The Chinese RMB: Its
Value, Its Peg, and Its
Future
Trade Imbalances Have More To Do With The U.S. Than With China
By Ted H. Chu
Ted Haoquan Chu is senior manager
of Economic & Industry
Analysis at General Motors Corp.
He has also been appointed as a
professional fellow of GM. Before
joining GM in 1996, Mr. Chu
served as a macroeconomist at the
World Bank. He was also an associate
at Decision Focus, Inc., a
Silicon Valley management science
consulting firm, and a staff consultant at Arthur D.
Little, Inc. Mr. Chu received his Master’s and Ph.D. in
economics at Georgetown University and a B.A. in economic
management at Fudan University in Shanghai.
He is a past president of the Washington Chinese
Professional Association.
The valuation of the Chinese renminbi (RMB) has
drawn lots of attention lately and a great deal of pressure
on the part of developed nations for revaluation. In
addressing the issue of valuation, this paper develops a
new purchasing power parity (PPP) index of China’s
exchange rate and finds that the while undervalued, the
undervaluation is neither unusual nor bad policy.
Moreover, China’s overall external trade balance does
not seem to be that far out of equilibrium. China’s
desire to join the G-7 club is likely to result in abandoning
its peg, however, despite the increased risk to its economic
development.
By Ted H. Chu