World News: Risks Fuel China's Resolve On Yuan
BEIJING -- Economists and politicians from Brussels to Washington say that the Chinese yuan is undervalued. For China's own good and that of the global economy, they say, the currency needs to move up in a big way, and soon.</br></br>So why hasn't China revalued? Part of the answer is Japan.</br></br>The last time the U.S. was faced with a rising Asian export power, the currency also became a big political issue. And in September 1985 the major economies of the time met at the Plaza Hotel in New York to ease those tensions. The accord they reached caused the dollar to fall from roughly 240 Japanese yen to about 160 over two years.</br></br>Today, China's critics are demanding a similarly sweeping move. But Japan soon regretted agreeing to a big surge in the yen: Growth slowed abruptly, which pushed the government to boost spending and lower interest rates. A real-estate bubble and a years-long slump followed. And the issue the Plaza Accord was intended to fix -- Japan's sizable trade surplus -- remains to this day.</br></br>From Japan's example, Chinese thinkers learned that a big exchange-rate move could damage their economy, and won't necessarily help the trade balance.