Thursday, January 27, 2005

Two pieces of news from two different Chinas.

The first China is the one where a restive underclass is rioting in resentment of the depredations of a corrupt upper class which is recapitulating the dreams of Marx in reverse, separating itself from the dictatorship of the proletariat and moving into gated communities, or -- for people who missed the subtext -- the overtly echt-feudal confines of the Chateau Zhang Laffitte. The leadership of this China, struggling to keep the lid on, is desperate to avoid anything that would give the downtrodden a rallying cry.

Some of them once had a different idea. At least one -- Zhao Zhiyang, the former head of the Chinese Communist Party, until he disgraced himself by suggesting accomodation with the students who had occupied Tienanmen square. He spent the rest of his life buried under house arrest, but he recently died. After two weeks of wrangling with the family, apparently intent on avoiding either a large funeral that could be a rallying point, or a final insult that could make a martyr, the authorities have decided, at length, to allow a funeral. A small one.

The other piece of news is from a different China, the one of the new, dynamic, growing economy, of rising trade, poised to assume a place of leadership in global commerce. One of their leading economists told the assembled worthies at Davos that this China wasn't quite ready to abandon the peg on its currency. But they may well be looking to peg it to something other than the dollar -- a basket of Euros and Yen, perhaps. What's the point of a currency peg, if what your currency is pegged to can't hold value itself?

Update: Last question answered in comments, at least in part; a stronger Yuan would reduce Chinese exports. Though note that one source of friction right now between China and Europe is the shrinking value of the Yuan against the Euro -- which is happening right now precisely because it is pegged to the depreciating dollar. Now if I could only interest someone in those other questions to the left...


Blogger Alex said...

I would expect that the point is that the peg keeps it below where it would go if it were freely traded. As an exporter, China still has an interest in keeping the yuan at a low value, almost certainly lower than if it were allowed to float.

7:42 PM  

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