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China Daily E-paper
Highlights
Forcing China to revalue currency may boomerang
(Agencies)
Updated: 2010-03-18 15:12
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In addition, Newman said, a large proportion of goods imported from China are not end-state products, but components ready for assembly.
A US auto manufacturer that uses Chinese car seats, for instance, pays more for the seats under a strengthened yuan and then either cuts into its profits or charges higher prices on the finished vehicle, he explained.
Citing the iPhone as an example, Newman said the "real" cost was almost 300 dollars -- but very little of that money goes to China, whose workers assemble the device.
That final step, he said, added just four dollars of value to the phone, whose components come from other countries.
"We must be careful what we wish for when it comes to a yuan revaluation," cautioned Robert Salomon, an associate professor at the Stern School of Business, New York University.
He said a revaluation of the yuan not only would make Chinese exports relatively more expensive but also would decrease foreign demand for Chinese-made goods, negatively impacting local production and creating "a feedback loop through to domestic employment and wages.
"In the extreme, this threatens social stability, he warned.
"Given the foreign interests and investments in China, it is not entirely clear to me that a yuan revaluation that catapults China into recession would not result in a global contagion effect," he said.
Salomon agreed that it was in the long-term interests of the US for China to address its "imbalances" via some kind of yuan remediation but cautioned that "the near-term economic adjustments associated with a significant rise in the value of the yuan could be painful, not just for China, but for the rest of the world as well."
