Via Geo-Graphics:
And CFR’s straightforward interpretation:
As this week’s Geo-Graphic shows, when the renminbi appreciated significantly between 2005 and 2008 Chinese export growth slowed and household spending growth rose. This trend reversed after the pace of appreciation subsequently fell dramatically. This suggests that the Chinese government’s most recent five year development plan, which states that the government “must persist in the strategy of expanding domestic demand and maintaining steady and relatively fast development,” should include currency revaluation as a component policy element.
Of course, China would probably argue that CFR has the sequence backwards — that its plan to increase domestic demand will give eventually it the space to gradually appreciate the RMB, not the other way round. And that the process shouldn’t be hastily rushed through diplomatic pressure.
As for what you can expect in the next month or so, the FT reports Monday (our emphasis):
Since June, when Beijing cut the renminbi loose from its de facto peg to the dollar, China’s currency has risen 2.5 per cent.
While the renminbi will continue to appreciate over the long term, says Dariusz Kowalczyk, a strategist at Crédit Agricole, the pace will vary in the coming weeks and months largely according to international political pressure.
“It’s pretty clear that the appreciation of late-September and early-October was aimed at providing an excuse for the Treasury not to brand China a currency manipulator,” he says. Traders are watching a raft of important political events scheduled for November, including a meeting of G20 heads of government and mid-term elections for the US Congress.
Related links:
Why China Should Revalue – CFR
G20 has to show compromise FX pact has meaning – Reuters
China’s sizzlingly (disappointing) growth record – FT Alphaville