"China's government allowed the country's currency to rise to its highest level against the dollar in more than a decade, despite weakening global growth, an indication that Beijing views rising inflation as a bigger danger than the risk of an economic slowdown. ... The yuan has now gained more than 18% against the dollar in less than three years, although it has been flat or even down against other major currencies, such as the euro. ... 'It's going to go a lot higher,' says Jim Rogers, a U.S. investor and self-described China bull. Mr. Rogers says the Chinese currency has the potential to strengthen to just two yuan to the U.S. dollar--a 2 1/2-times rise from current levels. ... Inflation is a social-security issue in China. Rising prices of cooking oil and meat were cited last month by residents of Lhasa, the capital of Tibet, as helping foment anger that resulted in riots. ... Already, inflation has clocked in at the fastest pace in 12 years in recent months, including the February rise in the consumer price index of 8.7% from the year before", WSJ, 11 April 2008.
"Finance ministers gathered this weekend to grapple with the global financial crisis also struggled with a problem that has plauged the world periodicially since before the time of the Pharaohs: food shortages. Surging commodity prices have pushed up global food prices 83% in the past three years, according to the World Bank. .. World Bank President Robert Zoellick warned in a recent speech that 33 countries are at risk of social upheaval because of rising food prices. ... Among other targets, [the IMF and World Bank] signaled out U.S. policies pushing corn-based ethanol and other biofuels as deepening the woes. 'When millions of people are going hungry, it's a crime against humanity that food should be diverted to biofuels,' said India's finance minister, Palaniappan Chidambaram, in an interview. ... Recently at least a dozen of 58 countries surveyed by the World Bank have reduced tarriffs to food imports and erected barriers to exports in hopes of restraining food prices domestically and moving toward 'self-sufficiency.' ... The global effect of export barriers, however, is to drive food prices even higher than they would be otherwise. ... About 18 of the countries sampled by the World Bank also are boosting consumer subsidies and instituting price controls. That prompted a warning from U.S. Treasury Secretary Henry Paulson to 'resist the temptation of price controls and consumption subsidies that are generally not effective and efficient methods of protecting vulnerable groups.' He said, 'They tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries'," WSJ, 14 April 2008.
The Chinese, Arabs and others will eventually wake up and decrease their dollar reserves. That they still support US domestic consumption to the detriment of their own people, astounds me. The Chinese should be particularly aware of their "inverse" socialism in taking from poor Chinese peasants, to give to rich Americans. Wild.
China's domestic stability is more important to it than maintaining a large trade surplus. I expect the yuan to continue to rise over the next 3-5 years.
Amazing, I agree with Paulson about the undesireability of price controls and subsidies. Now if he would only apply that logic to US interest rates and potential homeowner bailouts.