Yuan revaluation would yield limited US benefits

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WASHINGTON: China’s revaluation of the yuan could yield long-term benefits for both China and the world economy, but analysts say it won’t restore vanished US manufacturing jobs if past experience is any guide.The Obama administration said on Saturday it would delay publication of an annual currency report, which US lawmakers had demanded be used to name China as a currency manipulator.

Lawmakers argue Beijing deliberately holds down the value of its yuan currency to boost Chinese exports, unfairly harming US companies and costing American jobs.

Critics of this stance point to evidence from 2005-08, which was the last time China let the yuan rise.

This experiment neither quickly aided US exports, nor curbed massive Chinese trade surpluses, and probably limits the odds of a significant move over the currency from Beijing.

“Anyone looking for a revolutionary change in policy may be very disappointed,” said Tim Adams, a former Treasury undersecretary for international affairs under Obama’s predecessor George W Bush.

Analysts say the Chinese experience with a rising yuan failed because it was not allowed to crawl higher at a fast enough pace.

But they acknowledge plenty of Chinese think it shows foreign-exchange adjustments simply do not work.

“There is a raging debate between the technicians, the technocrats and the academics who are arguing for change, and those who want to maintain the status quo,” said Adams.

US Treasury Secretary Timothy Geithner, in explaining his decision to delay the release of the April 15 report, said he would continue to encourage China through the Group of 20 that developed and emerging economies should shift toward a more market-oriented exchange rate.

Nicholas Lardy, a China expert at the Peterson Institute for International Economics in Washington, cautioned not to expect any yuan movement until Beijing saw clear evidence of sustainable economic recovery in Europe and the United States.

Lardy said there were compelling arguments for China to relax the yuan’s peg against the dollar.

But he saw no prospect that this would return employment to the United States that was lost years ago to cheap imports from foreign producers like China.

“That is a fallacy,” he said.

“Production is going to shift to the next lowest cost center, probably somewhere else in Asia. But that is not going to be the United States.

“Chinese appreciation would help from a global point of view by reducing imbalances, but should not be regarded as the principle solution to the US current account deficit.” — Reuters