China's self-proclaimed "peaceful-rising" was recently shown to be but a mask. Beijing revealed its true, vicious face, when Chinese Major General Zhu Chenghu (朱成虎) publicly threatened that Beijing could destroy hundreds of US cities with nuclear weapons if Washington interfered militarily in the Taiwan issue. In fact, Chinese hegemony goes beyond the military aspect.
Thanks to the seriously undervalued Chinese yuan, Bei-jing has attracted the world's capital. It enjoys an advantage in exports and sees itself as the world's factory. Such hegemonism that profits at the expense of others was also exposed by the July 21 announcement that the yuan would be revalued.
The yuan's appreciation by 2 percent was insignificant and laughable, and can only be categorized as a tiny fluctuation. No wonder a trustee from Morgan Stanley, a US investment bank, criticized the move as an insult to US politicians who claim that the yuan is seriously undervalued. Oddly, the world seems to have overreacted to the move. On July 22, the Japanese yen rose by 1.39 percent. Surprisingly, the New Taiwan (NT) dollar also gained NT$0.35, or 0.96 percent, and all Asian currencies appreciated. This shows that the market is irrational and goes with the trend.
People have different views on how much the yuan has been undervalued. During the US presidential election campaign last year, Democratic candidate Senator John Kerry said in a presidential debate that it was undervalued by 40 percent. A report from China's official China Securities Journal said that it is undervalued by 36 percent. Earlier this year, the US Senate even proposed a bill that would impose a 27.5 percent penalty tariff on Chinese imports if China failed to revalue the yuan.
Thus, it is evident that the undervaluation of the yuan can hardly be corrected by a 10 or 15-percent hike. The yuan's 2-percent appreciation shows that Beijing is standing fast in its attempt to become an economic hegemon.
When the People's Bank of China announced an appreciation on July 21, it also announced a move from a peg to the US dollar to an exchange rate linked to a group of currencies. This is undoubtedly an attempt to make the yuan's past unfair advantage permanent. In other words, if the group of currencies refers to Taiwanese, Japanese and South Korean currencies, the yuan's future appreciation will move with these currencies, so as to maintain the leading role of Chinese exports among the East-Asian countries.
The purpose is to continue to draw capital and talent from Taiwan and the world to maintain rapid growth and replace Japan as Asia's economic hegemon. This is why the bank stressed that the yuan would not fluctuate too much when it made its announcement on revaluation.
Since China's intentions are clear, the question that remains is how other countries -- especially Taiwan, Japan and the US -- should deal with it. Taiwan's pro-unification camp will certainly speak for China and predict that there is still room for the NT dollar's appreciation.
If the NT dollar also goes up with the yuan, China's appeal and economic strength will grow year by year, while Taiwan's economy is marginalized.
If Japan's fear of China remains unchanged and it refrains from criticizing Beijing for the undervalued yuan, it is expected to lose its leading role in the East-Asian economy by around 2015.
The US is facing a great challenge. It was threatened by Russia's military power in the Cold War era. But in today's Sino-US cold war, it is threatened not only by its military expansion, but also by its economic power.
Due to the undervalued yuan, the US trade deficit with China reached US$162 billion last year. The number may approach US$200 billion this year if the US government does not take resolute action. Meanwhile, China's foreign reserves will surpass US$1 trillion very soon. It will use the money to purchase US government bonds and assets. The more dependent Washington becomes on China, the less leverage it will have over it. Eventually, the forces of democracy may have to completely withdraw from East-Asia.
Some said that July 22 was a day for the reverse of the global economy. Whether the situation reverses or not lies with the yuan, whose serious devaluation is crucial to Taiwan's future. We must not ignore it.
Huang Tien-lin is a national policy adviser to the president.
TRANSLATED BY EDDY CHANG
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