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RMB revaluation: Careful what you wish for

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COMMENTS

18 March 2010 08:19

Clinton Dines is an Australian businessman who has lived and worked in China for 31 years, until recently for 21 years as BHP Billiton’s senior in-country executive.

I'm hearing some alarming noises coming out of the US on the topic of the RMB. This goes to some of the themes I alluded to in my Changing China lecture but needs some elaboration.

Consider this: if the Chinese currency was to appreciate rapidly and materially, China's ability to compete for resources, commodities, technology and in global mergers and acquisitions would be substantially enhanced. Everything they want to buy becomes relatively cheaper for them.

On the other side of this everything-they-buy-becomes-cheaper story is that a very high proportion of the goods that China exports are processed or assembled. In other words, much of what China exports has recently been imported (by some estimates, in excess of 50% by value). The imported components which go into Chinese exports will also become cheaper by virtue of a revaluation of the RMB, thus enhancing China's export competitiveness rather than diminishing it.

There is more to add to the fact base, but against this background alone, the Western world needs to be careful what it wishes for. An RMB appreciation could well make China more export competitive and enhance its capacity to compete for commodities and assets globally. Wouldn't that be a great strategic outcome!

The tone of the global conversation regarding the RMB seems to be devoid of discussion of these facts and has few connections with reality – it's almost delusional and totally for domestic political consumption — and could be quite dangerous as a result. Is it any wonder that the pragmatic Chinese are beginning to a little snitchy about being constantly nagged about the RMB on the basis of either a lack of comprehension of the facts or a deliberate misrepresentation of them?

Either way, it must be hard for the Chinese leadership to have much respect for their Western counterparts in this debate, which is precisely the position of weakness we don’t want to be in if we aspire to have any hope of influencing the outcome.

Photo by Flickr user andreasnilsson1976, used under a Creative Commons license. 

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