Illusion and Disillusion--Change of sino-Us relationship

Almost all websites display news on the debate of exchange rate of RMB to Us dollar. Almost all western media, led by Paul Krugmna attacked Chinese "exchange rate manipulation". all western media ridicule the response of Chinese prime minister Wen. They conclude that China is becoming less cooperative with its gaining of power. Is that the reality?

The truth is China is getting disillusioned by the acts of US. For years, China has been soft diplomatically toward US, taking almost accomodating stances toward US foreign policy, not much complaint when US foreign policy threatened its own interest. It culminated when Jiang Zemin when asked about US military deployment in Asia, commented : China welcomes US involvement. China did not confront US in the hope that US would later take a less confrontational attitude toward China. It is within asian philosophy that when someone is antagonistic toward you, bear it without complaint, the other side will change with time. This is clearly NOT happening. With time, Us has taken this non-confrontation as acquiesce. Continued arm-sale to Taiwan, unfair comments on Tibet (where CIA was heavily involved in the past), and all other small provocation never stopped. I read millions of media coverage on China, which make doubt if I were ever in China the year before. The distortion is beyond imagination and it seems the yellow journalism were everywhere. Chinese leaders may be getting disillusioned, perhaps, that confrontation is all that it can expect from US. Then why should China continue taking an accomodating stance? Absolutely no reason.

Moreover, many western people viewed Chinese exchange rate as outraging and they deem it disobedient of China not to follow what the US suggest--revalue.

Is RMB undervalued? the answer will come soon. but first look at the history.

In 1997, US treasury "advised" China to devalue RMB drasticallty. China refused. Ensuing were flooding comments ridiculing Chines foolhardy attempt to keep RMB strong.

For the more than 10 years that followed, RMB barely depreciated IN REAL TERMS. and in the recent years, it has offset all its depreciation with more conspicuous appreciation, though not enough to satisfy Americans. The puzzle is, a currency that thought need to be devalued, how come it suddenly become undervalued, without any depreciation (improved economic development has been adjusted with REAL term calculation)?

Economists point to the fact that China has such a huge reserve. This is as convincing as economists pointed out that high inflation keep unemployment low in the past. We still understand so little of economics to get a conclusive answer. And Partial answers can be ridiculously wrong--just like philips curve. Having listened to a political economy professor from Brown, I now understand more about this. The reserve exist simply because of America limit what China can import. China wants to buy high-tech machines to replace its own crap at home, but America will not let it. It is just like there are two people, A buys from B freely, but will not let B buy what he wants. Isn't it then ridiculous for A to complain that B will simply not buy from A? People point to PPP. another crap. The sample is problematic at best and I do not want to get into that detail now. And the crap with tradeable and nontradeable. How we draw the line makes a difference. Is the high-tech machine tradable?

Why should China listen to US on its OWN monetary policy, anyway? Let's suppose China did. before 1997, US and World Bank advised that it is inefficient for China to keep so much reserve. Suppose China listened, then when aisian financial crisis hurt, China would need IMF too. then it will have to devalue like Korea. then in 2010, China will again to revalue. Without depreciation in 1997, China is asked to revalue 20% minimum now. Imagine a drastic depreciation in 1997. Chinese RMB will be so volatile that will decimate its trade sector, esp. with its crappy financial sector. Then China will no longer be talked about by ECON students as an example of "growth miracle" but instead will be analysed as " growth disaster" For now, it might be just "diplomatic disaster"? But who cares? It is the life of its domestic people the leaders should care, not those people, trying to find a scapegoat frenetically.