China+Currency+Value+Manipulation

__ Background: __ According to Congressional Research Service (CRS) - The Library of Congress - in "CRS Report for Congress: China 's Currency: A Summary of the Economic Issues" - Updated July 11, 2007 (order Code RS21625): "Many Members of Congress charge that China 's policy of accumulating foreign reserves (especially U.S. dollars) to influence the value of its currency constitutes a form of currency manipulation intended to make its exports cheaper and imports into China more expensive than they would be under free market conditions. They further contend that this policy has caused a surge in the U.S. trade deficit with China and has been a major factor in the loss of U.S. manufacturing jobs. Threats of possible congressional action led China to make changes to its currency policy in 2005, which has since resulted in a modest appreciation of the yuan. However, many Members have expressed dissatisfaction with the pace of China 's currency reforms and have warned of potential legislative action." __ Harms __ (what is wrong now): China 's currency is significantly undervalued vis-a-vis the U.S. dollar (even after recent revaluation), making Chinese exports to the U.S. cheaper and U.S. exports to China more expensive. The yuan is estimated to be as much as 15 to 40% (or more) undervalued compared to the dollar. The undervaluation has contributed to the U.S. trade deficit with China (which hit $233 billion in 2006 according to the CRS "Report" (cite above)) and has hurt U.S. production & employment in several U.S. manufacturing sectors that are forced to compete domestically & internationally with artificially low-cost goods from China. In addition: China 's currency policy induces other East Asian countries to intervene in currency markets to keep their currencies weak against the dollar to compete with Chinese goods. __ Why not yet? __ So far the U. S. has avoided demanding an unpegging of the yuan because of a variety of concerns, including adversely affecting diplomatic relations between the two countries. There is a risk that immediately unpegging the yuan could cause currency instability in China. The Chinese have expressed concern that floating the yuan could spark an economic crisis in China, leading to worker unrest. On balance, however, other than modest adjustments in 2005, Chinese officials appear to be stalling any more significant action toward floating the yuan. __ Solution: __ The U.S. should demand a full, but phased, unpegging of the yuan that would result in the yuan floating free within five (5) years. __ Advantages: __ 1) A phased unpegging of the yuan would allow for normalization of the equity markets in China, and would allow the yuan to appreciate. 2) Appreciation of the yuan would help to restore the balance of trade between the US and China and slow the loss of US manufacturing jobs to China. 3) Normalization of the yuan would help to provide a braking mechanism for the runaway expansion of China's economy and the increasing demands for energy that have caused China to surpass the US in emissions of greenhouse gases.  __ Disadvantage: __ William Overholt, Director of the Center for Asia Pacific Policy at the RAND Corporation, Pieter Bottelier, former chief of the World Bank Resident Mission in China, and professor at the Johns Hopkins School of Advanced International Studies advocate restraint and appeal to China's own self-interests as the best course of action, in an editorial in the July 13, 2007 edition of the Christian Science Monitor online: "China's undervalued exchange rate is primarily China's problem. It creates too much domestic liquidity in  China, which is driving potentially dangerous stock market speculation and other bubbles. The US Treasury Department is correct in trying to persuade China to marketize its currency faster on the basis of Chinese interest rather than foreign pressure."
 * __ China __****__ Currency Value Manipulation __**