October 21, 2007 (LPAC)--Wu Xiaoling, the Deputy Governor of the People's Bank of China, put a damper on the hopes of economics gurus gathered on Oct. 18th at the Peterson Institute of International Economics that China would soon revalue the reminbi (RMB). They were gathered at the occasion of a forum to discuss the issue of the RMB exchange rate, with some claiming that the RMB was undervalued by 30% or 50%, and others, more aware of the insanity of these claims, demanding a more ``moderate'' 15% revaluation ``for starters.''

All of this gobbledygook was given a cold shower by Madame Wu in her comments at lunch. While Madame Wu, a rather feisty lady who had been appointed to the PBOC post by Zhu Rongji, had more important things to do than to listen to these clowns, she did agree to come to the luncheon to make some comments. ``Solely adjusting the exchange rate would hurt the Chinese economy and the world economy,'' she told them. ``We have seen how in Europe the `shock therapy' actually hurt the economies that adopted it. We are more patient than you are. We are moving in that direction [toward more flexible exchange rates] but in a smooth manner. That will benefit us all,'' she said. When asked by one of the audience to say how long that would take, Madame Wu replied, ``I can't give you a timetable, since I am not as good a forecaster as you all are.'' She then added that China would at some point have to move toward reducing the trade surplus. ``The current setting doesn't benefit the people. For the benefit of the Chinese people, we will try to reduce the trade surplus,'' she said.

Madame Wu said that she felt that the whole exchange rate debate which has erupted in the West, was based on a "lack of communication" and a misunderstanding of the tasks China has before itself. She rejected any direct relationship between the trade surplus and the exchange rate, showing graphs from earlier periods with both the Japanese yen and the German deutschmark plotted against each nation's trade surplus, to prove that the changes in their exchange rates did not correspond to any change in their trade balances over time. As far as the U.S. trade deficit with China was concerned, she pointed out that in 1998 the U.S. had an even greater trade deficit with Japan and the Southeast Asian countries, and much of that has been transferred to China, as trade flows with the U.S. began to be redirected. The imbalance in trade had more to do with internal imbalances in the Chinese economy, she said, which the Chinese government has been dealing with through import substitution, boosting domestic consumption, and adjusting income distribution, she explained.

Madame Wu was also asked about the effects of the collapse of the real estate markets. She replied, ``We are working to prevent a large exposure to this market. We hope that even if this crisis does leads to a correction of the markets, we can be in a position to help prevent a major collapse.'' She added, ``China has instituted a new policy that investors must pay an additional down payment on real estate they purchase over and above to their own homes. This will help to prevent a bubble.''

She also defended PBOC's role as a government entity, rather than a private entity. ``We must coordinate our policies among different entities for them to work, including PBOC. With its seat in the cabinet, PBOC is included in that coordination.''

Finally, Madame Wu received a copy of Lyndon LaRouche's most recent interview with Chinese journalists.