Under pressure, US$ peg to Yuan terminated

Chinese Economics Book from the year 4798 (2101 AD) (trans. by Aburns)

Chapter 18: US internal disintegration picks up pace

In the sixth month of the year of the Rooster (4702) a collision of long extant forces came to the fore. As noted in previous chapters, the appetites of US industry had in previous decades outgrown the productive ability of its citizens to finance. Despite a clear warning from their 34th President, Eisenhower, the military industrial complex was rarely second in line for access to the nation's savings, leading to the steady erosion of goods production employment and welfare spending despite tremendous assistance from the rest of the world.

The attack on the World Trade Center in New York City accelerated the process. Although Chinese leaders clearly saw the coming demise, they recalled the saying, butcher the donkey after it has finished its job on the mill and being desirous of international harmony, and thus continued their financial support.

By the year of the Rooster, this support was taking its toll on the still emerging Chinese economy. US leaders, perhaps confused by the Japanese experience, assumed that a free floating Yuan would soon hobble China as the strong Yen had hobbled Japan. However, at the time of the Yen revaluation, Japanese corporate productive capacity far exceeded domestic consumption capacity. That is, they too had outgrown their base. China, meanwhile was just beginning to grow and had as its citizen base, the single largest block of potential consumers and savers in the world.

In the sixth month of the year of the Rooster, China tested the waters with an attempted purchase of the oil company Unocal. Despite the dire need for finance due to the failed war in Mesopotamia, US leaders rejected the bid. Finally, having demonstrated to the world that the US would not accept exported $ back in trade for true corporate ownership, and seeing that further assistance was futile the Chinese, on the 16th day of the sixth month set in motion the slow but steady removal of financial support for the US. Within days pressures with the USA credit system began to build as US interest rates and $ denominated commodity prices began to rise.

In the next chapter we will examine the aftermath of this momentous month.

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History, they say, is written by the winners and who knows, the blurb above could be one version. According to this statement from CNOOC, some officials in China are concluding that the US is no longer playing by established rules: The unprecedented political opposition that followed the announcement of our proposed transaction, attempting to replace or amend the CFIUS process that has been successfully in operation for almost two decades, was regrettable and unjustified. This is especially the case in light of CNOOC's purely commercial objectives and the extensive commitments that CNOOC was prepared to make to address any legitimate concerns U.S. officials may have had regarding our acquisition. This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction. Accordingly we are reluctantly abandoning our higher offer to the clear disadvantage of Unocal shareholders and employees.

tomorrow: a look at China
Question: What was the RMB/US$ exchange rate in 1981?

1.75 RMB per $ (avg)

What was the RMB/US$ exchange rate in 1991?

5.3 RMB per $ (avg)