No Chinese monetary war of competitive currency depreciation
- By Mei Xinyu
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E-mail China.org.cn, September 21, 2015
At the same time, a big drop of RMB exchange rate in a short period of time will worsen the structure of assets and liabilities of Chinese enterprises with U.S. dollar debts. If this happens, its impact on the Chinese economy will be obvious. China, with nearly 4 trillion U.S. dollar reserve, will not seek such an impact. And it is capable to protect itself to avoid the situation.
In the long run, if a "financial market fluctuation-big RMB depreciation" occurs, China will be trapped in a state of stagnant development after economic take-off. This has no attraction for China at all, and actually it has been seeking to avoid for many years.
At the same time, after successive appreciations in the 17 years between 1997 and first half of 2015 (based on annual average exchange rate), appropriate depreciation of the RMB-U.S. dollar exchange rate is really helpful in alleviating the pressure on export enterprises. China, however, would not rely on RMB depreciation to expand exports.
The importance of emerging market in China's foreign trade – more than 50 percent – also makes China not interested in competitive currency depreciation, which will damage China's overseas market demand.
The tendency of China's trade policy also proves it has no intention of getting involved in competitive currency depreciations. During the crisis period in the 1930s, the policies that governments adopted to handle currency depreciation was trade protectionism limiting imports.
Especially, the Smoot-Hawley Tariff Act passed by the U.S. Congress in 1930 brought the US import tariff rate up to 53.2 percent immediately and to 59 percent by 1932, triggering a tariff war among some 60-odds countries and a sharp drop in global trade.
What policy is China adopting now? While its economy and foreign trade growth is slowing down, it has implemented measures to expand imports and establish and expand its free trade zones.
The writer is a researcher with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.
The article was written in Chinese and translated by Li Bin.
Opinion articles reflect the views of their authors only, not necessarily those of China.org.cn.
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