A newly unveiled report from the International Monetary Fund (IMF) on China’s economy and monetary policy indicates there is good reason to believe the Asian nation’s currency is purposely undervalued and that it’s a problem that needs to be addressed for its long-term economic health. However, IMF analysts downplayed the significance of claims that a quick revaluation of the Chinese currency would lead to gains in nations where officials have been turning up the rhetoric about the perceived currency-based trade advantage.
IMF’s report centered around growing economic risk in China because of factors such as high inflation stemming from concern over food prices and supply as well as a real estate bubble and a decline in credit quality during the inevitable post-expansion era. IMF staff predicted China’s trade surplus actually is on the downswing and downplayed some firmly help speculation that the currency undervaluation, rather than factors such as longtime cheap wages and solid infrastructure for manufacturing, lead to the nation’s trade superiority from partners like the United States and Brazil. Still, IMF undervaluation “is holding back progress in areas that would help safeguard against near-term risks and promote economic rebalancing.”
Based on the findings, Armada Corporate Intelligence Managing Director Chris Kuehl, NACM’s economic advisor, speculated that, even if China quickly allowed its currency to appreciate by 20%, the United States likely would only receive a 0.5% bump in economic growth.
“The IMF report will not be welcomed by those who have made it their business to attack the Chinese for all the economic ills in the US,” said Kuehl. “The loss of manufacturing output to China over the last 20 years was only partially accelerated by currency policy. The biggest factor was China’s low-cost production capabilities, but these are the advantages that have started to erode in China.”
Brian Shappell, NACM staff writer