BEIJING – With US Vice President Joe Biden in China, the yuan has once again become fodder for the headlines of some Western newspapers amid pretty serious reports that the guest from Washington would press Beijing to allow the Chinese currency to appreciate more rapidly.
Any speculation about the alleged undervaluation of the yuan is indeed wide of the mark. In the past decade, so much has been said about the Chinese currency, also known as the renminbi or RMB, in the West, and it is always like beating a dead horse.
Simply put, the exchange rate has never been the real cause of the huge US trade deficit with China.
For starters, the Chinese currency has already appreciated more than 20 percent against the US dollar since China unpegged it from the greenback in the 2005 reform of its exchange rate regime. In the first half of this year, it gained 2.33 percent.
The US trade deficit with China, meanwhile, has persisted. According to Chinese statistics, it was about $114 billion in 2005, but it increased to over 180 billion dollars in 2010.
Washington and Beijing may quarrel about the “real figures” of the trade deficits by using different calculations. But the plain fact is that large US trade deficits with China continue to exist even as the Chinese currency has appreciated against the US dollar significantly in the past six years.
Meanwhile, China has been making serious efforts to create a more flexible exchange rate regime in a gradual way, taking into account both internal realities and external conditions. History has repeatedly demonstrated that radical exchange rate fluctuations are a recipe for financial and economic calamities.
As the second largest economy next only to the United States and an important powerhouse for global economic growth, China has to maintain financial stability and economic soundness. A volatile Chinese economy is no good news for the United States and the broader world.
Rather than misplaced blame and charged rhetoric, sensible and viable options are on the table for US policymakers to wipe away much of the red ink and catch hold of the elusive balance. Ready ones include Washington relaxing its restrictions on high-tech exports to China and Uncle Sam opening his door wider to Chinese investors.
Washington has its due security concerns while selling products of super-sensitive technologies. However, as US Ambassador to China Gary Locke said last year when he was commerce secretary, some of the export regulations “make no sense” as many items on the control list have already been readily available from companies around the rest of the world.
While reshaping its unnecessarily tight export policy toward China, the United States can also take off its behind-the-times colored glasses and take in more Chinese direct investment so as to better redress the general imbalance of the economic and trade exchanges between the two giants.
Chinese investment fully deserves fair treatment. A recent joint study by the New York-based Asia Society and the Washington-based Woodrow Wilson International Center for Scholars points out that China now accounts for a mere 0.1 percent of the total foreign direct investment in the US, while Chinese firms in the US are estimated to have created more than 10,000 local jobs.
As many from both sides of the Pacific Ocean have appealed over and again, Chinese investment in the US should be encouraged, and the US process of screening investment for national security concerns should be insulated from political interference.