Contrary to the claims of some US politicians who are “playing the RMB exchange rate card” to win votes, immediate revaluation of the currency would not solve China’s trade imbalance and could, in the long term, make matters worse.
The real problem, Xiao argues, is the weakness of China’s financial sector, which is rife with hidden transaction costs. Structural problems in China’s financial architecture have hindered demand for American goods. The US should be looking beyond short term politics and towards long term initiatives in the spirit of the Marshall Plan if it is to improve market access in China.
This article was originally published in two parts on May 31 and June 7, 2007.