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Two Nobel laureates in Economics have endorsed China's decision not to appreciate its currency, saying it would not be helpful to either China or the United States.
Joseph Stiglitz, former chief economist of the World Bank who was awarded a Nobel Prize in Economics in 2001, mirrored Robert A.Mundell's argument that the political pressure on China to appreciate the yuan conflicts with economic reality.
Some US congressmen have reportedly threatened to impose extra tariffs on Chinese goods if China does not appreciate its currency.
Stiglitz said at a seminar held this week that in the 1980s, the United States had huge trade deficits and that it is natural for politicians to blame somebody else.
"At that time, they blamed Japan," as Japan enjoyed substantial trade surplus with the United States.
"Japan would be very thankful today to China because today China is being blamed." But he said one has to be very clear that the trade deficit with China is not the root of the America's economic problem, which actually results from the imbalance between savings and investment.
"A change of the (Chinese currency) exchange rate will not have a significant effect on that," he said.
China imports goods (raw and semi-processed materials), processes them, and exports them," and the value added is about 30 percent. "When you revalue (appreciation of the Yuan), the cost of imports is reduced."
"The net effect of a 10 percent appreciation of the currency is probably around 3 percent change on the value-added."
"A three percent change on the foreign exchange rate does not have a significant effect" on US trade deficit with China, he said.
Factories are not going to move the production here in China to the United States because of the change, said Stiglitz.
"A revaluation of the Yuan would get political pressure off the back of China for a couple of months," he said.
But the problems of outsourcing, manufacturing, and China's global comparative advantage would not be affected by a moderate change in the foreign exchange rate.
The two Nobel laureates said an appreciation of the Yuan would have adverse effect on Chinese farmers as well as China's bid to narrow the rural-urban income gap.
Stiglitz said an appreciation of the currency could undo some of the progress China has made in reducing poverty in rural areas since it would risk "significantly increasing poverty in the ruralsector."
China does not have a social safety net in place in the event of such an outcome.
(Xinhua News Agency March 26, 2005)
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