China's Export Rise and Banking Revolution

In regards to what we have talked about in class, China and the United States have led the world out of the "Great Recession", although much work still needs to be done. However, China's recovery is booming compared to the United States after the Chinese government released figures that during the month of February exports had risen 46% when compared to February last year. According to the New York Times, this is good news because it shows that markets are rebounding and demand is increasing because of "orders from the United States, the European Union and Japan" which have "accounted for almost half the growth" during this past February. This is also the "third consecutive month of increases in Chinese exports and the fastest growth in three years". Chinese imports have also risen 45% over last year. This is good because it means the world is on the path of recovery, however it also brings out a lot of criticism against China.

As we have talked about in class, China sets the exchange rate for its currency, the yuan, very low compared to the dollar, which keeps "Chinese exports artificially cheap and depresses competing economies". This current boom in exports could further the discussions about having China "let its currency, the renminbi (another name for yuan), appreciate against the U.S. dollar". If this were to happen, as President Obama would like it to, then the trade imbalance between the U.S. and China would decrease. This is all the more important after "China reported a $7.6 billion trade surplus for the month", although though this was half of what it was a year ago. The explanation for this would be the rising cost of commodities. The United States will most likely pressure China to allow the yuan to appreciate, although it would benefit the United States more than it would China, because the U.S. hopes to grow its way out of debt through exports and also expand the GDP. If this were to happen, Chinese goods would become more expensive, and exports and demand would fall for China. However, Chinese prime minister Wen Jiabao said last week "that exchange rates would remain 'basically stable' for now".

China has also revolutionized its banking system as well after the Chinese government "unveiled strict new rules Wednesday governing bankers’ pay that are designed to limit risk taking". These new rules include, "payment of 40 percent or more of an executive’s salary must be delayed for a minimum of three years and could be withheld if the bank performs poorly". This may seem revolutionary, but because banks are government run, the employees are paid by the government and "their salaries are already significantly lower than those of international peers".

When we talked about banking regulation in light of the recession a few times in class, the most was criticism about how regulations were not made on the financial system in the United States after the bailouts. It appears the China is moving ahead of the United States in the aspects of banking regulation and exports, but at what cost? China runs its banking system where as the U.S. government does not run ours. Furthermore by China keeping its currency low, it is detrimental to other competing economies who wish to grow out of the recession, like the U.S. Therefore, this will be a big test for Chinese and U.S. relations, because essentially they are competing for market share as demand for goods and services continue to rise.

Should China allow the yuan to appreciate against the dollar? Are China's new banking regulations as meaningful as they would be in the U.S.? How will the U.S. respond if this trade imbalance continues, and how will it make its goods and services more attractive in the world market? How does China's trade surplus play into the U.S. national debt? How would the U.S. convince China to let the yuan appreciate against the dollar, meaning what incentives does China have to do so?