During my short time in China I have seen the value of the US dollar drop -- literally right before my eyes. Standing in my hotel lobby and I looked up at the digital screen to see the exchange rate, sitting at 7.63 RMB. I looked down to get my wallet out, and when I looked back up, the rate had dropped to 7.61 RMB.

Since then, I have seen the rate drop further, as low as 7.56 RMB. This made me think about China's economy, and the staggering growth it has experienced over the last few decades. And I wondered if this growth could be stunted by its appreciating currency.

Expanding at nearly 11 percent annually, China's rapid growth has surpassed that of the industrial revolutions in Britain, Germany and the United States during the late 1800's and mid 1900's.

But how has China accomplished so much in the 29 years since 1978? While there are many answers to this question, generally speaking, China's ability to provide cheap labor, and a lot of it, has played a vital role. China has more than 1.3 billion people with an average per capita income of US$1,740. And with more than 90 million people making less than US$1 per day, China can provide the world with myriad of products at a fraction of what it would cost in other countries.

But as the value of the renminbi increases, the cost of goods should rise, and economics 101 will tell you that as prices increase, demand decreases. So as I watch the renminbi increase in value, I ask myself if I should be worried about the price of exports to my country and if the Chinese should worry about their economy.

To answer that question, one needs to understand how China is able to export such cheap products. The general assumption is that because of China's huge labor force, wages are driven down. However, it also has to do with currency and export subsidies, state financing, China joining the World Trade Organization and international events.

Sino-European trade has experienced rapid growth in recent years, despite the nearly 8 percent increase in the value of the renminbi. With exports valued at US$800 trillion, Europe is now China's largest trading partner, and China has become Europe's largest source of imports.

European Union exports to China are growing strongly at a rate of 21 percent this year and China's exports to the EU are growing at about 17 percent every year. This is largely attributed to the expansion of the EU, which has now reached 27 member states. Sino-European trade is growing due to the value of the euro on the rise, a larger, more accessible market, and the decrease in import tariffs to 4 percent from 9 percent. This economic relationship has become vital to the world economy.

With regards to the US, there are other factors that affect Sino-US trade. The dollar is declining in value and political issues such as outsourcing, the trade deficit, piracy, the withholding of US treasuries, and the fixed rate of the renminbi against the dollar threatens Sino-US trade. There are frequent discussions in the media about a trade war, and how detrimental it would be to both economies. Additionally, hot-button issues such as Taiwan's threat to separate, Chinese oil contracts with Venezuela and Iran, as well as the war in Iraq only seem to add fuel to the fire.

However, despite these negative issues, trade between the US and China has growing steadily. In 2006, the US exported US$55.2 billion worth of goods to China, making them the fourth largest importer of US goods, behind Canada, Mexico, and Japan.

Heading back across the Pacific, China exported US$287.7 billion to the US in 2006. Under pressure from the Bush administration, China has allowed the renminbi to fluctuate about 8 percent in value. Despite that increase, the trade gap for 2007 is ahead compared to the value at the same time last year. In the first four months of 2007, the US's trade deficit of US$76.3 billion was 18.5 percent greater than the same period last year.

Fortunately for China, and the world, this is not economics 101. After discussing this issue with professors of international economics from the US and China, the consensus is that there are too many other factors to allow the slow and fixed appreciation of the renminbi to seriously affect China's economy.

Dr. Unal Boya, chairman of the marketing department at Appalachian State University said, "Given the fact that the pace of appreciation of the renminbi is low, and Chinese suppliers are more than willing to cut their prices to compensate for the difference, I do not anticipate much change [in China's overall trade economy]."

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