In three decades, China has transformed from an economy based upon agriculture (low effective and auto centered) to an economy based upon mass industry and export. The wish of Xiaoping to open the country is completely reached (on an economy level) but his wish to develop China from the inside by allowing Chinese to have an access to a better situation is not yet achieved. Exports overpass imports, and that is the reason why China is a beneficiary today, but the internal consumption is still low if we compare to the potential of 1 350 million inhabitants. So, even if the GDP is growing fast, the 2009 GDP per people was still weak (about 2000$/inhabitant). China has been quite clever in its plan to develop, by working on a first time on its workforce (and competitive advantage) to create richness. But it has to be followed by another productivity source, by developing technologies. The economy is focused on exports and the Chinese developed a monetary policy in accordance with that. They expect to have important growth results, and so need a strong trade surplus. The two options available are working on the volume and the currency's margins, in order to sell a lot with as much gain as possible. So, they developed a specific monetary strategy by keeping the Yuan RMB out of the global speculations and fluctuations (as a fixed currency). In the same time, the Yuan tries to keep low exchange rate to boost exports thanks to a strong price competition and through wide margins. For instance, in 2000, you needed 8.277 RMB to get 1 dollar, but it was hard to keep such an advantage because trade partners like the USA, wanted to vigorously review the monetary policy (against an establishment of a 22,7% tax on Chinese product). On July 25, 2005, China accepted and appreciated the Yuan at 21% of what represent 8,11 RMB for one dollar. Another advance was done on the system of rating, by deciding to set up a floating logic at +/- 0.3% per day based on a currency basket (95% of dollar, Yen, Won). But this step is didn't calm down the asking for a strong revaluation. Behind this topic, we can see a conflict between the power of the USA and the desire of power from China, which marks its territory by indicating that no country can decide what China has to do. Since then, the RMB has slightly appreciated to 8.005 RMB per U.S dollar in early May 2006 (i.e. depreciation rate of 2% per annum). In 2010, the Yuan was at a level of 6,83 RMB for one dollar, and tried to find an answer into the crisis and the lost of value from the dollar, against other currencies. Main trade partners like the USA, Europe and Japan, call for a revaluation of the Yuan. They accuse China of dumping to boost exports, and to be responsible for imbalances in those countries. The USA highlights the responsibility of China about its huge trade deficit, and even about destructions of jobs on its soil etc. The Chinese government tries to defend itself by saying that there will be no appreciation and disagreed with the arguments. The problem doesn't stay in the nations' net, but finds an incredible interest into the world of economists, and financial experts. We will join their questioning during this dissertation, while trying to answer to the problem: Should we revaluate the Yuan?
[...] Exports, and trade surplus, are the motor of the economy and finance the growth at a high level, but imports are becoming more and more important as we saw before. This huge need of import (with an important part in order to assembly products before exporting them) created a speculative bubble and an incredible inflation on raw materials. But in the same time, it helps trade partners to have products at low prices, so we have a deflation pressure on an inflation pressure. [...]
[...] If decision-makers are really careful about the current deficit of the running accounts, they should spend more time to set the financial US house in order"[29]. So the trade deficit finds an answer in an internal macro-economical maladjustment. Patrick Artus says it is important to understand that actual undervalued Yuan policy is at the source of the world economical growth between 1990 and 2000; because Chinese low priced exports have allowed the set up of a deflation, what was a good opportunity for Western Central Banks to imply expansionists' policies. [...]
[...] In the last part, I used information from the Literature Review to build my own answer and opinion, by arguing why I think we can't appreciate the Yuan now. I said that the consequences are too important and China is not ready to handle it, and this is the same for the rest of the world. Nevertheless, I agree with the accusation of undervaluation and dumping of the Yuan, and call for an appreciation in 3 or 4 years when crisis would be a souvenir and China would have develop its national consumption. [...]
[...] ) lead the question of the revaluation for the Yuan monetary policy. They denounce vigorously the fact that China manipulates it to undervalue the Yuan, in order to favor the competitiveness of its products for the export. This topical subject is not new and stays as a tension since the 90's (more precisely since the growth of China is become significant for the world trade). But under pressure, China took a first step in 2005 by revaluating its currency by about and ensuring bigger fluctuation. [...]
[...] Economically, the international connection was stopped and culturally was established the proletarian ideology. He died in 1976 and let the country in a catastrophic situation, as a poor country, barely developed, with high mortality and economically absent from the international turntable. Deng Xiaoping, former secretary of the communist party, took the command in 1978, with new goals and a new culture. C. The Economical Situation Deng Xiaoping took the control of the country and decided that China had to change its philosophy and approach of the world, without setting aside the communism and popular focus. [...]
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