China Tells

Is it fair for Chinese government to peg the exchange rate of RMB to USD at a fixed level? This is a tough question, and probably could lead to different answers depending on which side one is on. For the Asian neighbours of China, however, the answer is clearly no. China’s export sector has suffered slow down like everyone else due to the recession in the West. However, on a relative scale, China’s export sector suffers less and in fact walked out of the crisis in a better shape than the competition (see article here). One of the potential reasons is that RMB has not reduced the competitiveness of China’s export during a downtrend of USD as it is pegged at 6.8. Due to this reason, RMB actually deprecitaed significantly to EUR or JPY following the sinking of USD.

Sooner or later this issue will be addressed, either through trading partner’s pressure to appreciate RMB, or their retaliation to curb Chinese export through other ways (ie, anti-dumping penalty). Ironically, USA probably would be a leading force to fight off Chinese export. The recent debacle on Tire and Steel Pipe is a good example. At the same time however, USA is the one who depreciated their currency for the most.