Jul 10

Tall expectations on RMB

Written by DJ on Thursday, July 10th, 2008 at 12:47 am
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Here is a quick summary of Francesco Sisci’s take of what the G8 want with China’s currency RMB:

  • They want RMB to rapidly appreciate in order to slow down the inflow of cheap Chinese exports.
  • But they want to avoid a global inflation due to consequently more expensive Chinese exports.
  • And they don’t want China to gobble up more oil and raw material imports with a stronger RMB either.

Do you get reminded of the saying? “Be careful what you wish for; you just might get it.”

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14 Responses to “Tall expectations on RMB”

  1. Jeremiah Says:

    I was thinking more of the old expression, “Everybody wants to go to Heaven, but nobody wants to die.”

    Along the same lines, my Dad, a lifelong salesman, used to have this sign hanging over his desk:

    “You want it good, fast, AND cheap? Pick two and call me back.”

  2. caoshiren Says:

    Who is this Francesco Sisci guy? And why should we care what he says?

  3. jen Says:

    i think his statements would be pretty widely acknowledged as true.


  4. DJ Says:


    To answer your question: Francesco Sisci is an editor of La Stampa in Beijing.

    That said, I respectfully suggest that your question “And why should we care what he says?” is missing the point. I linked to his article not because he is Francesco Sisci, but because I found some of his description on G8+China meeting interesting and revealing. I spelled out his name because I felt it was appropriate to give credit when referencing other’s writing.

    By the way, the paragraph in his article that I “summarized” in this post is as follows:

    Similarly, a central issue is the appreciation of the RMB. All the “big eight” are concerned about the inflow of cheap Chinese exports and would like to see a rapid revaluation of the RMB to stem those exports. However, given the looming global danger of inflation, expensive Chinese exports, which in turn would fuel domestic price hikes, could be dangerous as well. Even riskier, a stronger RMB could enable China to gobble up more oil and raw material imports, driving up international prices. Pundits already point at China’s new thirst for energy and commodities as one of the main forces raising prices worldwide.

  5. vadaga Says:

    how about ‘you can’t have your cake and eat it too’

  6. vadaga Says:

    I just had a quick brainstorm of some other possible ways of slowing down Chinese exports without appreciating the currency too much:

    1) Strict enforcement of labour laws thereby driving up exporters’ costs
    2) Strict enforcement of environmental laws thereby driving up exporters’ costs
    3) Removal of export tariffs?

    Can anyone think of anymore?

  7. FOARP Says:

    I’ve never understood the concentration on currency reform, people who demand Chinese currency reform seem to operate on the idea that it is possible for countries to go bankrupt through importing more than they export – this is not so, not least because a country cannot go ‘bankrupt’, and because foreigners demand payment for the products that they sell. China’s currency is not ‘pegged’ to the dollar (something a lot of American politicains do not seem to even know) but is allowed to move within limits in relation to a basket of foreign currencies.

  8. Buxi Says:


    Well, the RMB was pegged to the dollar as of 2-3 years ago, so reform to the system today was necessary. I don’t think the focus in the West is necessarily about trade imbalance causing bankruptcy, but about the implications of lost manufacturing jobs. From the West’s perspective, this is all about the usual reasons for protectionism at the end of the day.

    From China’s perspective… we do need currency reform. When the RMB is held down artificially as it has been, what it really implies is that American customers are willing to take only 600 RMB for $100, but the Chinese central bank was forcibly giving them another 200 RMB. This is obviously highly inflationary, and “not good business sense”. But I understand why China needs currency stability too. So, finally, you get this slow adjustment process we’ve been in over the last 2 years.


    Seems like the Chinese government is already doing different variants of your 1/2/3! But only because it serves China’s purpose (I really support the labor law passed this year, for example).

    I don’t think China should really try to slow Chinese exports in order to make foreign governments happy. China doesn’t need to be giving charity in order to support Western businesses. None of those governments would possibly consider restricting their own businesses in order to solve domestic Chinese problems.

  9. Buxi Says:


    July2 (Bloomberg) — German Chancellor Angela Merkel said she wants the Group of Eight leading industrial nations to raise pressure on developing economies such as China and India to cut their oil consumption in a bid to ease surging energy prices.

    Merkel plans to urge G-8 leaders meeting in Japan next week to agree on “keypoints” for reducing oil consumption by developing nations, she said today in an interview with N24 television. Proposed measures include adding pressure to reduce subsidies and improve energy efficiency, she said.

    Stories like this is why I think China needs nationalists.

  10. Nimrod Says:

    Buxi wrote:

    From the West’s perspective, this is all about the usual reasons for protectionism at the end of the day.

    Well it goes both ways. The West sees China’s currency and other government interventions as not “free market” and they see this as not competing fairly. This obviously ignores the West’s own anti-market policies on things like agricultural subsidies and a vast number of import-export restrictions. It is also red herring, because China is doing so not really to protect interest groups like the West (China laid off how many state workers in the 90’s to prepare for the WTO?) but because its economy is still transitioning, with the financial system not fully developed to withstand sudden “shocks”. The intervention puts in the necessary damping factor but the direction is clear; and if anything I think China has become more confident in free and fair competition than certain segments of the West because it believes in its competitive advantages and intrinsic potential going forward.

  11. rocking offkey Says:

    hold on.

    Let’s first implement the environmental law, labor law, s someone suggested, and then force the state/firms to share some social welfare, cancel the super-national treatment foreign investments have, and then wipe out most of the technology export restrictions against China in the US. Then let’s see where RMB stands. I’m not all that convinced RMB is that undervalued if all these are done.

    At the end of the day, it’s not RMB, it’s the structural imbalance in the Chinese economic and social system.

  12. Buxi Says:


    Exactly, agree 100%. How many people were complaining about China’s “non-market currency” during the 1997 Asian crisis, when China refused to devalue the RMB even as all of the other Asian exporters did? Those days, China was basically imposing a tariff on Chinese exporters.

    Currency controls in China’s case isn’t about providing a subsidy, it’s about stability. the real economists in the West understand that. It’s only the politicians who’re using this to make a point.

  13. FOARP Says:

    @Buxi – But you often see American commentators refer to the ‘peg’ even nowadays, and the US and Western Europe are not going to lose manufacturing jobs to China – at least not at the moment. Rather, it is countries like Mexico, Indonesia and India which should be bothered, as they are the ones who would lose out from any undervalueing – which is being corrected as we speak anyway. Yes, there has been a general drift towards protectionism in some areas in the west (quotas on underwear in the EU, steel tariffs in the US) but the WTO, the EU, and bilateral FTA agreements form a bulwark against such moves.


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