .After all, the trade imbalance due to his manipulation of the exchange rate of the machinations of the country is very easy. .80s of last century, the huge surplus in Japan deliberately undervalued yen is considered to be the result. .But despite the sharp appreciation of the yen later - this point from the last week the Bank of Japan (BoJ) decision to intervene in currency markets to drive down the yen, we can see - the country's earnings growth is still tenaciously. .</ P> <P> now the object of anger caused by the U.S. government turned to China. .Correctly recognized that the United States in the 21st century, their international competitors in China, the Chinese government is also reluctant to yield to the requirements of one of the reasons the U.S. government. .But China's reluctance also reflects some of the more rational concerns. .• U.S. Treasury Secretary Tim Geithner (TimGeithner) testimony before Congress last week, clearly expressed such a conventional wisdom: the undervalued yuan "is conducive to China's export sector, also means that China's import costs to .higher than the desired level ", which led to low domestic consumption. .This thesis assumes that the nominal exchange rate change would result in a durable competitive adjustments, and then to ease the current global imbalances. .But both assume that there are serious flaws. .</ P> <P> Regarding the first assumption, China's per capita income is still very low, the average annual income of about $ 3,000, compared to U.S. $ 40,000. .The gap between the two is slowly shrinking, is that China's open policy to attract new capital and management of high quality, combined with abnormal surplus of cheap labor, so that China is extremely competitive. .In other words, the proportion of China's increasing international trade, and the renminbi undervalued nothing. .</ P> <P> In addition, even if the RMB appreciation, it can not change China's competitive position. .The most severe imbalance in the allocation of resources, the labor utilization rate is not high. .China has almost inexhaustible resources of poor migrant workers, limiting the rate of wage increases - slightly higher wages to attract more prosperity and development of labor the city, thus limiting the level of wages to rise. .Once the RMB appreciation, these restrictions will become more apparent, temporary loss of export competitiveness will be offset by a decline in domestic wages. .Therefore, the Chinese leaders to say is, that in addition to very short-term RMB appreciation will not have any effect other than, in the long run will hurt the Chinese labor force. .</ P> <P> second assumption is doubtful. .Indeed, policy makers have been trying to adjust exchange rates to achieve economic "re-balance." .80s of last century in Japan have been tried, but with the slowdown in exports, its economic prosperity, as the late 80's bubble-style deflation and stagnation after the planted seeds. .In 2008, the depreciation of sterling, but Britain's trade performance is still bad. .China can be invoked in any of these two examples one of the reasons for his refusal Dongzuoguotai. .</ P> <P> However, a substantial increase in foreign exchange reserves, do not prove that China is manipulating its currency? .Even at this point, I can not be sure. .China is likely to want to hold U.S. debt is converted to a wider range of assets, including U.S. companies. .But the U.S. Congress not be much enthusiasm for this. .Indeed, often the U.S. House of Representatives on grounds of national security, to stop the Chinese acquisitions of U.S. companies, almost of its surplus into U.S. dollars only assets. .</ P> <P> As China is the world's second largest economy, the RMB appreciation necessarily mean a weaker dollar. .Ultimately, therefore, be described as the U.S. dollar exchange rate policy (rather than push for RMB appreciation) may be more accurate, it is not reflected in U.S. trade difficulties, but too much of its debt. .Once the depreciation of the dollar, the U.S. financial system to support the sale value of all bonds, both in RMB will be substantially decreased. .In the Chinese view, this will look very suspicious, like a breach of contract. .No wonder they do not want to let the yuan appreciate. .</ P> <P> So, what can we do? .The United States should withdraw its increasingly strong protectionist tone of speech. .Americans should not forget that it is precisely because China and other creditors of the strong financial resources, the U.S. fiscal stimulus was possible. .Intensified sanctions will only make the world into protectionism, exchange rate volatility and interest rate shocks. .</ P> <P> Therefore, the best of America recognize that between the two superpowers the United States and interdependence, so that this threat counterproductive. .In addition, the United States should cooperate with the Chinese government to promote China's domestic economy much-needed reform of social security and consumer credit. .Unless achieve all this, and let the family learned the Chinese consumer, not only know that savings, or China's current account surplus will not disappear, no matter how much the RMB exchange rate eventually. .</ P> <P> (Shixun HSBC chief economist for the British "Financial Times" writer) </ P>.