Renminbi Our Currency, Is It Your Problem

chinaw bes Renminbi Our currency, Your Problem? chinaware in the last degree Celsius has g 1 through many dramatic changes. 35 years past there would non even be talk about mainland chinas currency because at a set down place Mao ZeDeng all trading with China had to be through the British colony of Hong Kong. Now China has receptive up its economy and allowed many companies to privatize. The problem facing China and U. S. dealings revolve intimatelyly around two main elements slyness deficit, and currecy.The most important cultural aspect which must always be in the back of ones mind is that China is windlessness under a communist rule, meaning that the government has much control of moving ines and industries and then many of the countries which the US handles trades. At the moment, the Ameri basis government has made it die that it has concerns about the Chinese government interfering with its currency, specifically undervaluation the . Under a new law that was p assed in 2011, if a countries currency is find to be a currency manipulator then the Obama administration back end take legal action against China. Chinese off-keyicials threatened a trade war1 when they learned that the United States Congress was trying to pass this bill. This is a small example of the tensions between the US and China because of currency. If there were to be a revaluation of the kwai, which would lead to an clutches of the currency there lead be major tack togethers in Chinas business. China is a country where 33% of its GDP (2012) is manufacturing, the highest in the world. 2 Most of their manufacturing comes from un alike companies who move their plants to China to relieve oneself goods at a humble cost.This lower cost comes from the exchange rate between these occidental countries and China, which favor the essential countries. With Chinas currency stronger, these developed countries get little currency for their currency, thus making goods more high-ticket(prenominal). Consequently on the separate side, goods produced outdoors China, like in Germany or the United States would be less wonderful then before the revaluation. With the cost of manufacturing increasing, China may lose business with all these foreign companies whose reason for moving manufacturing in China was lower costs.Another problem that China leave face with an appreciated yuan is the effect it volition have on the Chinese US exchequer bonds. along with the huge trade deficit, China holds a lot of US treasury bonds, because when Chinas market was first opened up, many of the Chinese believed America to always be stable. With the low interest rate and the appreciation of the Yuan, China pull up stakes not be making as much, if any, off of the bonds. Once more and more Chinese begin to figure that out, less will buy US treasury Bonds.Since China owns a legal age of US debt, if China stops buying debt from the US then the US will lose a huge intake of cash flow. 3 With a revaluation of the Yuan, many goods that are made in China will increase in price. This will cause some companies that produce inexpensive products, to move their manufacturing to countries that are cheaper to do business with. Meanwhile, with a growing warmness class in China, more will be able to obtain way goods that for example, are made in America, thus, exporting to China will be cheaper.This change in trading may help with the US and China trade deficit even though there will still be a deficit because of the bonds China holds, it will be more balanced then before. With regards to imports and exports in China, a revaluation should cause the goods from horse opera countries to be cheaper in China however, China has a double tax revenue on luxury items. For brands like Nike, they will not be more expensive, but for brands like Ralph Lauren, Cartier, Channel, their products will be even more expensive because the Chinese government will tax them again m ore heavily, in order to try to promote their own luxury brands.Since most of these horse opera countries produce high luxury goods, this is not good news. With a rhytidoplasty upper and middle class, there are more Chinese who can afford these goods, but because of the governments double taxation, they are still making these products unaffordable. 4 japans relationships with the western countries will increase if there is a revaluation of the Yuan, but it will hinder the relationship between China and japan. lacquer as well as manufactures some of its products in China so that it can also produce products at a lower cost.Also, many companies have manufacturing in lacquer because it is easier to ship products from China and finish the final product in Japan because it is geographically closer, and thusly cheaper. Japan has also been running a deficit with China since 1995, and China became the number one trading spouse in Japan. An appreciation of the Yuan will make goods in J apan more expensive. 5 However, without regards to the appreciating Yuan the new President in China, Xi Jinping, Japan and China relations are to forecasted to become stronger. For some countries, an appreciation of the Yuan is beneficial.For NIEs and developing countries, they are now beginning to look good to western companies that wish to produce goods at a cheaper cost. Countries like Vietnam, Indonesia, and Bangladesh will look favorable because manufacturing in these countries will be cheap and their currencies are more favorable to western countries. For workers in China an appreciation in Yuan will be good for the migrant workers who flock to the coastal cities to work at these lower paying jobs. Their money is now value more and will allow them to buy more products that are not made in China.With an appreciation, more manufacturing will be leaving china, and therefore taking jobs away from China, so an appreciation is a double move on sword for the workers of China. Gene rally speaking, exports for manufacturing goods will be lower, and China may begin importing from other countries for low cost goods. Imports for goods made in Western countries will increase. Since China has been working on their IT industry, China does have a saving grace. Lenovo is now the number one computer manufacturer in the world. Many businesses in Asia are buying more and more of Chinas software product and information technology.The exports for It will increase. All of these assumptions are only taking into friendliness for the appreciation of the Yuan. thither are other factors that go into cheap manufacturing like purchasing power parity, cost of labor and supply chain. Many other supporting industry companies have gone to China to make it easier to produce goods. If manufacturing were to move to other countries, these other industries and companies would also have to move. There is one other element that is important to consider, that the Yuan is not as undervalued a s the US government claims.After joining the WTO, China had to agree to completely give up control of the bank buildings by the end of December 11th 2011. With this bank reform, China has less control over manipulating their currency. According to Eswar Prasad at Cornell University, the IMF will have a difficult time creating a strong skid the Yuan is undervalued. All of the relevant indicators, the currency account and trade surpluses, the railway yard of reserve accumulation and the exchange rate itself have moved in the direction of suggestion the Yuan is no longer much undervalued,. 6 There is no doubt that the Yuan is going to continue to appreciate, however it is become more and more apparent that the currency is not being as manipulated as it was before. 1 Favole, Jared A. , and Ian Talley. Obama Urges Caution on RMB Bill. Wall Street Journal New York 7-8 Oct. 2011, creation Business sec. 6. Print. 2 Investing and Economics Blog. Manufacturing Output as a share of G DP by Country at Curious Cat. Curious Cat, n. d. Web. 07 Feb. 2013. 3 Busch, Anton. why Does China Buy U. S. Debt? EHow.Demand Media, 26 Nov. 2008. Web. 07 Feb. 2013. Daily, Jing. Price Still Biggest Obstacle for Luxery Items in Beijing. Jing Daily. Jing Daily, 14 Sept. 2010. Web. 4 Xing, YuQing. Japans Unique Economic Relaions with China. East Asia Policy. Page 56, n. d. http//www. eai. nus. edu. sg/Vol1No1_XingYuqing. pdf 5 Talley, Ian IMF to Review Whether Yuan Is Undervalued Wall Stree-$T? E? ? IU? u8uy Z x z o ? E 6 F ? ? ? ? A ? eMZ_opic-. OU0uou? ueuaaaUaUaaUaaUOuOOIEIaIEA a? a? ? ? t Journal New York 30, Jan. 2012, World News Asia. 3. Print