Opinion | Why a stronger yuan is actually good for China’s sluggish economy
- As its economy matures and becomes more competitive from battling the severe headwinds of recent times, China should have the confidence to let its currency reflect its true strength
- Yuan appreciation will help China reduce its structural weakness while increasing global stability
China’s substantial trade surplus and rising competitiveness is putting pressure on the yuan to appreciate, which would help encourage consumption and discourage overcapacity. While Beijing may be reluctant to let the renminbi appreciate in a sluggish economy, a more realistic renminbi value would in fact help China reduce its structural weakness and increase global stability.
China’s trade surplus was above US$800 billion, or 4.5 per cent of GDP, last year, higher than Japan’s 3.2 per cent in 1985 at the time of the Plaza Accord. Similar to Japan’s economy in 1985, a high savings rate and rising competitiveness are driving China’s surplus.
In terms of its infrastructure, urbanisation rate and education, nutrition and life expectancy levels, China is already a developed economy. But its nominal per capita GDP is about one sixth of the US’ and one third of Europe’s and Japan’s. A cheap currency is the reason. China’s nominal GDP was one third less than the US’ last year.
The International Monetary Fund claims that China’s economy is a quarter bigger than the US’ at purchasing power parity. By my rough calculation, China’s economy is twice as big as the US’ at price parity.
China’s development model has led to the path of forever cheap currency. The Chinese currency’s value against the dollar has remained about the same in real terms over the past three decades.
