There has been plenty of talk about fighting inflation at China’s annual National People’s Congress this week and a lot of talk about boosting demand. But one way of addressing both aims – a stronger currency – has been almost completely ignored by the top leadership. Yi Gang, central bank deputy governor, has merely claimed that the renminbi’s current exchange rate, 3.9 per cent stronger against the US dollar since June last year, is the closest it has been to “equilibrium”.
As much as the politburo would like the currency question to go away, it is unlikely to. US Treasury secretary Tim Geithner’s assertion last week that the renminbi remains “substantially undervalued” marked a re-emergence of a narrative that had faded since June, when the People’s Bank said it was replacing its two-year-old peg with a managed float.
Today’s trade data may show a halving of China’s trade surplus over the first two months, year on year, strengthening the impression that a rebalancing is under way. But even if the full-year surplus falls as much as it did last year, China will still be set for a mega-surplus of some $170bn. As Capital Economics points out, a US index of Chinese export prices was up by less than 1 per cent in dollar terms in December. In other words, once currency appreciation is factored in, factory gate prices in renminbi continue to fall. The external pressure will stay on.
Internally, too, resentments will fester. China has not resolved the tension between the tradable goods sector – which says it cannot cope with appreciation of more than 3 to 5 per cent a year – and consumers, who must surely want the greater purchasing power that cheaper imports would bring. Perhaps the most significant disclosure from the congress so far is that, in 2011 for the first time, China will spend more on internal security than on the military. In spite of the choreographed calm at the Great Hall of the People, Beijing is braced for unrest.
2011-03-11 10:35 编辑：kuaileyingyu
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