October 8th, 2010
08:15 AM GMT
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Hong Kong, China (CNN) – Chinese Premier Wen Jiabao said in Europe this week that a free-floating yuan would be “a disaster for the world.”

He noted that Chinese export companies have small profit margins and could be hit hard, setting off a potential wave of social turmoil.

Yet a report by Mark Williams, a senior China economist at Capital Economics, on Thursday noted that export margins of Chinese companies did not fall when the yuan loosened its peg to the dollar from 2005 to 2008. The yuan increased in value against the U.S. dollar nearly 20 percent during that period.

In fact, “because most firms were able to raise either prices or productivity, margins did not fall at all” when the yuan rose against the dollar. The price of low-end exports rose, but so did Chinese firms’ market share.

The Chinese government is expected to focus on rebalancing its economy away from exports at its policy meeting next week. Economists at Goldman Sachs and JPMorgan expect they will look for ways to boost domestic consumption and investment and wean China off exports as demand for Chinese goods globally slows down.

That may be good news for China’s trading partners in the long run. But at the IMF meetings this weekend and the G20 summit next month, China’s currency policy is clearly going to remain a controversial topic.

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soundoff (31 Responses)
  1. hachimada

    Gradual change of rate won't hurt China, as companies will adjust themselves. But what western countries asked is rapid change, some even advocate immediate 40% appreciation, that's not acceptable.

    October 8, 2010 at 9:16 pm |
  2. jhonatan arista ruiz

    yes , i think the is good by the country , because make job by chinesse

    October 8, 2010 at 10:12 pm |
  3. Jc.yin

    The report showed results from 2005-2008, before the financial crisis hit. Now is quite a different case to ask the RMB to appreciate quickly.

    October 10, 2010 at 8:04 am |
  4. xprse

    But American ask the emerging economy to bail them out for their financial incompetence and mismangement.

    October 10, 2010 at 7:54 pm |
  5. tolu

    i dont understand why thy would want to do that, it will increase the price of thier products and reduce their market share in the world

    October 10, 2010 at 7:57 pm |
  6. h191

    if the yuan gradually rises it won't hurt chinese business. They are saying that the yuan is undervalued but if they raise it according to the US then it will be overvalued. Also something worth mentioning is that when the yuan rose in the past the economy in the US was in trouble but a stable yuan actually helped the US economy and there was very little inflation.

    October 10, 2010 at 10:32 pm |
  7. maybe

    if currency rasing that's good, why dnt western countries rise their currencies then?

    October 10, 2010 at 10:35 pm |
  8. hahlalalal

    hmmmm, it hurts chinese company a lot. most of chinese company is only specilized in using cheap labour. manifecture business's gross profit margin is extremely low, only about 5%. appreciation of currency does not significantly lower their cost but greatly lower their profitibility. US's purpose is not to transfer all the jobs back to US, because we are talking about those jobs only paying like 50 cent per hour or even less. US wanted to increase Chinese's consumption level by increasing chinese currency value. But with lowering profitability and many companies going to bankrupt due to increasing currency, i would hardly imagine chinese people would spend more they used to be. However, this will make all US people feel better.

    October 11, 2010 at 2:22 am |
  9. John Que 3000

    The USA has zero influence in the role of recalculating the Yuan value. However, many economist believe that an increase would help US exports to China.
    The economist are wrong as usual. There is little chance that China will buckle under the pinching power of the Obama Administration.
    If we were to increase the value of the Yuan a negative impact would ripple from Wal Mart to the federal reserve.

    Wal Mart records profits by selling products from China. Any substantial increase to the price of inventory would ripple with an increase to the consumer and a tightening of employment capabilities for Wal-Mart, Kmart and to a lesser extent Target. However an increase in the Yuan value will cost the US tax payer a major increase in the $Trillions owed to China for financing the wars in Iraq & Afghanistan.

    Increase the Yuan value and send the economy into a fatal tail spin, and a deficits ballooning out of control. DC needs to look taxpaying US citizens in the eye, say that they have screwed up through $2+Trillion bailouts and beg for forgiveness. The "Trickle Down economy does not work. I like a comment posted a few days ago on CNN that mentioned a $15K, Trickle Up, recovery plan. Do a search for the comment because it made sense when I read it.

    Stupid politicians mean simple solutions are offered to complex problems. You cannot expect a country to suddenly change course and buy American, because they are forced to increase the value of their money, that is a fools plan.

    Blaming Chins for our trade deficit, and economic woes is ignorant. The trade imbalance will not magically vanish life the oil in the Gulf of Mexico. The only benefit would be to China who would be able to charge more for the goods supplied to the US. The worker in China and the US will not benefit from this move.

    October 11, 2010 at 5:04 am |
  10. sinotony

    I support the RMB appreciation,because low technology industry pollute water and air.and workers of these company get paidly only 200USD/person, to some extent, China is short of workforce. so some workers can transfer to other industry, few polluted

    October 11, 2010 at 7:12 am |
  11. expresstrain

    i think america is the most evil country in the world. for its own sake, it can do any bad things you can imagine.

