In early August this year, the U.S. Department of Treasury labeled China a currency manipulator.
The U.S. governmental organ uses three criteria to apply the designation to a country: having a large trade surplus with the U.S., having a large current account surplus exceeding 3 percent of GDP and actively intervening in the currency markets. But even in terms of the unilateral and protective standards set by the U.S. Treasury, China should not be labeled a currency manipulator. Actually, the renminbi exchange rate is a floating one based on market supply and demand. Moreover, China’s currency account surplus as a proportion of GDP was only 0.4 percent in 2018, far less than 3 percent.
Labeling China a currency manipulator serves as an alarm call. U.S. intentions are very clear. By doing so, Washington will extend its trade war with China from choking Chinese high-tech companies to the financial sector, so as to exert maximal pressure on China and force China to agree to its unfair trade terms.
In May this year, the U.S. Commerce Department added Shenzhen-based Huawei Technologies and its affiliates to the Entity List and banned the Chinese company from buying any U.S. technologies and mobile phone operation systems. Huawei is not the only Chinese company that has been ill treated. In 2018, another Shenzhen-based telecom equipment maker Zhongxing Telecommunication Equipment Corporation (ZTE) was sanctioned by the U.S. administration. According to foreign media reports, DJ-Innovations (DJI), the largest drone maker in the world, and some other Chinese hi-tech firms, are also targeted and groundlessly accused by the U.S. administration.
Such accusations and suffocating measures have not deterred Chinese companies, but only made them more united and determined to develop their own core technologies. Astonished by the good performance of Chinese high-tech companies, the U.S. will very possibly use financial means to curb China’s development.
In my point of view, the U.S. is very familiar with instigating financial wars. In past decades, the superpower has aptly used the Plaza Accord, shock therapy and the European debt plan to paralyze and put Japan, Russia and parts of Europe into the mire of economic stagnation and even recession.
The Plaza Accord was signed in 1985. At the request of the United States, four other parties, namely Britain, Germany, France and Japan, agreed to work together to deliberately weaken the dollar’s exchange rate. The objective of such a strategy was to help the U.S. improve its huge deficit, especially with Japan at that time. The agreement made the U.S. prosperous again, however, at the high cost of Japanese economic stagnation still lasting today.
Shock therapy was introduced to the economic sector by U.S. economist Jeffrey Sachs in the 1980s. It mainly consists of economic liberalization, economic privatization, and contracted monetary and fiscal policies. Such measures were strong enough to put a country in shock, hence its name. In 1992, Russia employed shock therapy to transform from a socialist economy to a capitalist economy, but the method was not suitable for the national situation of Russia at all. After the introduction of shock therapy, the Russian economy didn’t develop towards a healthy track, but suffered severe damage.
The European debt crisis, particularly in countries such as Portugal, Ireland, Italy, Greece and Spain, was preceded by the global financial downturn that soured economies throughout 2008 and 2009. When the housing bubble burst in the United States in 2007, banks around the world found themselves awash in burdensome debts. Many of the so-called subprime mortgages that had fueled the tremendous growth in U.S. home ownership were adjustable mortgages. Such mortgages carried low interest rates in the early years that swelled in later years to double-digit rates that home buyers could no longer afford. The global economy has experienced headwinds since the U.S. economic turmoil. In late 2009, Greece took the lead in announcing that previous governments had failed to reveal the size of their national deficits. In fact, Greece’s debts were larger than the size of the nation’s entire economy. U.S. rating agencies Fitch and Standard & Poor’s then downgraded the ratings of Greece and some other European nations, thus taking their situations from bad to worse.
As we all know, the remembrance of the past is the teacher of the future. Chinese financial regulatory authorities should carefully study and learn experience from these cases, so as to make them more sophisticated in handling complicated financial issues and even outside financial attacks in the future.
(The author is the editor-in-chief of the Shenzhen Daily with a Ph.D. from the Journalism and Communication School of Wuhan University.)