Why the Chinese Currency is a Global Problem

small RMBFor too many Chinese the current dispute over the country’s currency valuation is yet another chapter in a well-worn narrative of the United States trying to “contain” China.  Such nationalistic responses are now predictable yet regrettable as they too often blind the Chinese public to a far more nuanced understanding of complex international events.  While Washington is by far the most vocal critic of Beijing’s currency policies, it is by no means a lone voice.   In many corners of the developing South, there is growing unease over the steady rise of low-cost Chinese textiles,  apparel and furniture among other products that compete directly with manufacturers from Africa, South America and elsewhere in Asia.   The efficiencies of China’s well-oiled export machine that can easily overwhelm almost any domestic market in the world combined with a currency that prices those exports at a 20%-40% discount are just too powerful for struggling competitors in poor countries. Take Zambia, for example, where for years textile producers there have complained of unfair competition by Chinese importers whose products they allege are subsidized by an artificially low currency valuation.    When shoes, shirts and other apparel items fill stores across the capital of Lusaka that may just be 10% cheaper than comparable local products, there is no conceivable way Zambian producers can effectively match those prices.  Increasingly, Zambians can’t compete with the Chinese in their own domestic markets, and since they export products are denominated in either their own currency or in U.S. dollars, those companies are then left at a massive disadvantage internationally as well.

If this is such a big problem, why don’t we hear more complaints from the likes of Zambia and the developing world?

Across Africa and the developing world, China is rapidly displacing the traditional industrial powers as the largest investor and trading partner.  In less than a decade, China has displaced Britain and France to become Africa’s second-largest investor behind the United States.  Take U.S. oil investments out of the equation and China already is the largest investor across most of the continent.  Increasingly, African and other Southern countries must weigh the risks of continuing to open their doors to Chinese imports or criticizing Beijing and risk losing tens of billions of dollars in desperately needed investment, particularly in infrastructure.

So while U.S. Ambassador John Huntsman and Treasury Secretary Timothy Geithner plainly lay out the case that China’s undervalued currency is not only detrimental to Americans but also to billions of other consumers across the developing world, it may be worth for Chinese observers to take pause.  After all, China has long positioned itself as a leader among developing nations and it soon may be forced to confront the contradiction that its economic success stunts the economic growth of the very partner countries it purports to represent. Until now, the most vocal critics are in politicians in Washington and editorial writers such as Paul Krugman.  If Beijing isn’t careful and the effects of its under valued currency continue to damage developing world economies, China may itself confronting much more than just an angry American government.

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