Sunday, November 22, 2009

No to revaluing the CNY

The US is trying to get the Chinese to up the CNY or RMB so that the Chinese will import more from the US (box 8).  This suggetion would not fly as it would put the Chinese into an unacceptably risky position. They have been unambiguously clear that China's contribution is to keep China stable and maintain its growth against their export markets shrinking.

Boxes 1, 2 and 3 is the story of fiscal stimuls taking over from exports. The longer term future is to shift more toward domestic consumption (box 4). If the CNY goes up (box 6) as per US wish and the Chinese chagrined no, going by recent history, money will rush into China worsening the asset bubbles already inflating there. The US hopes to get the Chinese hooked on their consumption habit? See the link between Box 5 and Box 4. In this scenario, the Chinese will find it affordable with super cheap money to buy more from the US and everyone. However the longer term consequences to China would be extremely negative. Kudos to the Chinese leaders astute leadership of their country.

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