Additionally, US companies rush to set up processing operations in China or
make large procurements in the country, making full use of China's cheap labour
force. This is how the US firms pay the lowest possible cost and gain the
fattest possible profits. Exports by the foreign-funded processing operations
make up a very big proportion of total Chinese exports to the United States - 48
per cent in 2002, for example.
If all Asian economies are treated as a whole entity, no significant
fluctuations are seen in the US trade imbalance with the area. Between 1990 and
2002, for instance, the bundled share of exports to the United States from the
Republic of Korea and China's Taiwan Province declined from 27 per cent to 17
per cent while the portion from the Chinese mainland rose from 3 per cent to 11
per cent.
Finally, the United States imposes strict controls on the export to China of
US high-tech products, involving nuclear reactors, satellites, integrated
circuits and sophisticated machinery. This constitutes a double-bladed sword,
doing no good to China and also harming the United States' own business
interests.
Starting in 1994, the renminbi was pegged to the US dollar in terms of the
exchange rate. As a result, the Chinese currency gained much in value, powered
by the strong US dollar at the time.
In the late 1990s, when the Southeast Asian financial crisis broke out, China
maintained the renminbi's value against heavy odds in a bid to stabilize the
Asian economic situation as a whole. Its Asian neighbours, hit hard by the
crisis, gave China credit for helping the region tide over the financial
straits.
But winds began to blow in a different direction in 2002, when the US dollar
began to devaluate.
Some US exporters, labour organizations and congressmen started pointing
fingers at the pegging of the renminbi to the US dollar, charging that the fixed
exchange rate between the Chinese currency and the greenback kept Chinese
exports to the United States artificially cheap and US exports to China
expensive, which largely undermined the competitiveness of US commodities. In
their eyes, the renminbi's value was shoving up the United States' trade
deficits with China and causing the evaporation of many working posts in
American manufacturing sectors.
It was in this context that the Schumer-Graham bill was put forward in
September 2003, and re-initiated in February 2005.
The Bush administration, however, adopts a different stance from that of the
protectionist-minded senators.
On the one hand, top Bush government officials keep pressure on the Chinese
Government for reforming the renminbi's exchange rate mechanism; but on the
other hand, former US treasury secretary John Snow did not put China on the list
of countries regarded as manipulating the exchange rates of their currencies.
Many American economists voice their opinions on the issue of the renminbi's
revaluation. For example, Stephen Roach, chief economist of Morgan Stanley,
remarked that China does not base competition on the devaluation of its currency
and that revaluation in large margins would unlikely exercise significant
influence on the price of Chinese exports.
Again, Roach said at the Davos World Economic Forum in January 2005 that the
appreciation of the Chinese currency would not help significantly to bring down
the US trade deficits.
Robert Mondale, the renowned economist and also a Nobel laureate, maintains
that the renminbi's exchange rate should remain stable.
(For more biz stories, please visit Industry Updates)