    October 11, 2010 at 8:40 am |
  12. expresstrain

    i think these americans should think about themselves, invade iraq, afganistan, all the recent big military invasion are relevant to american. do they really think they are more civilized? or they are really stupid they dont know they are wrong.

    October 11, 2010 at 8:53 am |
  13. Nothingispermanent

    The problem is many people is blinded by selfish patriotism and faux nationalism. There was a time I had the opportunity to have dinner with a Chinese, a Korean and a japanese. They all ended up quarreling, each trying to win and out do who is better. Come on folks, it was like bragging my tv is bigger than yours, it is endless. If you look at china official map, almost all of south china seas, up to indonesia belongs to china. It looks a bit too greedy, matey. The chinese think japasese are decendent of the people sent by their emperor. The truth is Japanese are the most cultured society in Asia. Or could it be phlegm spitting....?

    October 11, 2010 at 2:02 pm |
  14. ObamaBush

    China should have thought of that before pimping out their citizens as slave labour for the Waltons.

    The RMB appreciating gives Chinese purchasing power to buy exports, which in turn employs foreigners to buy China's exports. Everybody wins (the West operated this way fine before China, and they'll operate fine after China). Unfortunately, citizens with money tend to not listen to the gov't and the communist party are control freaks.

    China knows that hte moemnt tthe RMB appreciates, India will vacuum all the jobs away. This wouldn't be an issue if China had modeled their economy properly to both consume and produce, instead, they took the 1960s Japan model and made it 10x worse. Now they're stuck and times running out, hence all the recent nationalistic threats and warmongering at their neighbours. Wagging the dog will only take you so far.

    October 11, 2010 at 6:08 pm |
  15. ObamaBush

    Don't you worry yourself, Walmart will be just fine, they'll move production to India.

    The RMB rising will make US debt "relatively" lower since China's currency manipulation has them holding all their reserves in foreign exchange, not RMB. This is another reason why China is loath to revalue, their source of power comes from holding USD's that are overvalued, which actually makes Chinese monetary policy defacto set by the US Treasury. RMB isn't even allowed to be traded outside of China so its basically Monopoly money, I can see why China doesn't even want to hold its own money.

    China messed up when they wanted to bankrupt the west by sucking in all the manufacturing with promises of limitless profits (ask Boeing, Honeywell and other US companies how thats working out).
    Fortunately for the West, they've finally awoken from their slumber and realize China needs them, not vice versa.

    October 11, 2010 at 6:18 pm |
  16. BeRational

    Has anyone analyzed the negative impact on US economy if sudden rise in yuan occurs?
    1. If Yuan rises by 40%, US consumer will have pay 40% more for most of the products. This would lead to huge inflation in the US economy.
    2. If Yuan rises by 40%, most of the US corporations will start losing money because they now have to pay 40% more to Chinese companies.
    3. When companies start losing money, they will cut jobs. Remember, US is service oriented economy. We will definetly see more unemployment.
    4. When companies start losing money, they will shift their manufacturing operation to other 3rd world countries where labor cost is cheap. Those jobs will not come back to US. Minimum wage in US is $7. 40% increase in Yuan will bring Chinese labor cost from $1 to $1.40.
    5. When companies start to close down in China, people will lose jobs in China, therefore spend less on everything including US imports.

    Overall, I think sudden appreciation in Yuan is devastating to both US and Chinese economies.

    October 11, 2010 at 6:57 pm |
  17. rjat

    india will benefit the most if china decides. to revalue yuan.

    October 14, 2010 at 5:54 pm |
  18. vkmo

    communist chinese govt is setting a krazy exchange rate, which led to
    action by House of Rep on Sep 29: House OKd Bill Targeting China's
    Currency Manipulation -The 348-79 vote Wednesday sends the measure to the Senate. See Yahoo, NPR and CNN etc articles on the internet about this. D*mn currency manipulator- if they did that within china, the
    mao-dse-dung's red china successors will drag em into dungeon & throw the key away.

    October 15, 2010 at 7:44 pm |
  19. amen

    Yuan appreciation would work only if we get rid of minimal wage here. This would force Americans to compete against the the 3rd world on labor cost. We are not hungry enough for that, yet.

    October 16, 2010 at 6:16 am |
  20. Bill Rich

    I think the best way to do this is for the US to announce unilaterally that the US dollar depreciate by 50%. There is no need for any action from China. China yuan can stay at the same level forever. The rest of the world can follow US's lead or not.

    October 17, 2010 at 4:34 pm |
  21. Rickirs

    Ironically it was a stable "slosh" of Yuans that bought so much of US T-bills to help slowdown the US financial burnout and hold its financial credit ratings. Now China is an econmic spider caught in its own web of undervalued Yuans and needs the US to succeed economically.

    October 17, 2010 at 7:27 pm |
  22. vkmo

    Of course. That would cause a decline in china's exports and help industries in US & elsewhere grow back.

