China: China’s trade boomed in December. And in doing so, it took away one of Beijing's main justifications for keeping the nation's currency artificially cheap. Even if the 33 per cent increase in overall trade proves fleeting, it sets the agenda for China's dealings with its biggest trade partners in the coming year.
The global recession reduced pressure from China's trading partners for a revaluation of the yuan. It was hard to argue that the currency looked cheap when the country’s exports were plummeting. As trade recovers, the yuan's dollar peg looks less like a justifiable economic defence mechanism and more like an undeserved stimulus, especially as the falling dollar has made Chinese goods even more competitive in Europe, Japan and Australia.
True, market-beating trade figures must be seen in context. Exports and imports grew rapidly, year on year, because 2008’s denouement was such a dud. The 55 per cent increase in imports may be helped by last-minute commodity stockpiling rather than actual demand. Still, exports are now close to pre-crisis levels and a new free-trade agreement with South-East Asia provides another reason for China to throw away its currency crutch.China’s export boom could make the country a target for nations which feel the Middle Kingdom has benefited at their expense. Take jobs. Where 15 per cent of China’s 150 million rural migrants were idle at the end of March, that figure had fallen to under 3 percent by summer. The United States is having much more trouble getting its labour market back to health. Over the last two years 7 million jobs have been lost, including 85,000 in December.
Aggrieved trade partners will want to even the score. Many traditional proponents of free trade now see the low level of the yuan as an unfair subsidy. Absent a Chinese revaluation, tariffs and other export-discouraging policies will become more tempting. There were already a few trade spats last year, including US tariffs on Chinese tyres and steel pipes. Chinese recovery is already one theme for 2010. It’s up to Beijing to keep protectionism from becoming another