China has revalued its currency, the yuan. No big deal, readers in Saudi Arabia may conclude: China’s economy is of no concern to them. It should be. The revaluation of the yuan is going to make a lot of things more expensive, not least clothes. The Chinese have become tailors to the world. Whether it is Riyadh, Rio or Rome, or London, Paris or New York, the chances are that the shirt, the jacket or any other piece of clothing being sold was made in China. Not just clothes; there are no consumer goods that the Chinese do not export. This flood of Chinese goods onto the world market has happened in a remarkably short space of time. Two years ago, China produced 17 percent of the world’s textiles; by the end of next year, the figure is expected to be 50 percent.
There are good reasons why this should be so. Chinese goods are well made and cheap. But they are not cheap because Chinese workers are paid slave wages; they are cheap because of the value of the yuan. The Chinese government kept it tied to ludicrously low exchange rate against the dollar in order to stimulate exports and drive economic growth. A very sensible policy, one might say, but it could never last indefinitely. The surge in exports, exacerbated by the demise at the beginning of the year of an international quota system on textile trade, had begun to hit too many countries. Last year, US-China trade hit the $231 billion mark, with a $162 billion surplus for China. In Europe, Chinese textiles three years ago accounted for less than a quarter of the market; today it is over 70 percent. Jobs are at stake. The French textile industry expects to lose 7,000 jobs this year because of Chinese competition. And not just European or American jobs; jobs in Egypt, Mexico, Thailand and Malaysia are also threatened. They cannot compete with China either.
The result has been increasingly irate demands that Beijing had better do something about its currency and its exports or else. The US and the EU threatened sanctions; both fired warning shots by imposing limits on the growth of Chinese textile imports. China has a reputation of being unyielding when demands are made of it by other countries; indeed, in this case, it threatened commercial reprisals if the EU or the US imposed limits on textile sales. But for all its tough talk it has bowed to American and European demands even though the yuan’s revaluation will hurt the Chinese economy, at least in the short term. It had no option. When US Federal Reserve Chairman Alan Greenspan warned, the day before the revaluation, that China faced a “very serious” risk to its economy if it did not revalue, Beijing had to act. China has made itself prisoner to its economic growth. It needs the European and American markets more than they need it. It is the classic “buyer’s market” scenario. They, not it, can call the shots — and have done just that. But the move is unlikely to take the pressure off the US or the EU economies. The beneficiaries will be in other Asian producers.
