China faces increasing pressure over yuan

The World Bank is urging China to let its currency rise to contain inflation and rebalance the economy. And US Senators want a law to punish Beijing if it keeps the yuan low.

Is it really worth more? Reuters

The World Bank and the International Monetary Fund (IMF) have said that the yuan/renminbi is “undervalued”. This adds to growing international pressure on China, led by the United States, to let the currency appreciate.

US senators on Tuesday started debating a law that would impose tough penalties on China if it fails to revalue the currency. Facing election-year pressure over unemployment, senators claim that confronting what they term “Chinese currency manipulation” is the biggest step to promoting job creation.

President Barack Obama last week repeated calls for revaluation. But Chinese Premier Wen Jiabao responded this weekend with a refusal to do so.

IMF chief Dominique Strauss-Kahn on Wednesday declared the currency “very much undervalued”, while the World Bank’s quarterly report made the same point, while predicting 9.5 per cent growth for China this year.

A leading UN think-tank, Unctad, says raising the yuan's parity would destabilise the Chinese economy.

Chinese economist Geng Xiao dismisses the idea that a stronger yen is the solution to US unemployment.

“If we are focusing on exchange rates we are not really focusing on the problems,” he told RFI.

“America needs to have a structured change,” he says. “They should encourage exports but they should also encourage consumption by foreigners. So they should produce for the global consumer, not just the American consumer.

“They need to make that structured change which is very difficult. It cannot be achieved within a few months by changing the exchange rate. It’s a long process”.

China's Central Bank has said that revaluation may take place, but very gradually.