First of a Big Harvest of China Posts

Such mundane responsibilities as "finishing a long article" and "working on a book" have led to a huge backlog of items I've meant to mention in this space. Through the Easter weekend period I'll plan to work down especially a number of the China-related ones, which are in the news with the announcement that Hu Jintao will indeed come to DC ten days from now to talk about nuclear-security issues (eg, Iran). That is significant in its own right of course -- but also because April 15, two days after his visit, is the deadline for the Treasury Department announcement on whether China is officially a "currency manipulator." Just a guess, but (as everyone else has guessed too), if Hu is coming to town, both sides have certainly agreed that the U.S. will not yell "manipulator!" at him on his way out.

My previous mini-thought about "currency manipulation" is here. Summary: the deliberate undervaluation of the RMB  is becoming a problem for the world economy because it warps China's economy toward export-dependence and over-production. But calling it "manipulation" is moralistic and silly, and slows rather than speeds the inevitable adjustment process. More on the topic here and here.

Below and after the jump, the weekend's first installment of RMB-and-China thoughts. This comes from the private "Sinology" newsletter from CLSA research, written by my friend Andy Rothman of Shanghai. I can't quote the whole thing, but with Rothman's permission here is part of the summary section. Complementary and sometimes differing views later today and tomorrow; then my Official View to wrap things up. From Rothman's "RMB Madness" newsletter issued yesterday:

Of course China is a currency manipulator!  China is among a group of about 60 countries that peg their exchange rates to the dollar.  But pegging isn't immoral or illegal, does not violate WTO or IMF rules, and for 15 years the US Treasury has found that it also does not violate American law....

China is not stealing American jobs.  The nonpartisan Congressional Research Service recently concluded that an undervalued RMB 'is expected to have no medium or long-run effect on aggregate US employment or unemployment.'  RMB appreciation will not solve America's economic problems and will not reduce US unemployment... [JF note: Yes, though as Rothman knows and has remarked elsewhere, the over-productive distortion of the Chinese economy has job consequences worldwide.]

China has moved on its currency.  From mid-2005 through mid-2008 the RMB appreciated 21.2% against the dollar, until Beijing suspended the process in response to the collapse of China's exports and the global financial crisis.... 

Signals from the leadership.  In recent weeks we've seen many signals that Beijing intends to do exactly what Washington is looking for: resume gradual RMB appreciation.  We expect this to happen by the summer, as long as the US does not back China into a political corner by making it appear that Beijing would be responding to American pressure. [JF: The first part of this paragraph, about signals of impending change, rings true to me. The last part, about the folly of backing the Chinese government into a corner so that changing the RMB's value is equivalent to "knuckling under" to the haughty Yankees, should be obvious but escapes many US observers.]

The US role.  On April 15, Treasury should either decline to find China in violation of the US law, consistent with past rulings dating back to 1994, or postpone issuance of the biannual report.  Either option would give Beijing time to take the step the US desires, while avoiding the appearance of submitting to American pressure.  The announcement an hour ago that Hu Jintao will attend a Nuclear Security Summit hosted by Obama in Washington on April 12-13 almost guarantees that the White House has decided not to conclude on April 15 that China has manipulated its currency with 'nefarious intent.'  Naming China a manipulator two days after Hu leaves town would be perceived as an even bigger political insult than Israel announcing new housing in East Jerusalem during a visit by Vice President Biden.  We assume the two sides reached an understanding on this question before Hu agreed to visit Washington.

China's role.  If the US does not tag China a manipulator, Beijing needs to reciprocate with a step that is in both countries' interest: resumption of gradual appreciation, either shortly before the late-May bilateral security and economic dialogue, or after that meeting but before the June G20.