Yuan ‘Substantially Undervalued’- Latest U.S Treasury Report
The latest report from the U.S Treasury states that the Yuan is ‘substantially undervalued’. The artificially suppressed valuation of the Chinese currency has been a bone of contention for a while now for manufacturers in the U.S. Their grievance is more than justified as they continue to steadily lose potential customers to the Chinese manufacturers who make cheap substitutes for U.S. produced wares available in the market.
The line taken by the Treasury with this report is a markedly stronger one than the ‘undervalued’ prognosis it gave to the Yuan in the earlier July 2010 report. Back then, this ‘mild’ reprimand was considered as a political placebo offered by the government to keep U.S manufacturers happy without ruffling any Chinese feathers. Even this time, the report was kept ‘on ice’ so to speak until after the Washington visit by the Chinese President.
During his visit, President Hu Jintao made all the right noises about being keen on currency reform. The Yuan has, in fact, been appreciating ever since the Chinese verbally committed to kick start a currency revaluation program back in June. However, the stronger tack taken in the latest report still falls far short of expectations that the major power houses in manufacturing had from the U.S government.
Lawmakers and manufacturers alike would prefer that the White House stopped treading softly on the issue and labeled China a currency manipulator’. The problem has to be dealt with immediately and with effective steps, they believe. Senator Charles Schumer, who has been vociferous in his call for action against China, reiterated his stand that concrete action from the Congress is an immediate necessity.
The Treasury has chosen to soft pedal the issue with a statement justifying its stance. Treasury spokespersons have said that China will soon realize that opting for a nominal currency exchange rate is in its best interests, owing to economic pressures. The report lauds the relaxation on Yuan use that the Chinese government has adopted in recent times as a move in the right direction. In time, these factors will lead to a more market relevant and fair valuation of the Chinese currency, according to the U.S. treasury.
An interesting fact is that although the Republicans are now in charge of the House, there still has not been any bill proposing punitive action against China by lawmakers. This is in spite of the fact that several Republicans have openly criticized Obama’s ‘kid gloves treatment’ of China with respect to the currency undervaluation issue. All in all, it appears that the Republicans are as wary as their Democratic counterparts of antagonizing U.S’s largest trade partner.