China Tells

Nouriel Roubini is a professor of economics at the Stern School of Business, New York University and chairman of Roubini Global Economics, an economic consultancy firm. The New York Times labeled him “Dr. Doom”, whereas, in hindsight, IMF economist Prakash Loungani has called him “a prophet”.

Doctor Roubini wrote on Forbes as of April 1, 2010 (Read Article here) that China is likely to be labeled as ‘currency manipulator’ by USA. According to Dr. Roubini, ‘There is no doubt that China is manipulating its currency…it looks like a duck and acts like a duck – it is clearly a Peking duck’.

To be fair, I tend to agree with Doctor Doom that China’s FX policy shows a sign of manipulation in the last 12 months by ‘soft pegging’ the RMB to USD. It would be difficult to argue that a ‘fixed FX policy’ is not ‘manipulation’. Ironically, the pegging per se is a double edged sword. For example, by pegging RMB to USD, the trade weighted exchange rate of RMB actually appreciated significantly during Q4 ’08 and Q1 ’09 following a resurgence of USD (See Graph from Chinatells). Therefore the rate change of RMB is not a purely ‘manipulated’ one way move. By appreciating and then depreciating together along with USD, the net effect is limited change with much lower volatility, which is quite helpful to the importers and exporters (Read Article from Chinatells).

Nevertheless, the net effect does not provide a good enough reason for Americans not to attack the RMB policy, especially in a country with 10% unemployment rate ahead of the mid term election. The US government has decided to delay the announcement of ‘currency manipulator’ after President Hu Jintao’s visit to Washington DC in mid April. The ugly side of International politics starts to surface: Iran for RMB? Clearly the American politicians intend to keep the currency issue as a bargain stake and make the most of it on the negotiation table.

To me, whether China will be labeled as a ‘currency manipulator’ is unpredictable, as the meeting between President Hu Jingtao and President Obama is highly contingent and full of chance of surprise. What is certain to me, however, is the resumption of a trend for RMB to re-appreciate gradually against USD. In fact, China government might accelerate the appreciation of RMB without external pressure from USA, as it is a big loss of face if the government shows a sign of bowing to foreign pressure. With China’s export growth back to pre-crisis level, an domestic pricing back to positive growth territory, it seems to me that RMB appreciation is back to the agenda and China government would rather let RMB appreciate within a controlled pace than jeopardizing the export market and international tension.

Following this logic, in an ideal situation, China probably is unlikely to be labeled as ‘currency manipulator’ if President Hu Jingtao negotiated a satisfactory deal in Washington. Give and take, isn’t it the universal law in dealing with all kinds of relationships?

纽约大学商学院经济学教授鲁比尼近日在福布斯杂志上撰文指出，中国显然在操纵人民币汇率。由于美国国内失业压力陡增，同时中期选举近在眼前，因此美国政府可能将中国列为‘汇率操纵国家’并且加以制裁。这次四月中期胡主席访问华盛顿可能成为中国是否被列为汇率操纵国的关键。届时伊朗问题，削减核武器和人民币汇率可能都会被拿上台面作为双方互相谈判的筹码。