China is under fire from global leaders urging the nation to consider its long-term economic interests and permit the yuan to rise against the U.S. dollar. President Barack Obama has been in China discussing the importance of global rebalancing and among other things, attempting to convince Chinese President Hu Jintao to loosen his hold on the tightly regulated currency.
Chinese officials remain hesitant to submit to market pressures and the pleas of President Obama and Dominique Strauss-Kahn, the managing director of the International Monetary Fund. Pleas have been put forth by a number of global leaders, insisting a stronger Yuan would speed the process of economic recovery. China; however, young as its economy is, remains concentrated on short term gains and skeptical of how this will benefit China in the long term.
Chinese President Hu Jintao has made no moves to change or further discuss currency policy, supported by domestic officials and economists in favor of continued currency regulation. China and the United States appear to be encountering gridlock with soaring unemployment rates on either side contributing to conflict.
A stronger yuan would make Chinese exports less competitive; unappealing in an economy that has already endured 20% losses in this area. Currently, China stands at an advantage with the yuan weakening against other currencies as a result of its connection to the sinking USD. This has resulted in tension with competitors in Asia and Europe who believe this is an unfair curve that has the potential to cause new bubbles in real estate and stocks.
"You have to balance your needs in the short term with the long term," said Strauss-Kahn. Regulating the currency may aid exports in the short term but it brings with it other consequences. "If you have wrong prices, you make wrong decisions, especially concerning investment in the long run," he said.
He went on to say that China was failing to look toward the future. "It's now time for China, having accumulated a lot of advantages from an undervalued currency, to look more forward to investment and to long-term stability.”
Global economists believe it would be in China’s best interest in the long run to consider arguments puts forth by the United States regarding its currency. China’s import growth relies on the recovery of the U.S. economy. Without it, they are sure to encounter difficulties maintaining the gains an undervalued currency brings in the short-term.
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