Tension is mounting on as China steadfastly refuses to allow its currency to rise in the way that other developed countries – especially the US – wish to see. This is driving a vast China trade surplus with the rest of the world, and the accumulation of huge currency reserves in China. It also makes it harder for Western economies and even other Asian countries to climb out of recession, as they can’t produce goods that compete with the price of Chinese imports.
China crisis – the Yuan that got away
Who holds the aces in this ongoing negotiation? China would seem to have plenty of cards in its hand – especially its size and market power. China also seems to bring a somewhat win/lose attitude to the negotiation table. This is presently driving some lose/lose thinking by the West and Japan. If China won’t revalue its currency upwards then maybe they will permit their own currencies to drift down in value to the Yuan? Or maybe they will reach for protectionist remedies to stop Chinese imports?

The truth is nobody ever won a negotiation by playing lose/lose, However, what would happen if the other developed countries could convince China to play win/win instead? In order to do this there needs to be a focus on what China needs from any negotiation. This is not a strategy of weakness. Rather it is a hard-nosed approach which relies on the fact that a negotiation focused on China’s needs is more likely to net a win for the West and other developed countries. The Chinese government leads a fairly precarious existence. It has managed to maintain One-party politics alongside the development of economic prosperity. Would that situation continue if that economic prosperity went away? Very likely it would not, as with economic problems would almost certainly come internal demands for political reform.

So China craves economic stability. If the Western economies and other Asian competitors could create a negotiating strategy with that aim at its heart they might actually be able to get much more of what they want from China….