Wednesday, February 24, 2010

Stronger Renminbi will cost jobs - Shaun Rein

Shaun2Shaun Rein by Fantake via Flickr
China should resist calls from the US to strengthen its current, since that would have a negative effect on the job market, even though many American says China is not playing the game fair, argues Shaun Rein in BusinessWeek.  Those voices include the famous New York Times columnist and economist Paul Krugman.
At a time when the U.S. unemployment rate is just below 10%, not much grabs Congress' attention better than accusations of 1.4 million jobs lost to China. However, China bashers are raising expectations too high with dubious assertions that if the yuan were revalued, manufacturing jobs would suddenly move back to the U.S. and the trade surplus would be reduced. If manufacturers found costs were too high in China, they wouldn't return to the U.S. 
They would just move to countries such as Vietnam and export back to the U.S. from even lower-cost production centers. Nor do Krugman and others take into account the damage a rising yuan could inflict on low-earning workers in China. The Chinese government is under intense pressure from factory owners not to revalue the yuan more than the 20% it has risen since 2005.
According to Rein's assessment at least five million jobs could be hurt in China, and perhaps many more. In the end the value of the Renminbi will go up, but the time is not yet there:
Finally, it is doubtful that constant public pressure by governments to push China to revalue the yuan will work; such calls are almost certainly counterproductive. Reform-minded Chinese officials will be forced to stand strong to appease hard-liners within the government and not come off as too weak. A better strategy should push for change behind the scenes. Krugman is 
not wrong that at some point the yuan should appreciate, but that time has not yet arrived.
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Shaun Rein is a speaker at the China Speakers Bureau. When you need him at your conference, do get in touch.
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