The US has become increasing perturbed over China's reluctance to revalue its currency, the renminbi (RMB), which is criticized for being undervalued: the American government and industry has called on Beijing to remedy the situation, claiming the undervalued currency is costing America job losses.
According to Aberdeen Asset Management Asia, some job losses in the US have been directly blamed upon cheaper imports from China.
Jerry Jasinowski, president of the US National Association of Manufacturers, said the RMB, which is pegged at around 8.28 to the US dollar, is between 30-40% undervalued, and that it is "killing American manufacturing." US Treasury Secretary, John Snow, has travelled to Beijing to lobby the issue.
Aberdeen has noted that a large proportion of China's exports are from multi-national companies that have located factories in the country to benefit from lower wage costs. Indeed, according to Baring Asset Management (BAM), China has been a global growth engine for some years now and shows no signs of abating. During the first half of the year, Chinese exports still managed to grow by a third, although BAM noted imports increased by almost half.
With pressure intensifying on China to let the RMB appreciate, rumours are rife of an impending re-evaluation or free float of the RMB.
"We believe a free float of the local currency is unlikely in the near term, with a more feasible alternative being a modest widening of the currency's daily trading band against the US dollar," said Hugh Young, managing director of Aberdeen's Asian operation. "The current cyclical and political impediments remain too unsettled for such a move this year,"
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