The sharp appreciation of the yuan against the Euro and the other currencies would make China think of depreciating the yuan against the dollar rather than expectations of appreciation by most non-Chinese Countries.The 15% Euro depreciation due to the Greek Contagion has had a devastating effect on low margin Chinese companies which run on paper thin margins.To think of appreciation in such a situation would be suicidal for the authorities as they would face mass unemployment from the export industries going bankrupt.For example Chinese solar companies are facing huge foreign exchange losses due to Euro depreciation.US Treasury Secretary Geithner is living in a fantasy world if he thinks the Chinese are going to listen to him on loosening currency controls.
After nearly two years of keeping its currency stable against the U.S. dollar to help exporters like Li weather the global financial crisis, hopes had revived overseas that Beijing might relax the dollar peg soon. But as the European debt crisis deepens, China is signaling it will hold back on any changes — a stance likely to complicate high level talks next week with the U.S.
The latest, most authoritative comment on that came from Commerce Minister Chen Deming, who told reporters while visiting Austria this week that Beijing intends to keep the yuan stable. Meanwhile, U.S. Treasury Secretary Timothy Geithner confirmed that the contentious currency issue is bound to be on next week’s agenda.
“I think it is, of course, China’s decision about what to do with the exchange rate — they’re a sovereign country,” Geithner said. “But I think it’s enormously in their interest to move, over time, to let the exchange rate reflect market forces, and I’m confident that they will do what’s in their interest,” he said while visiting Boeing and other exporters in Washington state.
China reported a $196 billion global trade surplus last year, adding to pressure to tilt its economy toward greater reliance on domestic demand.
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[…] routine.Timothy Giethner as the “Good Cop” has failed to get tangible results with China not committing to any yuan appreciation deadline.Note China exports in May came far ahead of consensus but it faces potentially huge problems.The […]