On the sultry evening of July 21, 2005, I was having dinner in an American restaurant in Shanghai favored by expats. Shortly after 7:00p.m., over the course of less than five minutes, my four dinner companions' phones buzzed with the same news: China’s central bank had begun to allow the currency to appreciate from its seven-year peg of 8.27 yuan to the U.S. dollar, to 8.11 yuan.
This was a major surprise. Much of China’s export economy has been built on low-cost exports that a depreciated yuan made possible. While U.S. members of Congress advocated for currency revaluation, there was little reason to believe that China's bankers, or powerful manufacturers, would be interested in acceding to their wishes.
Six years later, China’s currency has strengthened by almost 30 percent against the dollar, but things look pretty much like they did on July 21, 2005. U.S. manufacturing is still in decline, the U.S.-China trade deficit persists, and American politicians are blaming China’s currency policies for the U.S.'s economic woes. The one difference, and it's a big one, is that -- unlike in 2005 -- the U.S. Senate took action and passed a bill that imposes duties on Chinese goods if the Beijing government does not drastically revalue the yuan.
Chinese elite and popular opinion have noted the U.S. Currency Exchange Rate Oversight Reform Act's passage, but the bill has so far failed to inspire a currency revaluation that sets off telephones in expatriate restaurants. Six years after China's central bank unpegged the yuan from the dollar, the Chinese economy and political system are weathering U.S. pressure with confidence.
“It’s not surprising that the U.S. Congress, in an irrational, trade protectionist mood, approves some acts ignorant of basic economic and international norms,” wrote Mei Xinyu, a senior researcher with China’s Ministry of Commerce, who has a history of jingoistic microblogging, in China Securities Journal. “But as a major power, China can't neglect its own interests, nor the reality and future trend of the global economy, and just give over the exchange rate problem to a foreign entity.”
In the eyes of Mei and other elite commentators, the U.S. is clearly in decline. But as a major trading partner tied closely to China’s economy, U.S. interests can’t be totally ignored. Bigchua, the handle of a journalist with the state-owned newspaper Securities Daily who tweeted on the microblogging site Sina Weibo: “To a great extent, the export economies of China and the U.S. complement each other. If there were a trade war, it's unclear who would win.”
Bigchua is probably right about that, but it’s an uncommon opinion among other commentators in state media; most of them seem to believe that the Senate bill is little more than a political stunt. On Oct. 13, an unsigned editorial in the hugely popular, hyper-nationalist, state-owned Global Times opined:
A foreign target is needed to shift domestic attention away from the frail U.S. economy. The RMB definitely fills this need. However, a funny fact is that the RMB has risen by about 30 percent in five years while the U.S. unemployment rate has increased from 7 percent to 14 percent.
While the Beijing papers worry about macro-economic and political consequences of the yuan's possible revaluation, media in other, more economically dynamic regions of the country are concerned with the more immediate impact it would have on pocketbooks. On Oct. 17, Chen Xu, a columnist with Shanghai’s independent Oriental Morning Post, wrote that even though domestic politics are behind the U.S. push for currency revaluation:
It is impossible for the Beijing government to succumb to the external political pressure to appreciate the RMB and thereby harm their own export industry in the current global economic turbulence.
The editorial is mostly polite, until the end, when he sharply noted: “Beijing isn’t interested in the attitudes of Americans regarding this issue.”
That last point is almost certainly a blustery overstatement, and the proof is in the English: More than any other important Sino-U.S. issue in recent memory, China’s English-language newspapers have commissioned and translated currency-related editorials that speak directly to American audiences. Take, for example, a prickly editorial by Tao Wenzhao, a senior researcher with the Center for U.S.-China Relations at Beijing’s elite Tsinghua University. He wrote:
Economic globalization has expedited international competition, as well as industrial structural adjustments in the U.S. Labor-intensive industries have become "sunset industries," and the U.S. is outsourcing its manufacturing to other countries, including China.
In light of these circumstances, accelerated currency revaluation, or -– even worse -- tariffs, can only result in hardship. He continued:
But will China's decreased exports to the U.S., as a result of the imposition of higher tariffs, increase jobs in the U.S.? … If the U.S. does choose to impose tariffs, then the spending of its consumers will increase, its investors in China will suffer declining profits and its domestic inflation will grow.
This is not quite a threat, but it is a message of some kind, conveyed in plain English.
On the microblogs, there are more direct warnings to the U.S. from Chinese officials, although they are in Mandarin. Zhao Qingming, a senior researcher at the China Construction Bank, pointed out on Sina Weibo that in the unlikely event that the U.S. Senate bill becomes law, “China has cards in its hands with which it can respond. It can impose sanctions on goods imported from the U.S., and can be flexible in how it handles U.S. treasuries.”
Of course, most of this microblogged commentary is posted by seemingly common netizens (or officials masquerading behind handles) who see a political motive in everything. For example, writing on Sina Weibo, a netizen who uses the handle Lingbozi, provided a nearly textbook definition of "China bashing" in an effort to explain why the U.S. Senate would pass the currency bill with no hope of it becoming law:
In order to win elections and … appease the dissatisfaction of the people towards the government, the U.S. doesn’t find problems with itself. Rather, they have been using China as an excuse for many years.
Despite China’s emergence as a topic -- if not outright economic scapegoat -- in the Republican primaries, Chinese microbloggers and opinion makers have yet to take much of an interest in the U.S. presidential race. Searches on microblogs for Mitt Romney, this year’s top critic of China, turn up little commentary. That will certainly change if he wins the nomination (Chinese media and bloggers took a keen interest in past elections). But there’s little reason to believe that China’s netizens and pundits will take U.S. candidates' pronouncements on China any more seriously than they take U.S. Senate action on currency reform and appreciation.
“Each candidate will make a speech about what they will do about China after they take office,” wrote The Dark Night Returns, a Sina Weibo user. “But when they really take office, they will find there is very little that they can do.”
It’s a fact, and a threat, worth considering if you’re waiting for China’s currency to move any time soon.
(Adam Minter is the Shanghai correspondent for the World View blog. The opinions expressed are his own.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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