The Curious Case of Chinese Currency-Yuan..

These days, i have been catching up on a lot of news concerning China. I have been fascinated by the astute manner in which they come out with different strategies-be it politics, economics or foreign affairs.

There are many strategic instances which can be quoted, like how smartly China has slowly and steadily made Tibet as part of their territory. And very recently their have been talks between Zardari and his Chinese counterpart Hu Jintao to build a railway line from China to Pakistan which would enable China to have a stronghold on the Indian border [with increased military base to attack if needed]

But, what i am going to discuss in detail is the changing phase of Chinese economy. Their currency, Yuan [Also known as Remnibibi] was in the spotlight recently. As we all know Chinese products are known for being cheap and quite a large chunk of the Chinese economy relies on exports. It had been pegged 6.83 to the USD since July 2008. Recently it was under heavy criticism from the US for not allowing Yuan to appreciate. China was accused of being a monopolist in the export industry [as they were literally stealing away the export business of other countries]. But things are slowly changing. I read a lot in the newspapers about how China is under pressure from other countries including India and US to allow Yuan to appreciate. Come to think of it, is China really "losing out" if Yuan appreciates? If you got your economics right- not so much, especially not the people of China. Read on, you will know why..

Ask yourself a question, essentially what are exports? They are -global demand for goods and services in the economy. Too much reliance on any component of demand is bad, in this case it is the exports. For instance, if there is a slump in global demand due to recessionary trends, Chinese exports will suffer and therefore the demand. Now if Yuan appreciates, the domestic demand would increase as the purchasing power of people in China would increase [taking the assumption that the Chinese are purchasing imports to satisfy their domestic consumption]. This would help the Chinese economy to reduce its dependence on exports. This would also mean more income in the hands of poor labourers which are paid abysmally low [which is how the Chinese are able to export products at such a cheap rate].

Now, it remains to be seen at what rate People's bank of China allow the Yuan to appreciate. China can play a clever game here, if the rate at which their currency appreciates is low, they can still maintain their world leader status as far as export market is concerned. Side by side, they would also steadily increase their domestic demand. This would further strengthen the Chinese economy. It's because of such clever strategies that i like to address China as- "our shrewd neighbour-China!!"

-Tejas Singh