Mr. Wen confesses
ON THE MATTER of its overvalued currency, China has long insisted that it is invulnerable to pressure from the United States and other countries. And, indeed, China so far has met American criticism with mere token steps toward a more balanced policy. But the mounting controversy may have at last forced China to articulate publicly its true reasons for dragging its feet. As suspected, those reasons are not economic, but political.
Specifically, Premier Wen Jiabao announced in Brussels last week, the Communist leaders in Beijing fear their own people. He didn't put it quite that way, of course. But Mr. Wen did say that "if we increase the yuan by 20-40 percent as some people are calling for, many of our factories will shut down, and society will be in turmoil." And that, he added, would be "a disaster for China and the world."
This confession -- that China's economic development is hostage to its political underdevelopment -- was remarkable on several levels. It was a shift from the argument that Mr. Wen made against U.S. policy in March, when he criticized the alleged U.S. "practice of depreciating one's own currency and attempting to force other countries to appreciate their own currencies, just for the purpose of increasing their own exports." That line was apparently too blatantly hypocritical to repeat. But in conjuring the specter of jobless mobs, Mr. Wen exchanged hypocrisy for near-incredible self-centeredness. Has he not noticed that governments all over the world are grappling with the political fallout of high unemployment -- which many of their citizens blame on China?
Ever since China embarked on its economic transformation three decades ago, the great question has been whether the trading democracies of the world can do business, and share power, with an authoritarian state that frets constantly about its own stability and legitimacy. Mr. Wen's comments only reinforced doubts about that fundamental issue.
In any case, Mr. Wen was attacking a straw man. The Obama administration isn't demanding a sudden appreciation of the Chinese currency, nor are any of China's other trading partners. An abrupt swing probably isn't in the United States' own interest, because our industries need time to adjust, too. What China does face, though, is the eminently reasonable request, freshly endorsed last week by International Monetary Fund Managing Director Dominique Strauss-Kahn, that it make tangible progress toward keeping its own promises of a stronger currency over time.
The best outcome for all concerned in the longer term would be a Chinese currency that trades on world markets just like the yen, the dollar and the euro. Yes, a shift away from export-led growth will entail dislocations in China, as Mr. Wen protests. But he ignores the potential benefits for the Chinese people, which could include faster growth in personal consumption, better health care and less tension with other countries. Indeed, Mr. Wen's comments show that China's government is running out of plausible excuses for its lack of flexibility. They suggest that the real threat to order, both within China and internationally, is Beijing's refusal to embrace necessary change.