The prevailing opinion around the world is probably that the Chinese are reluctant to revalue the renminbi out of a selfish desire to preserve the low cost production advantage which is racking up such incredible export growth, but the main reason, or at least a major reason, is probably fear.
There was a good story last month about how a Chinese reporter in Hong Kong for the state-controlled China News Service did a story on the prospects of a renminbi revaluation, which was translated incorrectly by the People's Daily to give a date and even a rate for the revaluation. When issued, the story pushed the global foreign exchange markets around as traders scrambled to get their positions in line with a new reality.
But of course it was all a huge error, and the guys who cringed the most were probably the Communist Party leaders in Beijing who are being inexorably pushed by the markets, by China's trading partners, and by China's domestic trends, in the direction of more market control, less state control. Market forces are all very well, but they require a certain degree of self-control, accountability and plain good sense throughout the system, as was shown by the China News Service debacle. A lack of transparency has one great advantage – it hides a myriad screw-ups.
When China's currency regime changes to allow for movements in the renminbi according to a flexible basket of currencies, or according to supply and demand, then Beijing's fiscal czars are going to be in the same situation as central bankers around the world – scrutinized every second by the markets trying to divine which direction the renminbi is likely to move.
China is currently different from the Western countries in an important respect – any newspaper, or organization in the country is assumed to be a part of the communist monolith, with all statements made according to the party line. The problem is that the monolith does not exist, and China's leaders are forever exasperated at the small degree of control they have over what happens at the grass roots.
There was a time, of course, when the People's Daily was indeed the absolute mouthpiece of the politburo, and every word was scrutinized by the editors before publication from every political angle to ensure orthodoxy. But that was in the time of the Gang of Four (see below). Nowadays, China's official media largely goes its own way while sticking to what editors believe to be the party line. The result is the sort of mad misunderstanding that occurred last month.
The fact is China is still operating on the basis of what might be called 'cha-buduo- ism', that is, approximate is okay, nothing has to be absolutely spot-on right. The concept of 'cha-bu-duo' is as debilitating as the concept of 'ma-shang,' which means 'soon' – the answer given in China to most enquiries about when something might happen.
In some circumstances, this greyness of language has little negative implication and can even be endearing. But in the currency markets, where billions of dollars are trading every second, there is no room for 'chabu- duo'.
China's leaders know it, and my guess is that their knowledge of how far China has to go to escape from cha-bu-duo-ism is a key factor making them hesitate to proceed with reforms such as renminbi revaluation.
But it will happen. Already, the People's Bank President and other senior officials are becoming quite adept at handling the bombardment of questions about revaluation and interest rates. After all, nuance of language is central to Chinese culture, and these senior officials are quickly picking up the tricks perfected by their counterparts in Washington, Japan and elsewhere. The aim is to say something without saying anything, to appear open while being discreet, to hint creatively and prevaricate endlessly.
This kind of sophisticated wordplay is second nature to educated Chinese, and there is no doubt that the leaders will be at least as good at this game in the end as Alan Greenspan in Washington.
But how to control random reporters translators and editors, who are just not paying attention? If you can't trust People's Daily, how on earth can you trust 1.3 billion Chinese to adequately handle a currency regime without all the usual safety valves? The answer in the end is to cut them all loose from party control, as much to protect the party as to promote a healthy separation of powers.
Meanwhile, foreign currency traders need to learn to understand the concept of cha-buduo- ism and discount once and for all the concept of monolithic Chinese communist rule.
The death last month of a member of the Gang of Four proved just how much China has changed in the past 20 years, which is that nobody cared. They were forgotten by not the world at large but by China too, surely the worst fate that can befall a politician.
Madame Mao was the leader of the ultra- leftist faction which dominated Chinese politics in the mid-1970s as Chairman Mao slipped towards death, and Zhang Chunqiao was her consiglieri, the smart operations guy. A vicious ideologue, he was 88 when he died, and no one beyond his immediate family would have mourned for him. As to the others, Madame Mao committed suicide in 1991, Wang Hongwen died in 1992, and Yao Wenyuan remains alive.
The Gang of Four were overthrown immediately after Mao's death in 1976 in what amounted to a coup d'etat. They were tried in 1981, and found guilty of a range of crimes in an effort by the party to distance itself from the excesses of the cultural revolution. China moved on, and particularly after June 4, embraced the bourgeois approach to life and economics with ever greater enthusiasm, precisely the thing Zhang professed to be aiming to avoid.
Looking back from the perspective of China today at the China of the 1970s, it was a dark world with no hope. Zhang was a part of creating that. But younger Chinese people have only the vaguest understanding of all that. Their world is filled with light – neon light from fast food joints, perhaps, but still light.