By tricking big countries, China has increased its goods trade surplus to 1.08 trillion dollars. China had touched this level in December last year, but this time this record was broken in November itself. This is the largest global surplus so far. America’s tariff also did not have much impact on China because China reduced its impact by changing its strategy.
Everyone is praising China’s innovation, new technology, and competitiveness, but there is one big factor about which most people are not even aware. Yes, we are talking about China’s currency value Yuan being undervalued.
Chinese currency yuan undervalued
Nilesh Shah has given information about this by posting on his ex. He wrote that many newspapers and reports give credit to Chinese innovation i.e. new technology and the power to survive in the market, and this is also right because China’s PR machinery is considered to be the best in the world which is expert in spreading its good news. But one important reason probably did not get as much importance as it should, that is the low value of the Chinese currency Yuan i.e. undervalued, due to which Chinese goods become cheaper in foreign countries and exports keep increasing.
The value of the currency did not increase due to the intervention of the Chinese Central Bank
Normally, with such a huge trade surplus, the value of the yuan should have increased very rapidly, but the surprising thing is that in this century the yuan has strengthened only by about 15 percent, in 2000 it was around 8.28 yuan per dollar, which has now reached 7.07. All this has happened due to the strict intervention of the Chinese Central Bank, which fixes the band of the currency daily i.e. decides the value so that it does not rise too high.
The result is that China has the largest foreign exchange reserves in the world, far ahead of Japan not only in total number but also in percentage of global reserves. Japan was a miraculous economy of the last century, where growth was fast, technology was amazing and exports were also tremendous, but their trade surplus was also not as much as China.
Tremendous rise of 81 percent in Japanese Yen
The Japanese Yen registered a tremendous increase of 81 percent from around 360 yen per dollar in 1973 to around 70 by 1995, that is, the value increased a lot. Now the question arises that if the Chinese Yuan was allowed to move completely as per market determined i.e. market demand, without the interference of the Central Bank, then what would have been China’s trade surplus? Perhaps very little, because due to the strengthening of Yuan, Chinese goods become expensive, exports decrease and imports become cheap, which reduces the trade surplus, just like it happened with Japan, but this policy of China is benefiting it now but in the long run it can increase the global trade war and resentment of other countries.
China has deliberately kept its currency Yuan weak, due to which its goods are becoming very cheap abroad, especially in Europe. Prices are falling in China, but inflation is rising in America and Europe, hence Chinese products appear even cheaper. Now China is selling its goods in poor and emerging countries at very low profits, so that it can capture those markets for a long time. The result is that Chinese electric vehicles, mobile phones, solar panels and other tech products have become increasingly popular in Africa and South America and are giving competition to local companies. It is clear from this that currency management is a big weapon of economy for China, but its misuse can spoil the balance of the world.
