E ver wondered why the Chinese 'maal' has become synonymous with amazingly cheap items, even if they aren't the best in quality. These cheapened exports have not only flooded the world market, but have also undermined production base and capability in their destination.
It has been strongly alleged (with strong evidences as well) that the Chinese have manipulated their exchange rates to keep their currency (yuan) undervalued. This makes their exports low-priced and highly competitive in the international market. For the uninitiated, it must be explained that exchange rates not only affect the imports and exports, but also the growth of manufacturing and overall economy, as also they encourage businesses worldwide to shift to low cost country. Keeping the value of its currency pegged against the hard currencies of the world, the Chinese have stilted any likely appreciation of their currency. This move has caused huge trade surpluses for China ($651.5 billion with US alone in 2004, which is the fastest growing deficit outside the OPEC). Even after maintaining a healthy forex reserve of around $574 billion, the Chinese have constantly intervened by selling yuan and purchasing dollar securities worth $171 billion in 2004 alone. And all this has led to a bulky 271% rise in forex reserves of up to $574 billion in a six year span (1999-04).
These calibrated moves have been in the realm of unfair subsidies granted by the Chinese to their exports, which is obviously unwanted in the era of free trade and globalisation.