
How Serious Is China About Becoming a Capitalist Country?
Think China isn't serious about becoming a capitalist power? Just look at the country's currency.
China appears to be pushing for its currency, the renminbi, to be enshrined in the small circle of currencies that the IMF designates as the reserve currencies that are used to value the IMF's Special Drawing Rights. This could happen as early as the IMF's November meeting, although early this year the IMF seemed to signal to the Chinese that this vote would not occur until sometime after the first of the year.
China, in order to get this vote taken, seems to be doing all the right things right now.
For one, the People's Bank of China (PBoC) just moved the midpoint of the range within which its currency is permitted to trade. It moved the midpoint by 0.54 percent, which is the most that this "fix" has been changed since the renminbi was unpegged from the US dollar in 2005. The PBoC had promised in August that it would allow the daily midpoint to reflect changes in the market. This would make the currency more market-determined. Previously, the PBoC used the changes to signal the direction it wanted trading to go.
Last Friday, the renminbi rose by the most it had risen in ten years, increasing to 6.1375 for one dollar. Although it fell back on Monday, it was still around a price of 6.3340 at noon on Tuesday. The suspicion is that last week's move was an unusual bump and not a change in the outlook for the currency.
Also, last Friday the Chinese announced new rules that made it easier for foreigners to invest in Chinese capital markets. In addition, Shanghai's Free Trade Zone announced a further liberalization of its rules.
All this came as the fall meeting of the Chinese Communist party ended. It is very typical that changes are announced at the end of these meetings reflect the actions that were decided upon during the gathering. One basic task of the meeting was to develop the economic plan for the country for the next five years. The initial signal that the leaders are taking actions to secure the reserve currency status for the renminbi underwrites the whole opening up of the Chinese economy and sets the stage for further actions in this direction in the future.
A caveat worth noting here is that what capitalism looks like to us may not exactly be what it looks like to China. We shall soon find out.
That said, this is just another step into the new world the United States and its leaders are going to face.
China has been, and will continue to be, relentless in the pursuit of its goal to become the equal of the United States, economically, politically, and in terms of military power.
This is why the United States must accept the fact that it needs to do more than just voice support for the maintenance of a strong dollar. A strong dollar policy means that the U.S. government must concern itself with the education and productivity of the American labor force. It must support innovation, building infrastructure, and promoting strong capital investment.
These things cannot be achieved in the environment of credit inflation created by U.S. governments over the past fifty-five years, both Republican and Democratic.
The U.S. government may not respond quickly to this challenge, but it's very clear, and backed up by recent actions, that the Chinese leaders are very committed to what they want to achieve.
Hopefully, the leaders of the United States will not wait too long before they begin to act on this reality.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








