By guest columnist Paul Quintaro
On Monday, The Economic Times reported that Chinese Vice-Premier Wang Qishan stated that China would prefer to see an “unbalanced recovery” as opposed to a balanced recession.
Wang may be making a direct reference to policy makers’ efforts to push China into revaluing its yuan.
Currently, China maintains a tight peg of its yuan to the US dollar. This peg ensures that the yuan trades at a fixed rate against the dollar. This may be extremely beneficial to Chinese exporters and may explain the dominance of China’s manufacturing sector.
As employment growth has stalled in the US, policy makers on both sides of the aisle have increasingly ramped up their anti-Chinese rhetoric. If the US is able to force China to revalue its yuan, demand for products produced in the US may increase as Chinese products become relatively more expensive for consumers. This could drive demand for manufacturing jobs in the US.
Wang’s statements may indicate that China will be reluctant to go any further in weakening its peg to the US dollar.
In fairness to China, policy makers have already weakened the peg tremendously within the last decade. Perhaps the onus to increase manufacturing production lies on the US.
Many economic commentators have claimed that if China were to pull its peg, the yuan would rapidly appreciate. That rapid appreciation could be devastating to China’s economy, and therefore the country may continue to resist further appreciationÃ¢â‚¬â€especially if it was conducted at an accelerated rate.
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