+ why won't china revalue? +

  1. 22,691 Posts.
    I think there are a number of angles to that:
    1. A realistic revaluation means that goods will become less competitive compared with those from other Asian producer nations.

    2. Forty percent of Chinese production is taken by the US. It is not yet possible for increased demand from other nations to replace a significant part of the US demand.

    3. It would make Chinese goods a more expensive in the US and other countries and would increase the chance for a recession due to increased inflation.
    (One could argue that perhaps the Chinese production net margin could be lowered but there would be a limit to that).

    4. The upshot is that less Chinese goods will be consumed hence a decrease in Chinese exports.

    5. Because Chinese expectations have been raised it pays to keep the population happy by inducing growth. A marked deterioration in production can result in disturbances.

    6. The current situation suits the Chinese and the US (although the latter would deny it), as the Chinese are principal holders of US bonds. This buying by them and others have kept down US inflation.

    7. It is imperative that the status quo be maintained while a masssive resources acquisition is taking place. This involves currency and other risks.

    8. $US are good enough to buy the necessary massive resources needed to ensure China's future.
    While on the one hand the supply of dollars is growing and this promotes some inflation, vast amounts of dollars are going out to buy these assets.

    It wil take a number of years to secure these resources and pay for these; but they work at high speed simultaneously on a number of continents.

    When doing these deals, a massive amount of Chinese railwaystock (trains and rails) and mining equipment can be supplied by the Chinese state owned companies, and this softens deals made by the Chinese.

    9. Once they have made good progress, it is time to look at securing other hand picked assets and the US may want to sell some as well.

    10. So, the influx of US dollars is not really a problem because there are ways to dispose of these other than just buying US Bonds.

    11. It is argued that upvaluing of the currency will make Chinese imports of resources cheaper. That would be so and no doubt they would have studied this.

    They have sofar decided against it and are paying for resources in devalued $US.

    12. In the meantime, locking in vast resources causes price increases to others needing these commodities. So, in a way, buying these oil, copper, manganese, chromium, nickel and other assets in the ground now will be a good policy.

    13. Arising from that, in the future a measure of price control is possible forcing others to buy these goods at certain pricing or go without it. So, in a way, whoever has these vast resources can extract concessions from others.

    Already, building industries in the US in one area had to stop their activities at times because of a lack of cement: it was being redirected to China.

    14. As long as the Chinese remni is pegged, China will keep a large amount of US dollars; after all, it is a political weapon.

    15. It is only when the Chinese see that there is an advantage in revaluing, they will do so but only to avoid a trade war. In that case, they won't make a full revaluation but incremental ones: there is then always something left to fight with.

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