China is resisting revaluation of its currency fearing that the reduction in export would seriously affect their economy. They are quite correct, the world buys predominantly products manufactured in China precisely as it is profitable to import them, and resell them at a large profit than to make more slender margins on higher priced goods.

Western economies believe that China is obliged to revalue its currency to swing the balance away from their importing excessive amounts of stock in the hope of reselling it at bargain prices.

The power heavy structure of the China’s centrally controlled but capitalist driven economy exerts control on the factors that reduce earnings per capita to sub-poverty levels unacceptable to the established liberalism of the West, while the economic unreality of world-wide markets accepting floods of cheaper goods not only displace other manufacturing centres but as China resists revaluing, and continues to exchange cheap labour for overvalued foreign exchange, the larger the impact when they do revalue.

And that is the point. As long as the population is engaged in this grand savings scheme and China hordes foreign reserves, the more capital flows into China. The revaluation must occur sometime, or internal changes in China may correct the imbalance, if for example the climate change agreements were to penalise China and the USA, they would have more to pay than others.

Another way of viewing the current situation is that China is on the rise of a bubble.

When competing against countries that have an equitably paid labor force, currency controls ensure that their own workers remain underpaid. Not floating/revaluing the Yuan provides the mechanism.

Reuters article