Currency wars: China buying time

China is being pressed to revalue the yuan; Thailand has imposed limits on money flows into Thailand; Brazil is appealing for an end to competitive devaluations ... the currency war between China and the USA will have disturbing political repercussions. (Audio conversation, 45 mins)
Tony Curzon Price
Charles Diamond Tony Curzon Price
13 October 2010
Wen Jiabao, Chinese premier, said last week to an audience of European business people: "If we increase the yuan by 20 percent-40 percent as some people are calling for, many of our factories will shut down and society will be in turmoil. If China’s economy goes down, it’s not good for the world economy."

True, but not much of a threat in a negotiation when the first to suffer will be the Chinese Communist Party.

China has prospered by building an export-oriented economy. But China's growth has depended on US households, aided by irresponsible financiers, acting as "consumers of last resort". The US needs to consume less.

But a slow-down in industrial China is a very worrying prospect for the Chinese Communist Party which seems caught between a rock and hard place: if ti succeeds in changing China's economic structure, it will almost surely also have to give up a great deal of power; and if it fails, it will almost certainly be ousted from power.

Charles Diamond, economist and consultant to investment managers, takes a pessimistic view of the outlook for the USA, China and therefore the rest of the world: expect the rise of the nationalist right in the USA and political instability in China.

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