Chinese Yuan Currency - Essay Example

?Chinese Yuan Currency I. The video ‘Q China's Banks, Economy, Europe Crisis, U.S. Economy’ considers the nature of the Yuan in terms of the recent Asian circumstances and the world economic crisis. Some of the primary considerations in these regards are the increasing propensity of traders to engage in options and futures trading over equities as the later has experienced tremendous volatility. In terms of investment in Asia there is growing worry about state banks. Still, Andrew Sullivan indicates that China’s domestic economy has experienced strong indications and has attempted to eliminate speculative practices. In addition, there is a great amount of money that is not stored in the banks and remains in the hands of the people. There is also a growing middle class in China that also benefits economic indicators. The article ‘White House Reviewing Proposed U.S. Legislation on the Yuan, Carney Says’ investigates potential policy legislation aimed at the Chinese yuan. White House press secretary Jay Carney has indicated that the Obama’s administrations views on the Chinese yuan currency is that the Chinese government has significantly undervalued this currency as a means of establishing Chinese economic gains. Specific measures in this policy would allow United States companies to seek duties on imports from China as a means of compensating for the unfair advantage Chinese businesses receive from the undervalued yuan currency. In terms of current statistical elements, the article indicates that, “China’s yuan rose after the central bank set a record daily reference rate, fueling speculation policy makers will favor currency gains as a means to tame inflation and support global exports. The currency gained 0.08 percent to 6.3938 per dollar in Shanghai, according to the China Foreign Exchange Trade System.” It’s also indicated that China’s current economic policies have resulted in the United States losing more than 2.8 million jobs since 2001. It remains to be seen if this legislation will have a bipartisan character. Republican Senator Orrin Hatch has not rejected the potential legislation but has indicated that he will need to learn more about its specific elements. The article ‘Yuan Has Monthly Drop as Europe Debt Crisis Spurs Dollar Demand’ examines volatility related to the Chinese yuan. The article indicates that the Chinese yuan has declined for the first time since January. The currency has declined as Europe’s sovereign-debt crisis will worsen bolstered demand for dollars. The Yuan trading volume greatly decreased in Shanghai as the Chinese government has set its strongest reference rate on record as a means of preventing further investment slide towards the dollar. The pervading notion in these regards is that investors feel the European sovereign debt crisis will slow Chinese economic growth because of strong investment between the nations; the subsequent expansion failure creates an investment environment where the dollar is a more stable investment option. In terms of global outlook in this context of discussion the article notes that, “European leaders have struggled to contain the region’s worsening debt crisis amid growing concern Greece will default. The International Monetary Fund cut China’s 2012 growth forecast to 9 percent from 9.5 percent on Sept. 20 on credit tightening and faltering demand for its exports.” Still, the Obama administration continues to note that the Chinese yuan remains substantially undervalued even though the currency appreciated 10 percent adjusted for inflation since June 2010. It’s believed that if more volatility and turmoil continue in relation to the yuan the People’s Republic of China will peg the yuan to the dollar. The article ‘Becoming number one’ considers how China’s economy could potentially overtake America’s within the next decade. Within this context of understanding it’s indicated that in 2010 the Chinese economy overtook Japan as the world’s second-largest economy. Analysts indicate that it will eventually surpass the American economy, but the exact time it will do so depends upon a number of factors. In these regards, the largest concern is how the International Monetary Fund will calculate exchange rates. By current analytical figures that take into account the lower prices of non-traded services in poorer countries it’s noted that the Chinese economy will overtake the United States economy by 2016. Still, if economic figures are calculated in different perspectives then the time when China’s overtake the United States is pushed back farther. In these regards, one of the major considerations is valuation of the economy in terms of dollars or GDP per person then there remains a significant economic gap. The speed with which China can overtake the United States in these aspects depends on, “the relative speed of real GDP growth in China and America respectively; the inflation gap between the two economies; and the rate at which the yuan rises or falls against the dollar.” Another prominent concern within the context of the Chinese economy is currency inflation and the exchange rate. Analysts indicate that inflation is generally higher in fast-growing economies because the increase in exports raises average wage costs. In terms of the exchange rate it’s understood that in sustaining its catch-up to the American economy the Chinese will have to move their economic structure away from emphasis on exports towards consumer spending. The article ‘An exorbitant burder’ further considers the proposed legislation regarding Chinese currency. In this context of understanding the article examines potential negative side effects of passing legislation that imposes tariffs on the Chinese yuan. For instance, it’s possible that trade restrictions could create a row with China. In addition, wage growth has already greatly increased, appreciating the Chinese currency and causing many of China’s cost advantages to decrease. China also does not compete with America in many specific industries of production. Still, the article considers investment in United States dollars as a benchmark investment for turbulent financial times and explicates the economic impact of this currency appreciation. II. The article ‘Obama: China ‘Gaming’ Trade System’ considers United States President Barack Obama’s belief that the Chinese government is gaming the trade system as a means of gaining economic benefit. Obama’s perspective on the issue follows legislation that was developed