China Currency Talks

The FTs Geoff Dyer on the latest Chinese currency talks:

Admittedly, the mood music from China’s leaders has been conciliatory. Dai Bingguo, China’s top foreign policy official, told Summers and deputy National Security Advisor Thomas Donilon that “in no other relationship between countries is it more important to enhance dialogue….than between China and the United States”. Yet on the issue of the renminbi, which has risen only 0.4 per cent since China abandoned its currency peg in June, there seems to be little domestic support for more rapid movement.

China’s political position is being made harder, however, by the succession of large trade surpluses that have been recorded in recent months. And according to many economists, the August surplus, which is due to be announced on Friday, was also huge. Goldman Sachs, for instance, is estimating net exports of $32.3bn, up from July’s $28.7bn which was already one of the largest on record. If the Goldman prediction is close to correct, it will be red meat to China’s critics on Capitol Hill as they try to drum up support for legislation aimed at Chinese currency policies.

I think the important thing for people in the media to keep highlighting is that on this subject it’s not simply a question of “China” versus “the United States.” China is a large and diverse country made up of many distinct firms and individuals. What China is doing with its currency is a way of stealing resources from the majority of the Chinese population and funneling them to the owners and managers of export-oriented factories. Those people happen to be more politically powerful than the various farmers, pensioners, waiters, etc. whose living standards are being depressed by an artificially low currency.

This has the secondary consequence of depriving US exporters of a potentially lucrative customer-base of richer Chinese people. But that’s really what the primary issue is.