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ASEAN ANALYSIS  30 September 2010

The yuan and Asean

By David Swartzentruber
AseanAffairs   30 September 2010

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Two developments surfaced today that emphasize the growing tensions between China and the United States that highlight the two different positions of each country’s economy. The U.S. economy remains in the doldrums, while China and the Asean economies are doing much better.

In the United States House of Representatives, a bill was passed that that would allow punitive trade tariffs to be imposed on artificially cheap Chinese exports.

The bill allows the U.S. Commerce Department to treat the undervalued Chinese currency, the yuan, as an illegal export subsidy.

China responded immediately by saying the bill went against World Trade Organization rules and would do little to reduce the U.S. trade deficit.

Some observers believe this is the beginning of a trade war between the two countries, which would be disastrous for the beleaguered world economy.

On top of that development, comes a report from HSBC that exporters and importers in key Asia-Pacific markets expect to settle more trade volumes in Renminbi (RMB), the Chinese currency, also called the yuan.

According to the HSBC Trade Confidence Index, The ongoing development of RMB as an international settlement currency was most supported by exporters and importers in Hong Kong, where 19 percent of respondents plan to use RMB as their primary currency in the next six months.

Significantly, respondents in all major markets in Asia-Pacific expect to increasingly trade in RMB in the short-term including 17 percent in Singapore, 10 percent in Indonesia, 7 percent in Vietnam, 3 percent in Australia and 1 percent in India.

The findings of HSBC's biannual Global trade survey point to Greater China's strengthening position as the primary trading partner for key Asian markets.

With the recent appreciation of Asian and Asean currencies against the dollar, the insulation of the Asean economies from the faltering western economies has been widely noted.

Today’s developments suggest that the ongoing China-U.S. economic conflict will be a critical issue in coming months posing not only an economic challenge but a diplomatic one as well.

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