China’s currency, those observers point out, has actually been rising in value — so much so that Chinese manufacturers are feeling the pinch. Inflation here is high, putting an extra burden. Many local factories have gone bankrupt. Growing wage demands, after a string of strikes last year, mean China has ceded the title of world’s top cheap producer to Vietnam, Bangladesh and others.
Furthermore, this view holds, Americans should stop blaming China for their country’s financial mess.
“It’s crystal clear that labeling China as a ‘currency manipulator’ is just a cheap excuse for some in Washington to launch a protectionist war,” the state-run news agency, Xinhua, wrote in an editorial this week. “It is also unfair and unwise to make China a scapegoat for the economic problems of America’s own making. The United States has to look inward to revive its economic growth.”
With the Senate clearing a procedural hurdle Thursday allowing the sanctions bill to proceed to a final vote, economists in the United States and in China say there is truth on both sides.
“Clearly, the currency is part of the answer. In that way, the Americans are right,” said Patrick Chovanec, who worked on Capitol Hill and now teaches at Tsinghua University in Beijing. “But it’s only part of the puzzle. And it’s not a silver bullet.”
Bolstering the U.S. argument, Chovanec and others said China is sitting atop foreign exchange reserves whose worth topped $3 trillion this year. Such an accumulation, economists said, indicates that the local currency is undervalued and that China is selling more than it buys.
More proof: The 2011 U.S. trade deficit stood at $428 billion through July, and 37 percent of that was with China.
Economists in the United States said they believe the Chinese currency — officially called the renminbi but more commonly called the yuan — is undervalued anywhere between 15 percent and 38.5 percent.
Many of the same economists note, however, that the yuan has appreciated considerably in recent years, especially in the past 12 months. Until 2005, the last time Washington and Beijing came to a near-crisis confrontation over the currency, the yuan was pegged at 8.2 to the dollar. Since then, it has been allowed to gradually appreciate about 5 percent a year, to the current level of about 6.3 yuan to the dollar.
The yuan’s appreciation was halted in late 2008, when the global economic recession took hold and Chinese manufacturers began seeing their U.S. and European markets dry up. China’s government — propelled by the powerful Commerce Ministry, which represents small manufacturers —argued that any more appreciation, coupled with the diminished markets in the recession-hit West, would damage local factories and trigger widespread unemployment.