With the US presidential elections fast approaching and unemployment in the region of 9 percent, this is seen by some analysts as merely a populist decision by the senate for the electorate and is unlikely to be passed. However, from a global political perspective this will not be quite so popular.
America has been increasing imports from lower skilled, lower cost countries over the past few years, with more imported goods coming from China than any other country. The US has made this step in an attempt to curb this trend and aid the indigenous manufacturing industry. On the other hand an appreciating reminbi would force China to move away from manufacturing based industry toward more value added services, putting them in more direct in competition with the US in many ways; hardly an ideal scenario for the Westerners.
China low cost manufacturing base has been central to its growth and its undervalued currency is adding to this exportation advantage. US government officials claim the yuan is undervalued by up to 30 percent. Appeals for an independent float for the RMB have put pressure on the Chinese government into reducing controls on its currency.
At the fifth China-US Relations Conference, Zhang Yesui, the Chinese ambassador to the US commented on the US bill, saying he "does not believe that legislation is the appropriate mechanism. Hinting it could potentially lead to a rade war between the two countries. He stressed that Chinese investment in the US could provide extensive job creation and benefits for America. He said he was "confident that there will be more Chinese investments in the US, which is not only good for investors, but also helps your economy and creates jobs in this country. This is very, very important." He highlighted clean energy, environmental protection and infrastructure as potential areas for Chinese investment.
Despite the RMB regulatory reforms of the past few years, many analysts and critics feel the progress has been far too protracted. Some claim it may be at least 10 years away from becoming a freely traded and totally convertible currency whose value is set by the market instead of the Chinese government. In a quote from the International Herald Tribune, Mark Williams, an analyst at the London-based research company Capital Economics said f the renminbi is to be anything but a fringe player globally, it will have to be convertible with very few, and ideally, no restrictions,
This heated discussion will undoubtedly continue as long as the Chinese government maintain significant control over RMB valuation. With no straightforward solution to satisfy all parties, it appears there will need to be a considerable move by the Chinese government from its current position, if there is to be any form of free float in the near future.
