I laughed when I read The Wall Street Journal’s, Is China Serious This Time About a Yuan Basket? I laughed because the Chinese are serious but not serious enough to risk the yuan fluctuating in value to the point that it becomes a burden to the people.
“A report from the Chinese Academy of Social Sciences indicated that in … 2006, the annual per capita disposable income of urban households was 11,759 yuan compared with only 3,587 yuan in rural households.” Source: China Labour Bulletin
The cost of essential goods must be kept stable. It helps that rural Chinese grow most of their food and live in collectives so there are no mortgages or property tax. The villages and houses belong to everyone and there are no deeds. However, in urban China, many pay rent or a mortgage unless they live in factory dormitories.
Whatever basket of currency China uses, even if it is the same as Singapore, there will still be a narrow band so the yuan doesn’t change value to the point that it would cause an unbearable burden to the people of China. How would you like to be sitting on a powder keg that size?
Sign up for an RSS Feed for iLook China