• Introduction
• Founders and Board Members
• Honorary Advisors
• Foundation Events
• China This Week
• Washington Journal of Modern China
• US-China Policy Review
• China Forum
• USPCF Staff
• Other Links

12 December 2003

• Fed Reserve Chairman Greenspan: Chinese Currency not Affecting US Labor
• President Bush States the U.S. Opposes Taiwan's Move to Upset the Status Quo
• Progress On the Long Road to Financial Reform

Fed Reserve Chairman Greenspan: Chinese Currency not Affecting US Labor

On Thursday December 11, U.S. Federal Reserve Chairman Alan Greenspan challenged the notion that the rapid increase in imports from China and the fact that the Chinese government has pegged the value of its currency at a low level compared with the dollar are significant factors in the weak U.S. labor market. "A rise in the value of the renminbi would be unlikely to have much, if any, effect on aggregate employment in the United States," Greenspan said. Moreover, it is not even clear what would happen to the currency's value if it were to float.

America's besieged manufacturing sector, which has suffered through 40 straight months of jobs losses, has been pushing the administration to pressure China to allow the value of its currency to be set by market forces rather than keeping the currency's value tightly linked to the value of the dollar. The U.S.-China trade ($103 billion) deficit has become a hot issue in Washington, with numerous Congressmen in both the House and the Senate proposing bills to restrict the tide of Chinese imports.

Greenspan said that if China did allow the value of its currency to float and the currency rose in value, as U.S. manufacturers expect, it probably would cut Chinese exports of such goods as textiles to the United States. However, "the story on trade and jobs, in my judgment, is a bit more complex, especially with respect to China. . . . If the renminbi were to rise, presumably U.S. imports from China would fall as China loses competitive position to other low-wage economies. He said rather than boosting production of textiles in the United States, it was "far more likely" that U.S. imports from other low-wage countries in Asia would simply replace the Chinese textiles.

"Emerging Asia used to manufacture many goods that were then exported to the United States," Greenspan told the World Affairs Council of Greater Dallas. "However, a growing fraction of these goods are now partially assembled with capital-intensive, high-value-added manufacturing in the rest of emerging Asia; exported to China, where final processing is done -- typically with labor-intensive, lower-value-added manufacturing; and then exported to the United States. . . . In large part, the increase in China's share of U.S. imports has come at the expense of other East Asian exporters."

Archive of Past News Summaries
Back to Top
President Bush States the U.S. Opposes Taiwan's Move to Upset the Status Quo

During a press conference at the Whites House last Tuesday, Bush declared that the United States opposes any unilateral decision by either China or Taiwan to change the status quo, and that the comments and actions made by the leader of Taiwan indicate that he may be willing to make decisions unilaterally to change the status quo.

A Foreign Ministry spokesman in Beijing issued a rare thank you to the United States for its strongest support yet for the one China principle. Ever since the United States and the PRC signed the Shanghai Communiqu in 1972, the U.S. has maintained a "one-China policy". Whereas Beijing's one-China principle maintains that there is only one China that includes Taiwan and Beijing is the sole legitimate government, Washington's one-China policy is only an acknowledgement of Beijing's position.

When Washington recognized the PRC in 1979, it agreed to sever formal diplomatic relations with Taipei, abrogate the U.S.-Taiwan mutual defense treaty, and withdraw all U.S. forces from the island. Despite all of these actions, except for formal diplomacy the United States maintains every other form of relations with Taiwan.

Taiwanese President Chen Shui-bian has called for a national referendum to decide whether or not Taiwan should tell the PRC to dismantle the large number of missiles poised to strike the island. Beijing has denounced the proposed referendums as a ploy to move Taiwan closer to formal independence. Premier Wen Jiabao recently stated that, "[China] respects the desire of the Taiwan people to develop and pursue democracy. However, we firmly oppose the attempts by certain forces in Taiwan to pursue Taiwan independence under the disguise of promoting democracy in an attempt to cut off Taiwan from the mainland."

Taiwan appears to be moving forward with plans for its referendum anyway, believing that there is little the United States can do to punish Taiwan for ignoring Bush's warning. While building and preserving democratic culture is a subject very near and dear to America's heart, it is uncertain whether or not the United States would defend Taiwan if it declared independence and caused a war with the mainland.

Archive of Past News Summaries
Back to Top
Progress On the Long Road to Financial Reform

In an effort to increase the credit available to small private ventures, the Peoples' Bank of China increased the maximum rate of interest that banks are allowed to charge on loans. Beginning in January, the state banks will be able to charge as much as 9.03 percent for commercial loans and 10.62 percent for agricultural loans.

The increased interest rate will allow banks to lend money to high-risk private ventures at higher rates rather than denying them any money at all, as is currently the case. Until now, banks have provided the majority of their loans to the larger state owned enterprises who seem like the least risky borrowers. As these enterprises are forced to compete in the market however, much of the bank loans are pumped into partially successful attempts to modernize their facilities.

Despite the inefficiencies of the state owned enterprises, banks consider them low-risk because of an implicit guarantee that the government will cover their losses. The higher interest rates will allow the banks to more carefully evaluate the financial market. Rather than increasing the already gigantic volume of non-performing loans by lending to the state owned enterprises, the banks will now be able to lend money to high-risk private enterprises with a higher interest margin to cover the losses from defaults.

Archive of Past News Summaries
Back to Top
   316 Pennsylvania Avenue SE, Suite 201-202 • Washington DC 20003 • phone: 202.547.8615 • fax: 202.547.8853