Chen Weihua

Political capital to the cost of the people

By Chen Weihua (China Daily)
Updated: 2010-09-07 07:58
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It was interesting to hear some politicians in the United States say they will not waste any more political capital fighting people like Senator Chuck Schumer, who is leading a lobby to pressure China to revalue its currency or face higher tariffs on its exports.

Political capital is clearly an increasingly important, yet scarce, commodity for the Obama administration and his fellow Democrats ahead of the mid-term election in November.

But while political capital is essential in an election for both the Democrats and the Republicans, the real issue is whether it is the right thing to do and not how much political capital it costs for an individual party.

This is the issue that should be addressed by Larry Summers, the top White House economic advisor, who is visiting China to seek concession from the Chinese on the revaluation of the yuan and a host of other concerns.

Although the yuan debate has gone on for years, if you read the New York Times or Wall Street Journal these days, you find there is declining support in the US for the obsession with revaluing the yuan.

In an Aug 20 article in the Wall Street Journal, Robert Pozen, chairman emeritus of MFS Investment Management and a senior lecturer at Harvard Business School, argued that the value of the yuan is not the main driver of the US trade deficit, and that the appreciation of the yuan relative to the US dollar may result in China losing low-end exports to countries like Bangladesh and Vietnam.

Pozen urged American politicians not to push so hard for yuan appreciation, instead he suggested the US should support higher wages and a stronger safety net for Chinese workers, which would increase the price of Chinese exports and thus reduce the incentive for consumers in the US to buy goods from China.

In a New York Times article four days later, Joseph Massey and Lee Sands, partners in an investment advisory and consulting firm, and respectively chief trade negotiators with China at the Office of the US Trade Representative in the 1990s, argued that floating yuan exchange rates won't fix the US trade deficit with China.

Citing a similar US experience with Japan in the 1980s, the two experts concluded that fighting China over the yuan is a losing battle for the US. They argued that a better solution would be to bring the vast pools of Chinese capital created by the American purchases of Chinese goods back to the US.

However, the environment for Chinese investment in the US is unattractive, according to experts such as Orville Schell, director of the Center on US-China Relations at the Asia Society, and a number of deals have been blocked for so-called security reasons.

The shift of opinion in mainstream US newspapers shows that more people are now listening to experts, rather than the politicians who care more about putting on a show during an election year.

That said. It doesn't mean that there is nothing to improve in managing China's exchange rate regime. The country still has a long way to go toward making the currency convertible. But we should remember that everything achieved in China has been an evolutionary process.

Over the past three decades, China has made good progress in reforming the foreign exchange regime by learning from Western countries.

In his book Playing our game: Why China's rise doesn't threaten the West, MIT Associate Professor of Political Science Edward Steinfeld praised China's progress in every economic area compared to the situation decades ago.

Steinfeld, also director of the MIT-China Program, argues that China's economic rise is good for the US.

Unlike skeptics, who believe that the rise of China means the decline of the West, in particular the US, Steinfeld argues that China's development fortifies US commercial supremacy, because China has been working hard to learn and play by Western or US rules for the past three decades.

As a journalist who has witnessed China's great transformation first hand over the last 20 years, I find Steinfeld's analysis precise and insightful.

If politicians choose to care more about gaining political capital instead of listening to experts, then the ones who have to bear the cost of waging a losing battle are the peoples of the two countries.