    October 18, 2010 at 3:21 pm |
  23. vkmo

    Price of gold hit $1380 per ounce today, in year 2000 it was below $300 per ounce. Thanks to the gold mines in Tibet which China annexed, it is the largest producer of gold in the world today, see http://in.answers.yahoo.com/question/index?qid=20080628014853AAnDDwK . China doesn't need the added benefit of a fixed fraudulent currency rate to boost its economy. The current regime illegally occupied Tibet for its minerals, fixed this unfair currency rate to gain in trade and in addition practices copyright, patent and other trade violations for economic gain. Other nations should stand up to China.

    October 18, 2010 at 3:42 pm |
  24. Bakatare

    Give what China is due, raise it and let them feel the pain. That's called, tough love." Then maybe they'll get to play nice.

    October 24, 2010 at 10:12 pm |
  25. shinjukuboy

    The US thinks it can solve its trade deficit with China by manipulating the Chinese currency, instead of doing the hard thing: making products the Chinese want to buy. Well, back in 1985, the US, Britian, and Germany ganged up on Japan with the Plaza Accord to appreciate the yen against the dollar. Since then the Yen has appreciated about 300% against the dollar. What did that do? Nothing! Last year, the US still had the largest trade deficit with Japan in history! The US needs to stop consuming so much! To Chinese friends: Don't make the same mistakes Japan made after the Plaza Accord. Let the RMB appreciate slowly and steadily, then you can buy the US (which actually may not be a good investment)!

    October 31, 2010 at 2:47 am |
  26. 第一格


    I have to argue against the so called anti-currency raising doom saying nonsense.
    despite what other thinks. I think raising currency is good.

    "with careful layed out planning and quick reflects to market shifts, rising currency will help promote a soft landing and spur welfare system reform."

    first: our buying power will grow, we will be able to buy more with less money. great way to incite domestic buyers. transfering our economy from a export orientated to a domestic-market led economy.

    Second. increase in wealth for individuals, the more they spend the more tax collected. The raise in currency will actually boast welfare system, improving our well-being.

    Third, our rising currency can help us to push forward currency reform in eastern asia by advocating our currency.
    For example: the US dollar is devaluing, but the english pound is raising. This cause some and growing number of countries to abandon dollar for currency exchange standard.

    I am not worried about our international market. I only worried about the welfare system.

    The welfare is important to impliment equality.
    letting every chinese start on the same starting line, no one falls behind.

    Please support the this honorable cause.

    November 3, 2010 at 5:41 pm |
  27. Sammy

    China could run into recession if he raise the value of Yuan but America could run into depletion when it lose a major trade partner and manufacturing base for its multi-international corporate. It will be a lost-lost game.

    November 5, 2010 at 1:38 pm |
  28. ObamaBush

    If Westerners paid the real cost for their products, then we wouldn't be in this mess to begin with, and the env't wouldn't be in the crapper either.
    Why buy something once when you can buy it 10x and use up more resources, and why make it at home when you can ship it around the world 5 times before shipping it back.

    China's plans to bankrupt the west have failed because money doesn't exist, hence the US mints are running overtime now printing off more "money".

    The day Western corporations leave for cheaper shores is the day the communists reign ends.

    November 7, 2010 at 8:55 pm |
  29. ObamaBush

    40% rise in RMB means U.S. debt in China's hands falls by the same amount since it would cost China more to convert their money horde (the one used to manipulate other currencies) into their own currency. It would also mean the U.S. could "borrow" more from the same amount.
    40% rise in RMB only means that US corporations will move to India and Vietnam, no big deal to the West, a very big deal to the Communists since a few million unemployed would spell the beginning of communism's end.

    40% rise in RMB would mean Chinese citizens would have more purchasing power to buy imports (it would take a while but it would happen). This employs other countries, which in turn gives them money to buy different exports from China (when they decide to move beyond cheap garbage). That's the way trade is meant to work but China has no intention of pursuing reciprocal trade, they use trade as a weapon and its only now that the West is awakening to this fact.
    Having other countries needing you to buy their stuff is more effective than needing other countries to buy yours, that's why the U.S. is still the world's engine regardless of what China obsessed economists believe.

    November 7, 2010 at 9:04 pm |
  30. ObamaBush

    China had no choice but to buy US T-bills if it wants to keep its people employed. China knows that if the US stops buying, it will basically destroy communist China. This is why China's currency policy is set by Washington.

    Personally I would like to see devalue its currency regardless of what anyone says to keep Americans from buying imports. The RMB can follow it down and we can watch China's trade deficit with the world explode (yes, most people don't realize without America's addiction to cheap imports, China has a trade deficit with everyone else).
    In the long run, this would force China to man-up and let the RMB be set by market forces or face perpetual trade deficits inorder to keep their citizens employed and not in a rioting mood.
    An added benefit would be oil prices would going through the roof, forcing Americans to stop using V8 pickup trucks as their daily city commuter.

    November 7, 2010 at 9:14 pm |
  31. ObamaBush

    Lastly, on an unrelated note. You can now see why China is afraid to get into a shooting war with Uncle Sam. The moment it starts, that's the moment China is stuck with goods it can't export to America and idle factories with workers who aren't getting paid. A pretty good recipe for "change".
    Once again, a different story but the same outcome. China's foolish leaders have enslaved themselves to the U.S.

    So much for China "arriving" and this being their century.

    November 7, 2010 at 9:17 pm |

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