United States senators Charles Schumer and Lindsey Graham are in
China to obtain first-hand knowledge about China's foreign exchange
policy.
Such a fact-finding trip may help the two develop a better
understanding of the Chinese approach to dealing with the renminbi
issue, the rationale behind it, and the country's foreign trade
policy.
The two have become well-known figures here for their claim that
China has been manipulating the value of its currency to gain a
competitive edge for its exports.
That conclusion, however, was unfair in Chinese eyes. Many
people here believe it was the result of lack of understanding
about our philosophy and practice.
In July, China revalued the yuan, scrapped its link with the US
dollar and began to use a basket of currencies as reference for the
yuan's value.
Premier Wen
Jiabao said eight days ago that the range for the yuan's
fluctuation would be widen. But there will not be a one-off
revaluation like the one in July, he said.
Chinese policy-makers are well aware that a more flexible
foreign exchange system is an indispensable part of a market-based
economic system.
But they also argue that the progress of foreign exchange reform
should be in line with economic fundamentals and adaptability of
Chinese enterprises, especially those in the financial sector.
Financial reform planners are wary of radical steps because they
would certainly cause negative shocks to Chinese firms, the Chinese
economy and the region.
It takes time to lift restrictions on capital flow one-by-one.
It takes time to introduce risk-hedging tools, which are necessary
for managing a more flexible currency.
Chinese companies also need time to learn to employ the tools
and adapt to the new environment.
An incremental approach is one of the underlying reasons for
China's generally successful economic reform during the past
decades.
When it comes to foreign exchange, this approach should
continue.
After the July reform, market forces have been allowed to play a
bigger role in determining the rate of the yuan. Room was left for
further changes of the yuan's value, either upward or downward.
Since then, the yuan has gained more than 1 percent.
In this regard, steady progress towards a more market-based
foreign exchange system that suits the country's economic needs is
the best approach. There is no hidden agenda such as the pursuit of
a big trade surplus.
It is natural that China, as a member of the World Trade
Organization, participates in global trade.
However, for an economy the size of China, domestic consumption
should be the prime force propelling growth.
Currently, in every official document about growth strategy,
stimulating domestic demand is a top priority.
For years, China and the United States have bickered over the
size of China's trade surplus.
Chinese economists side with many overseas peers in their belief
that the underlying cause for the US trade deficit was its own
flawed policies.
While the United States focused on bilateral imbalance, China
urged it to observe the issue from the global trade perspective,
which would make the imbalance seem less severe.
They also want to remind the Americans that they had neglected
US surplus in services trade, which would offset part of its
deficit in trade of goods. The US also counts some entrepot trade
as trade with China, which results in much larger trade imbalance
statistics than those coming from Chinese customs.
It is unlikely that the differences will be settled during the
visit of the two senators.
But it is a good opportunity for the Chinese hosts to say this
again: US restrictions on some high-tech imports to China are
unnecessary. Lifting these restrictions would greatly help American
exporters no matter how one calculates the trade figures.
(China Daily March 23, 2006)
