When China vowed not to give in to market speculation on revaluing its currency, it underscored the Communist Party's clear understanding about the danger market economics can pose to its regime, analysts said.
It understood that a free-floating currency essentially meant party rulers would be forced to relinquish much of their control over the Chinese economy, with all the consequences that could hold for its grip on power.
China's current brand of quasi-market and central planning economics allows it to ascertain a measure of protection from what can be highly destabilizing capital market forces, as when speculators helped spark the Asian financial crisis in 1997.
"Speculation is the most powerful force in global economics today," said Andy Xie, an economist at Morgan Stanley.
"Once you open yourself to market forces and speculation then your power will be reduced and this includes political power," Xie said, adding that the revaluation issue for China was strictly a political decision, not an economic one.
As such, while China's leadership is committed to the continued reform of its booming economy, the importance of the survival of the regime means that all economic decisions are politically imbued.
Maintaining the growth of the world's fastest growing major economy is crucial to a regime that is pragmatic-minded, but stability comes first, said Li Cheng, a China specialist at Hamilton University in the US.
"Political stability carries more weight than other issues. Any wise leader will do the same," he argued, adding that "this does not mean that China will not appreciate its currency; it certainly will."
Since 1994, the yuan has been fixed at around US$8.28 under the country's pegged exchange rate system.
China's major trading partners, particularly the US, claim this level gives it an unfair advantage by making its exports much cheaper and others' imports more expensive.
So far, the Chinese leadership has resisted international pressure to alter the current rate while promising it will move towards a more flexible system ahead of full convertibility -- but only under the right conditions.
Last week Chinese Premier Wen Jiabao (溫家寶) again insisted that the yuan would only be revalued when the time was right, and at the same time toughened his line.
"Quite honestly, the more speculation [about a yuan revaluation] there is ... the more unlikely it is that the necessary measures can be undertaken," Wen said.
China's central bank also reiterated that while plans were afoot to loosen the exchange rate system, no immediate adjustments would be made.
A sharp move towards a
free-floating currency could be dangerous to its ailing banking system and therefore the economy, China says, a point that most analysts agree on.
If Beijing were to expose itself now to market forces it would likely cause a crisis in China and be very damaging to a lot of people, Xie said.
"This has to be avoided," he said, adding that reform and strengthening of its financial system were crucial before any deregulatory moves.
China's top brass are also
worried that such a move would destabilize its export-driven economy, making its goods more expensive abroad and curtailing growth at its still cumbersome state enterprises.
That in turn would lead to slower growth, which then could threaten job creation, a problem that Beijing continues to struggle with as it attempts to address a growing wealth gap and lift millions of farmers out of relative poverty.
But some analysts, such as Nicholas Lardy at the Institute of International Economics in Washington, say that China is flirting with disaster by delaying its revaluation.
"The economy is growing too rapidly and ultimately they will pay a very high cost," said Lardy, adding that China's central bank must be allowed to operate more independently so that it can better control investment flows.
To rein in its overheated economy, China's central bank has clamped down on investment since last year with a spate of lending restrictions including an interest rate hike in October, the first in nearly a decade.
Fixed assets, a basic measure of spending on major infrastructure projects spearheaded by the government and state enterprises, has been driving much of China's economy, which is expected to grow 9 percent this year.
At the same time, China's inflation was growing at above 4.1 percent for the first 10 months of this year, and with lending rates of 2.57 percent, borrowing is virtually free.
"They need to revalue, adopt an interest rate-based monetary policy and quit subsidizing capital to sectors of the economy," Lardy said.
Recently, China launched another diplomatic offensive against Taiwan, improperly linking its “one China principle” with UN General Assembly Resolution 2758 to constrain Taiwan’s diplomatic space. After Taiwan’s presidential election on Jan. 13, China persuaded Nauru to sever diplomatic ties with Taiwan. Nauru cited Resolution 2758 in its declaration of the diplomatic break. Subsequently, during the WHO Executive Board meeting that month, Beijing rallied countries including Venezuela, Zimbabwe, Belarus, Egypt, Nicaragua, Sri Lanka, Laos, Russia, Syria and Pakistan to reiterate the “one China principle” in their statements, and assert that “Resolution 2758 has settled the status of Taiwan” to hinder Taiwan’s
Singaporean Prime Minister Lee Hsien Loong’s (李顯龍) decision to step down after 19 years and hand power to his deputy, Lawrence Wong (黃循財), on May 15 was expected — though, perhaps, not so soon. Most political analysts had been eyeing an end-of-year handover, to ensure more time for Wong to study and shadow the role, ahead of general elections that must be called by November next year. Wong — who is currently both deputy prime minister and minister of finance — would need a combination of fresh ideas, wisdom and experience as he writes the nation’s next chapter. The world that
Can US dialogue and cooperation with the communist dictatorship in Beijing help avert a Taiwan Strait crisis? Or is US President Joe Biden playing into Chinese President Xi Jinping’s (習近平) hands? With America preoccupied with the wars in Europe and the Middle East, Biden is seeking better relations with Xi’s regime. The goal is to responsibly manage US-China competition and prevent unintended conflict, thereby hoping to create greater space for the two countries to work together in areas where their interests align. The existing wars have already stretched US military resources thin, and the last thing Biden wants is yet another war.
As Maldivian President Mohamed Muizzu’s party won by a landslide in Sunday’s parliamentary election, it is a good time to take another look at recent developments in the Maldivian foreign policy. While Muizzu has been promoting his “Maldives First” policy, the agenda seems to have lost sight of a number of factors. Contemporary Maldivian policy serves as a stark illustration of how a blend of missteps in public posturing, populist agendas and inattentive leadership can lead to diplomatic setbacks and damage a country’s long-term foreign policy priorities. Over the past few months, Maldivian foreign policy has entangled itself in playing