by Alexander G Rubio
Mon Jul 11th, 2005 at 05:42:53 PM EST
Economist and former US Treasury official Brad Setser
sees signs that any Chinese change in the exchange rate of the renmimbi/yuan versus the dollar might be further off than most Washington observers had hoped
China's central bank Governor Zhou Xiaochuan hinted that might be the case recently: "The time is not ripe yet'' to scrap the fixed exchange rate of about 8.3 yuan to the dollar, Zhou said in an interview in Basel, where he is attending meetings of central bankers at the Bank for International Settlements. "Premier Wen has already said enough on the subject. I don't have anything to add.''
One problem in gauging the pressure of economic forces working on the Chinese administration is the lack of reliable numbers for economic development in the country, often leaving guestimates and tea leaves as the only guides to the future.
China is betting that domestic US politics will allow the US market to remain open to Chinese goods even as China's global trade surplus -- not to mention its bilateral trade surplus with the US -- soars. Perhaps as importantly, it also is making a bet that the US consumption growth won’t falter. Exports to the US account for a growing share of Chinese GDP. Given the size of the US current account deficit, that strikes me as a long-term risk to China. Looking ahead, the US import market almost certainly cannot continue to grow at its current rate – at least not for much longer. In other words, something's gotta give.
This article is also posted at Bitsofnews.com.