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    China Business
     May 12, 2006
SPEAKING FREELY
Bush caves in to Chinese mercantilism
By Peter Morici

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

The US Treasury Department on Wednesday released its long-awaited report on the international economic and exchange rate practices of major US trading partners.

Regarding China, it concluded that "far too little progress has been made in introducing exchange flexibility"; however, "the Treasury Department is unable to determine, from the evidence at hand, that China's foreign-exchange system was operated during the last half of 2005 for the purpose [ie, with the intent] of



preventing adjustments in China's balance of payments or gaining China an unfair competitive advantage in trade".

It would seem that Treasury Secretary John Snow would like China to volunteer that it is manipulating the global commercial system before it can be cited for doing so (see Snow's statement here).

In 2005, China's central bank purchased US$206 billion in foreign currencies and securities - that came to about 9% of China's gross domestic product (GDP). Those purchases put into the hands of foreign consumers yuan equal to about one-third of China's exports. In essence, China's currency-market intervention created a 33% off-budget subsidy on Chinese exports. If that is not an unfair competitive advantage in trade, one must wonder what would qualify as such in the minds of US Treasury officials.

While the administration of President George W Bush did express disappointment with the slow progress of Chinese currency-market reforms, the most commendable aspect of this report is how eloquently Snow made the case for Beijing.

As per usual, the administration warned against perils of protectionist responses toward China. Perhaps President Bush and Secretary Snow could be as vigilant regarding Chinese mercantilism.

Peter Morici is a professor at the University of Maryland's Robert H Smith School of Business, former chief economist at the US International Trade Commission, and a commentator on economic and political issues.

(Copyright 2006 Peter Morici. Used with permission.)

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.


Yes, Virginia, it's the yuan (May 3, '06)

US senators at ease over yuan's reform (Mar 25, '06)

Yuan at record high before US senators' visit (Mar 21, '06)

Yuan to remain stable in 2006: central bank (Feb 23, '06)

Further yuan appreciation called 'megatrend' (Oct 28, '05)

Beijing's 'Thursday surprise' (Jul 23, '05)

 
 



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