US News email discussion with Will Hutton, author of the book "The Writing on the Wall: Why We Must Embrace China as a Partner or Face It as an Enemy:"
What would be the impact on China domestically if the yuan appreciated 40 percent, as some U.S politicians would like to see happen?
The more than 50 percent rise in the yen in the late 1980s was the single most important cause of Japan's near-15 years of economic stagnation that followed; if the yuan went up by 40 percent suddenly against the dollar, it would have a similarly devastating impact on China. It would bite in two huge ways.
Firstly, it would cause peasant incomes to fall sharply because China's internal food prices would fall by up to 40 percent as food imports became cheaper with the appreciation of the yuan; 780 million Chinese still live on the land. And it would stop the 25 percent growth of China's 1 trillion dollars of exports in their tracks–the most important source of economic growth and employment in China's coastal cities.
It is already hard enough to find work for more than 10 million migrants who leave the land each year; with a yuan appreciation of that magnitude the numbers would swell into a flood of migrants just as the opportunities for their employment in the eastern coastal cities dramatically worsened. Open and disguised unemployment in China is estimated to exceed 170 million. Unrest is growing even under current conditions. Such a rapid appreciation of the yuan over a short period could be a tipping point for a wave of unrest, which could threaten the regime's stability. The party leadership sees the demand for fast yuan appreciation as an act of economic warfare. In these terms, you can see why.....
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