The US continues to pressure China both publicly and privately to revalue the renminbi by a significant amount, but the Chinese will not and cannot do it, and have made clear to the markets, their foreign trading partners and speculators – the renminbi will be allowed to gradually appreciate at a glacial pace, pushing along an ascending channel one microfen at a time. The pace at which this has been proceeding is so slow that it provides the speculators in particular with no great opportunities beyond perhaps a long-term investment in the renminbi, which is in China's interests.
What they wanted to avoid in the run-up to the break point in July was a cash-out by all the people who had bought RMB in the past few years in the expectation of a revaluation. With the original 2.1% increase in valuation, plus the snail's progress approach to further appreciation, the government has effectively stymied the speculators and at least blunted criticism from the West about an undervalued RMB.
From here? Expect further gradual movement in the next year. The Hong Kong exchange rate of 7.8 to the US dollar, still looks possible as a medium-term resting place for the renminbi exchange rate.
The philosophical basis for this policy is gradualism, which is the same way the state enterprise problem was handled in the 1990s, the way the state banks' nonperforming loan problems have been handled in recent years, the approach to stock market reform and the opening of China to the information ocean that is the Internet.
It is the same approach that is and will be used in the field of political reform as well. The upsides of slow Gradualism is not necessarily a bad idea. Russia is the proof always used to demonstrate how beneficial it is. And it is true that revolutionary shifts in China's economy and society in the past 20 years have been handled with evolutionary smoothness, relatively speaking, due to a gradualist approach. The problem is not gradualism itself, but the pace at which change is allowed to occur.
With the financial markets, the one change that would appear to be worthy of a faster gradualist approach is the expansion of the bond market. With the stock markets in dire straits and the absence of a serious corporate debt market, companies that want to raise money have no choice but to take out loans from the banks, which tends to put the risk in the wrong place.
With regard to political reform, a friend of mine in Beijing took the view that political change in China would most likely occur after an economic downturn, with the urban middle class protesting in the face of unemployment and the foreclosure on their apartments and cars, and the peasantry revolting. In this scenario, a western-educated middle level Communist Party leader would stride onto Tiananmen Square and utter the word "democracy."
I don't see it happening that way. The urban middle class has too much to lose from luan (chaos) to take to the streets even in a severe recession, and rural discontent is easy for the authorities to contain and dampen, as they have shown many times over the years. In any case, "democracy" as meant by my friend would not be acceptable to the urban middle class any more than it is to the ruling class.
An increasingly useful resource on the Internet is Wikipedia, the free, devolved and democratic online encyclopedia on which anyone can add or alter articles. But just recently, access from inside China through regular ISP connections, without the use of any convoluted proxy arrangements, was blocked.
Presumably it means that someone has placed on some pages on Wikipedia something which is not politically correct with regard to one of the hot-button topics. Tibet, Taiwan, Falungong, June 4 – maybe all of them.
In the end, it is self-defeating, because people who know of Wikipedia and of its usefulness naturally notice that they can no longer access the site, and feel uncomfortable. The result is an uptick in the general sense of dissatisfaction and a search for other sources of the same information, which surely exist somewhere else on the Internet. This dissatisfaction is not a spark that will cause a prairie fire, but it is still another irritant that puts slightly more distance between the middle class and the ruling class.
Where have all the 10-RMB notes gone? In recent weeks, in China's major cities, the notes, probably the most basic de-nomination in the whole system, seem to have dried up. Restaurants and taxi drivers are usually giving change in either 5-RMB notes or 20s. Time is a-wasting and inconvenience grows apace.
I wonder if there is some change afoot currency-wise? The new "Mao?notes have been in circulation now for several years, but overall they have not been a success. The notes are noticeably less rugged than their predecessors, some of which are still to be seen in piles of change. The paper is thinner, they degenerate and get dirty and torn faster. Maybe a shift to another format coming?