Thursday, April 15, 2010

Why China firmly refused to revaluate its currency

RMB to US$

China’s President Hu Jintao refused RMB revaluation when meeting with U.S. President Obama in Washington nuclear summit. He said to Obama that China would not do revaluation on the Yuan exchange rate under the external pressure.

Hu’s stance indicates that China’s economic development has felled into a dilemma. China’s economy always relies on the three pillars: domestic consuming, exports, and investment from government. Since the global recession, decreasing exports and increasing unemployment has deeply impacted on the first two pillars of China's economy-- consuming and exports. Government stimulus package on infrastructure construction has attracted whole country’s individual money and bank loans to enterprises and individuals into real estate and stock market, and it has caused a huge bubble. It means the third pillar for China’s economy is nearly broken. A big inflation has been formed in China and the governmental stimulus plan has gone into its wrong end.

To survive from the world recession, China has to expect to release the internal pressure through exports. If China raises the RMB exchange rate to U.S. dollar, one of its pillars--exports will entirely down and the unemployment rate will vertically soar up, that equals China blocks its only way out and kills itself.