China’s cautious financial opening up does not make it an enemy of the US
Zhang Jun says China is pursuing gradual financial liberalisation in keeping with its own needs in the face of a myriad of challenges. But this does not make it a threat to the US, despite what the Trump administration may say
The anniversary comes at a time when economic openness is under threat, as the United States is being led by a president who believes that the way to “make America great again” is to close it off from the world.
In particular, Donald Trump’s administration is posturing for a stricter approach to China, which he claims has been “raping” the US with its trade policies, including by keeping the renminbi’s value artificially low. Whatever concrete steps Trump takes, it seems clear that US policy will be economically tougher on China in the coming years, potentially even triggering a trade war. But, as a closer look at China’s financial policy stance shows, China is not America’s foe.
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The situation was so grim that some international investors and economists suggested that the government would have to give up on managing housing prices and focus, instead, on propping up the exchange rate, as Japan, Russia, and South Asian economies had done. China, they argued, could not allow its hard-earned foreign-exchange reserves to slip away.
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But, after partly decoupling the renminbi from the dollar in August 2015, the People’s Bank of China tried hard not to intervene to boost the renminbi’s value. As China’s economic growth continued to decline and America’s continued to recover, the renminbi’s exchange rate continued to fall.
When Trump’s election defied expectations and made the strong dollar rise further, depreciation pressure on the renminbi intensified
Some observers might have wondered whether the PBOC purposely allowed the depreciation to boost China’s trade competitiveness in advance of a potential victory by Trump in the US election – a result that many assumed would weaken the US dollar. Perhaps it did. But it did not actively devalue the renminbi.