April 18, 2006: Though on agenda of high level talks between US and China, there are many contentious issues; roots of all issue basically centre around the controlled movement of Yuan by China.
American and European markets are flooded with cheap Chinese goods. European and US manufacturers are quick to point out that these cheaper goods are results of scan regard of labor policies by China, artificial lower pegging of Yuan etc. The US manufacturers and service providers are also sore over the fact that China is becoming safe heaven for Copy Right infringements, and I yet to enforce copy right laws. The pressure is growing with in states that the Government diplomacy is not working and Government is not acting fast enough on currency issue, which has virtually led to closure of all textile and furniture units across North America and Europe. These manufacturers allege that China is to behave as a responsible stake holder in the international trade.
China, last week, also announced liberalization of its banking rules, allowing its corporations investments abroad. While details of the scheme are yet to be announced, the move is purportedly been followed after the announcement of trade results that China has overtaken former world leader Japan, in the exports surplus.
While in all major trading countries of the world, the currency value is determined by demand and supply factors as in any commercial market, value of Yuan is tightly controlled by China and is not allowed free movement. While bowing to growing international pressure, China allowed Yuan to appreciate by about 5 percent, economists feel, Yuan has potential to rise above 35% if allowed to drift in the open market. Industrialists in these countries are openly calling China as a currency manipulator.
Another issue that is likely to come up in discussions is Chinas inadequate control on intellectual property, software piracy and undue preferences to its manufacturers as tax breaks and loans waivers. While China had on many previous occasions agreed to close pirated software producing units, not much has been done by it.
Understandably the concern is rising in US and Europe that it must act fast enough to save its industry as the national deficit has grown to unsustainable levels which is threatening to destabilize the whole economic system.