Opinion
Diversity is the best means of defense
By You Nuo (China Daily)
Updated: 2010-03-17 10:21
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Premier Wen Jiabao has been a bit naive. He thought he presented his case perfectly that the yuan is not undervalued, without understanding why Americans would fly into a temper. Nobel Prize-winning economist Paul Krugman's call for taking on China was a direct reaction from what the Chinese press called the US government-business-academic coalition against China (smacking of the so-called military-industrial complex in the Cold War era?).
Whether it will bear any actual consequences in business, the yuan is first of all a political issue. Politics often requires its enthusiasts to show their toughness by taking on other people or refusing to yield to outside pressure, especially in an overall crisis where people don't want to know how it really got started.
When an issue gets politicized, people tend to devote their passion to fighting for fighting's sake rather than seeking a useful solution. It is convenient to appear tough rather than solve problems.
So it is very likely at the end of the current round of political drama, what we get is a political price for the yuan, a result of political give-and-take, no matter how much or how little it changes against the dollar.
Then how would business people prepare their China portfolio in 2010 and beyond? If the yuan issue, like the one of the so-called most-favored-nation status, remains a political issue recurring on an annual basis for years to come, how is the real business going to survive?
How will this country, as some Chinese business people fear, avoid repeating the so-called Japanese mistake after the yen rate was forced to rise - creating a real estate bubble instead of continuing to build true economic power?
How will China, which so far has yet to experience a full-fledged financial crisis since the beginning of its economic reform in 1978, learn to steer clear of one once the yuan becomes freely convertible?
Past mistakes are good as points of reference for future progress. But they should not dictate how we make decisions that influence our future. Needless to say, some Chinese assets, especially those in coastal cities, will appear too expensive once the yuan rises in value. They already are, considering the quality of service that comes along with them, as compared with older and more expensive cities in the world. And the currency crisis will force them to pay more attention to service development rather than single-mindedly building and building.
At the same time, cities in the interior and western regions will try to lower the price of local assets, resources and labor if they want to import some of the coastal manufacturing jobs. Some of them, like Chongqing on the upper reaches of the Yangtze River, are obviously already doing this.
It is fortunate that pressure on the yuan is coming before China's nationwide industrialization, when half of the country is still pretty underdeveloped and poor. The regional differentiation will remain when the yuan slowly goes up and even goes through some fluctuations. Such differentiations can be used to even out the economic excesses, to build several small bubbles rather than one big one at least.
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More strictly, in assets management, a country with multiple urban centers will understandably be more interesting than a country with a single urban center.
So long as Beijing is willing to learn to duly protect, or at least to tolerate, the country's business diversity, it doesn't need to fear any outside pressures at all.
The author is business editor of China Daily.
