Weapons of Mass Destruction (WMD)

DATE=9-4-03

TYPE=INTERVIEW

NUMBER=3-786

TITLE=LACHMAN-CHINA

BYLINE=DAVID BORGIDA

DATELINE=WASHINGTON

CONTENT=

INTRO: The rate of currency exchange between countries has a tremendous effect on whether a country is a successful exporter or finds it difficult to compete economically. Dr. Desmond Lachman, a resident Fellow at the American Enterprise Institute, discusses with VOA NewsLine host David Borgida U.S. efforts to pressure China to change its currency policies. U.S. Treasury Secretary John Snow is visiting Beijing this week and said he will call for more flexibility in exchange rates so that firms outside China have "no disadvantage."

MR. BORGIDA:

And now with us to talk about all of this, Dr. Desmond Lachman. He's a Fellow at the American Enterprise Institute here in Washington. Dr. Lachman, thanks for joining us.

So when the Chinese say "No, not now," we think code -- they really mean no?

DR. LACHMAN

I wouldn't go as far as saying that's an indefinite no. I would think though that it just means that they're not going to be doing that too quickly. In fact, it is in the Chinese long-term interest to allow the currency to revalue, but they're in no hurry to do that. They've got problems with deflation. They've got problems with urban unemployment. It suits them right now to have a cheap currency that allows them to export very rapidly.

MR. BORGIDA

So then when Mr. Snow says he's optimistic this will happen at some point, he sounds like then, in your view, he really means it, that at some point down the line this will occur?

DR. LACHMAN

Yes, I think that there are two facts that would argue in favor of the Chinese moving. The one is that it's in their long-term interest not to be sending goods to the United States and in return only getting paper. The whole point of the exercise is that they should be using their resources domestically in order to get matters going. So eventually the Chinese will find it in their interests.

The second point is the Chinese must realize that, particularly with an election coming up in the United States, that if they're rather stubborn in this regard and if unemployment is a big issue in the United States, you could get protectionist pressures in the United States that could be both harmful to the Chinese and harmful to the United States.

And I think that that is a situation that both the Chinese and Mr. Snow would want to avoid. That's why I would think that, as the year goes by, you'll see some flexibility in the Chinese position. But, as I say, the Chinese won't want to be pressured into taking this action right at this time. They will want to be doing it in their time and in their way.

MR. BORGIDA

Now, Mr. Snow is at the APEC meeting. What is his challenge and mission there?

DR. LACHMAN

Well, the issue so far has been focused on China, but very much the same practice is occurring right across Asia. Japan intervenes very heavily in their currency market. They prevent the yen from getting more expensive for the same reason as the Chinese -- they want to promote their domestic economy.

We've got the Indians, the Koreans, the Taiwanese, the Malaysians -- all of them accumulating international reserves. The Chinese is the big issue. These other countries are following practices very similar to those of the Chinese.

Mr. Snow wants to have very much more a level playing field and rules of the game. Countries can't just set the currency at artificially cheap rates and expect to get away with it for a long time.

I should mention that this isn't only a United States problem. This is a problem that the Japanese aren't too happy about what the Chinese are doing, nor are the Europeans.

MR. BORGIDA

Are the Europeans and Japanese likewise trying to pressure the Chinese on this?

DR. LACHMAN

No. I think that they would rather go along and have the United States do the heavy lifting on that front. I think that what's a little bit complicated as well right now is that there is a political dimension to this problem in that the Chinese are very involved in the dealings with the [North] Koreans right now. So it's a little bit awkward for the U.S. Secretary of Treasury to put too much pressure on the Chinese when they can be so helpful in the Korean case.

MR. BORGIDA

Dr. Desmond Lachman giving us a sense both practical and political of all the dynamics of this financial debate that's going on. We appreciate your time with us. Thank you so much.

DR. LACHMAN

Thank you for having me.

American Enterprise Institute

http://www.aei.org/

NEB/PT