CURRENCY EXCHANGE RATES n TRADE DEFICIT + US RECESSION

CURRENCY EXCHANGE RATES n TRADE DEFICIT + US RECESSION

The case of the US-China
Here China’s view:

BETTER OPEN THE U.S. DOOR WIDER THAN SCAPEGOAT RMB
English.news.cn 2011-08-19. http://news.xinhuanet.com/english2010/indepth/2011-08/19/c_131060543.htm

Washington is pressing Beijing to allow the Chinese currency to appreciate more rapidly.

The alleged undervaluation of the yuan is [just a scapegoat] indeed wide of the mark. In the past decade, so much has been said about the Chinese currency, also known as the renminbi or RMB, in the West, and it is always like beating a dead horse.

Simply put, the exchange rate has never been the real cause of the huge U.S. trade deficit with China.

For starters, the Chinese currency has already appreciated more than 20 percent against the U.S. dollar since China [reform] in the 2005 of its exchange rate regime. In the first half of this year, it gained 2.33 percent. The U.S. trade deficit with China, meanwhile, has persisted. According to Chinese statistics, it was about 114 billion U.S. dollars in 2005, but it increased to over 180 billion dollars in 2010

Washington and Beijing may quarrel about the "real figures" of the trade deficits by using different calculations. But the plain fact is that large U.S. trade deficits with China continue to exist even as the Chinese currency has appreciated against the U.S. dollar significantly in the past six years.

China has been making serious efforts to create a more flexible exchange rate regime in a gradual way, taking into account both internal realities and external conditions. History has repeatedly demonstrated that radical exchange rate fluctuations are a recipe for financial and economic calamities.

As an important powerhouse for global economic growth, China has to maintain financial stability and economic soundness. A volatile Chinese economy is no good news for the US & the world.

Rather than misplaced blame more sensible and viable options are for U.S. policymakers to wipe away much of the red ink [on China investment] relaxing its restrictions on high-tech exports to China and opening his door wider to Chinese investors.

Washington has its due security concerns while selling products of super-sensitive technologies. However, as U.S. Ambassador to China Gary Locke said last year when he was commerce secretary, some of the export regulations "make no sense" as many items on the control list have already been readily available from companies around the rest of the world.

While reshaping its unnecessarily tight export policy toward China, the United States can also take in more Chinese direct investment so as to better redress the general imbalance of the economic and trade exchanges between the two giants.

Chinese investment fully deserves fair treatment. China now accounts for a mere 0.1 percent of the total foreign direct investment in the U.S., while Chinese firms in the U.S. are estimated to have created more than 10,000 local jobs.

As many from both sides of the Pacific Ocean have appealed over and again, Chinese investment in the U.S. should be encouraged, and the U.S. process of screening investment for national security concerns should be insulated from political interference.

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RELATED NEWS N SELECTED QUOTES

• CHINA PUSHES FOR GREATER INTERNALIZATION OF YUAN
http://news.xinhuanet.com/english2010/video/2011-08/19/c_131060558.htm

China is accelerating the process of turning the RMB yuan into an international currency. How to? By allowing investors in Hong Kong to use the yuan to invest in the mainland's equities market with an initial quota of 20 billion yuan. The mainland will allow exchange-traded funds based on Hong Kong-listed stocks to be traded on the mainland's stock exchanges. Experts say this will increase the RMB flow in both directions, thus boosting the yuan's profile as an international currency. By allowing renminbi-holders in Hong Kong to invest on the mainland, “the central government's new policy will facilitate the establishment of a flowing back mechanism for the renminbi." The central government will also allow Chinese companies to offer RMB bonds in Hong Kong. The Chinese Finance Ministry issued 20 billion yuan worth of sovereign bonds in Hong Kong earlier this week in its biggest offshore renminbi bond issuance. These offerings are expected to bring China a step closer to internationalizing its currency, as it brings institutional investors more choices other than US assets.


• China's yuan weakens to 6.4032 against USD Friday
http://news.xinhuanet.com/english2010/business/2011-08/19/c_131060100.htm

In China's foreign exchange spot market, the yuan is allowed to rise or fall by 0.5 percent from the central parity rate each trading day. The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.

• China's yuan strengthens to 6.3942 against USD Thursday
http://news.xinhuanet.com/english2010/china/2011-08/18/c_131057561.htm

BEIJING, Aug. 18 (Xinhua) -- The Chinese currency Renminbi, or the yuan, strengthens 54 basis points to 6.3942 per U.S. dollar on Thursday, according to the China Foreign Exchange Trading system.


• MAINLAND ENTITIES ALLOWED TO ISSUE MORE YUAN BONDS IN HK
http://news.xinhuanet.com/english2010/china/2011-08/17/c_131056685.htm

BEIJING, Aug. 17 (Xinhua) -- China will allow mainland entities to issue more renminbi-denominated bonds in Hong Kong to help the city become an offshore renminbi (RMB) business center and cement its status as a global financial hub. Mainland entities will be allowed to raise 50 billion yuan (7.81 billion U.S. dollars) this year in Hong Kong.

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MEANWHILE INSIDE THE US SIGNS OF DEEP RECESSION COMES BACK


WALL STREET SLAMMED BY EUROPEAN CONCERNS, DOUBLE-DIP FEAR
English.news.cn 2011-08-19


NEW YORK, Aug. 18 (Xinhua) -- Wall Street was slammed again on Thursday as concerns over European debt problems and sluggish U.S. economic growth spurred broad sell-off.

Dismal U.S. economic data further dampened sentiment as investors worried the U.S. economy was in danger of a double-dip recession.

The Labor Department said on Thursday that the number of people applying jobless benefits rose 9,000 to 408,000 last week, worse than economists had expected.
The department also reported that the consumer prices rose 0.5 percent in July, the largest gain since March, after falling 0.2 percent in June.

Even worse, the Philadelphia Federal Reserve Bank said its business activity index dropped to minus 30.7 from positive 3.2 the month before, far below expectation.

Echoing the weak data, Morgan Stanley and Goldman Sachs slashed their forecasts for global economic growth, citing weaker-than-expected growth in the second quarter of this year, along with slower global trade growth and additional austerity measures announced in several countries.

Morgan Stanley analysts said the U.S. and Europe are "dangerously close to recession", adding that recent policy errors, especially Europe' s slow and insufficient response to the sovereign debt crisis and the drama around lifting the U.S. debt ceiling, have weighed down on financial markets and eroded business and consumer confidence.

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