The Big Ideas

by Malcolm Riddell

Part 2 | 'Is China exporting inflation?'

The New York Times

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Keith Bradsher | The New York Times
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June 17, 2021
Part 2 | 'Is China exporting inflation?'
Part 2 | 'Is China exporting inflation?'
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Keith Bradsher | The New York Times

BIG IDEA | “Is China exporting inflation? In renminbi terms, it’s not so obvious. But in U.S. dollar terms, it starts to get more sizable.” ’

‘China’s higher prices could spread abroad, however.’

  • ‘The country’s leaders are trying to address the threat of inflation in part by letting its currency rise in value.’
  • ‘The renminbi is near its strongest point against the U.S. dollar since mid-2018. A dollar now buys about 6.4 renminbi, versus more than 7.1 about a year ago.’

‘The renminbi has risen 2.2 percent against the dollar since the start of this year, making each only a fraction of a penny more valuable.’

  • ‘But China spends huge amounts of money on resources priced in dollars — $176.2 billion just for crude oil imports last year, for example, and an additional $50.8 billion for grain imports.’
  • ‘Those pennies add up quickly.’

‘China’s currency has long been a hot-button political issue. American lawmakers and officials over the years have accused Beijing of unfairly keeping the currency weak to give the country’s exporters a competitive advantage in foreign markets.’

  • ‘But in this case, Chinese officials have simply sat back and let global forces make the currency stronger.’
  • ‘As the United States has borrowed and spent heavily in recent months to counteract the economic effects of the pandemic, the dollar has started to slide against many currencies, including the renminbi but also the euro.’

‘ “The appreciation of the renminbi is driven by the good performance of the Chinese economy,” said Gary Liu, an independent economist in Shanghai.’

  • ‘ “The U.S. is now producing too much money supply, and as a result the dollar is going soft.” ’
  • ‘Still, the People’s Bank of China warned currency traders on May 27 not to think that further appreciation was a one-way bet.’

‘A stronger currency has its downsides, however, and Chinese officials appear to be stepping in to halt further increases.’

  • ‘The stronger currency makes Chinese goods less appealing in other markets.’
  • ‘For now, the world seems happy to keep buying Chinese made goods anyway.’

‘In the meantime, the stronger renminbi could push up the price of Chinese-made goods in the United States, adding to price pressures there, though in mostly moderate ways.’

  • ‘A U.S. Bureau of Labor Statistics index of average prices for imports from Chinas hows that prices fell about 2 percent from the summer of 2018 until the start of the pandemic and then leveled off.’
  • ‘Now those prices have jumped 2 percent since November.’

‘ “Is China exporting inflation?” said Louis Kuijs, a China specialist at Oxford Economics.’

  • ‘ “In renminbi terms, it’s not so obvious. But in U.S. dollar terms, it starts to get more sizable.” ’

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