Author`s name Dmitry Sudakov

America and the yuan of discord

The visit of Chinese Vice President Xi Jinping in the United States was dubbed by the Western media as "pre-coronation." The politician is preparing to replace Hu Jintao at the helm of the second economy in the world next year. The main outcome of his tour was the renewed determination of China to follow the current course after the change of leadership of the country, including monetary policy.

Against the background of the systemic crisis experienced by the Western version of capitalism, its Asian version attracts increasingly more attention. While Europe and the USA are choking in the cycle of financial crisis, China, India and other countries in the region demonstrate impressive economic gains. Of course, in the context of globalization they could not stay completely away from the problems of the West, which is proven by an example of the stagnant Japanese economy and slower growth in other East Asian countries.

Nevertheless, it is obvious that their success is largely due to a fundamentally different approach to the development of the economic system. It is difficult not to notice the Chinese example. China has successfully developed its economy in the absence of political competition, in the situation of the total hegemony of the Communist Party, which, in principle, is contrary to the tenets of classical Western liberalism. There can be a long debate about the inexhaustible human resources and other strengths of the Chinese economy, but one thing remains certain.

After the reforms of Deng Xiaoping in 1978, it was the political monopoly of China that allowed for the stability of the economic strategy of the Asian giant. This was the strategy that practically did not depend on the specific political figures and the environment. A special role was played here by the established mechanism of rotation and renewal of the leaders at all levels, including senior management. Thus, the Chinese Communists managed to avoid the gerontocracy and stagnation as it happened in late Soviet Union. In one year the current head of China Hu Jintao will relinquish his post to Xi.

The visit of the Vice President of China to the United States of America has only confirmed the immutability of China's economic policy. Barack Obama was clearly counting on the greater openness of the young leader to the American wishes, including a very painful for the Americans issue of undervalued Chinese currency.

For many years, Washington has been seeking revaluation of the Yuan, which would help reduce some of the monstrous trade deficit with China. Last year it was increased by another eight percent, reaching a dizzying $295 billion dollars - nearly half of the total U.S. trade deficit that amounted to $558 billion.

The Americans are hoping that the strengthening of the Yuan would make Chinese goods less competitive in the domestic market and will replace at least part of the goods of own production. This not only would give impetus to the stagnating U.S. economy, but would provide much-needed for the U.S. president new jobs on the eve of the election.

However, during the visit of Xi Jinping Barack Obama received no confirmation of his hopes. The future head of the People's Republic of China made the usual traditional for the Chinese leadership announcements about mutual respect for each other's interests and stressed that ignoring them will invariably lead to unwanted problems.

The constant political pressure from Washington causes even more confusion in Beijing because the Chinese authorities, albeit gradually, but still increase the value of their currency. Over the past five years the Yuan appreciated to the US dollar by a quarter. The Chinese take into consideration the wishes of their American partners. But, according to Washington, the increase of the value of the Yuan could be faster. However, Washington is not in a position to impose its views on the main holder of its own debt.

Sergei Podosenov

Bigness 

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