as a means of targeting China’s undervalued yuan currency. Obama indicated that, “the Chinese manipulate the yuan and intervene in currency markets to the detriment of U.S. businesses” (‘Obama: China ‘Gaming’). The legislation was developed in the United States Senate and imposes tariffs on Chinese trade unless the current agrees to reform their monetary policy. Obama indicated that it is readily apparent that China intervenes in currency markets as a means of shifting favor to their country. The United States bill that has been proposed would treat undervalued Chinese currency as an illegal export subsidy under U.S. trade laws. This bill would enable the United States to place punitive tariffs on this currency. Still, the ultimate efficacy of the bill remains in question as even if the Senate passes the legislation Speaker of the House of Representatives John Boehner has expressed questions about the bill. The article goes on to consider that the Obama administration will continue to attempt to enact reform with China through diplomatic measures. Finally, another concern is that China has failed to notify the World Trade Organization regarding over 200 subsidy programs that they have. In these regards, the United States has asked for more Chinese transparency in these measures; if China does not comply the issue can be brought to the World Trade Organization Subsidies Committee. An article appearing in the Wall Street Journal titled ‘Yuan Loses Feel of One-Way Bet’ examines the Chinese yuan in terms of current inflationary volatility. While the Chinese currency had once appeared to be one of the strongest currency investments, recently it has shifted perspectives in this realm as it has experienced great volatility. The belief that the yuan would continue to rise lead investors to buy billions of dollars in dim sum bonds; however in the last few weeks the volatility in the market has driven people away from Chinese currency to the stability of the United States dollar. Still, many analysts are noted to consider that the yuan will continue to gain value since China still holds a large amount of growth potential and is working to build an international market for its currency. The recent volatility in Chinese yuan is attributable to worries that China would slow the currency’s rise as a means of not hurting exports. The Chinese government has also indicated that the yuan would stop rising and indicated that the exchange rate has been set at a reasonable level. This volatility signaled a number of important considerations for investors. In these regards, investors were reminded that the yuan market is still relatively new and will surely be subject to such fluctuations. Even as there are clear flaws in the market, analysts have argued that over the last few months these flaws have been corrected. Investors still haven’t returned to the yuan market however. In these regards, analysts disagree over whether investment in Chinese yuan currency will return to earlier levels or if investors will continue to stay away from the yuan based on fear of continued volatility as new currency reform measures are introduced. Confidence remains high in the emerging Chinese market and long-term appreciation is still believed to be accurate. III. The United States economy currently faces a problem related to China’s currency policy. In these regards, China has undervalued its currency as a means of aiding its financial situation. Through devaluing its currency Chinese manufacturing industries gain a significant advantage in terms of exports to outside regions as their products become cheaper to purchase in relation to the products of international manufacturers. This poses a significant challenge to the United States economy as Chinese manufacturers gain an unfair advantage in terms of exports. This places inequitable restrictions on United States manufacturers when attempting to compete within the international exporting. There are steps that the United States can take as a means of counteracting the effects of China’s devalued currency. The main consideration in this context of understanding is that the United States can pass trade legislation that enacts punitive tariffs on Chinese imports. Through placing this legislation on Chinese imports the tariffs would function as a means of moving the price of goods as a means of compensating for China’s undervalued currency. In addition to these measures, the United States has attempted to encourage the increased valuation of Chinese currency through direct diplomacy with the People’s Republic of China as a means of avoiding potential conflict that could accompany legislative measures. If the Chinese allow the yuan to freely appreciate there will be substantial impact on the economies of China, the United States, and Europe. In terms of imports and exports China would be forced to encounter increased international competition in terms of manufacturing and production. This would mean that their level of exports would decrease as consumers purchase from other countries. Imports would potentially increase as the Chinese gain greater purchasing power. In terms of economic development China would lose their advantage in terms of manufacturing which would potentially slow Chinese development or force them to concentrate domestically. In regards to Europe, Chinese appreciation would lead to further domestic purchasing, as well as a purchasing goods from United States manufacturers. Economic development would not be significantly altered, but investment in the Chinese economy and yuan might decrease because of increased volatility. Finally, appreciation in the Chinese yuan would aid the United States in manufacturing, as companies in the region would gain greater competitive advantage over Chinese manufacturing. In terms of imports, there would be a gradual increase as the American populace loses purchasing power relative to the Asian market. Still, one caveat to this is the potential of European investors to retreat from the yuan to dollar as a means of finding a stalwart investment option. This would then appreciate the United States currency and result in corresponding changes in imports and exports. Economic development would reflect increased manufacturing potential. References "Obama: China ‘Gaming’ Trade System." WWD: Women's Wear Daily 202.73 (2011): 2-1. Wei, L. (2011). Yuan loses feel of one-way bet . Retrieved from http://online.wsj.com/article/SB100014240529702035373045770279905 68416030.html Read More