The paper "Was Chinese Yuan Politically or Economically Motivated" is a great example of a finance and accounting assignment. The reevaluation of the Chinese Yuan is seen to have been political as well as economically motivated. To begin with, reevaluation of the Chinese Yuan can be seen to have been economically motivated which is evident from the public announcement of the People’ s Bank of China on Reforming the RMB Exchange Rate Regime. From the public announcement the primary aim of reevaluation was meant to establish and improve the socialist market as well as China’ s economic system ((Antweiler, 2010, pp. 5-23).
Secondly, China’ s current account surplus, as well as financial account surplus, had significant room for currency management hence its revaluation was considered economically significant. Throughout 2004 and 2005, the United States government had continued to urge China to revalue the Yuan from its decade-long peg to the United States dollar of Yaun 8.28/$. The United States government argued that the growing Chinese trade surplus with the United States indicated that the Yuan was significantly undervalued hence revaluing the Yuan would lead to increased as well as the rapid growth of the country.
Since China is seen to be relatively cheap in terms of manufacturing costs, many multinational companies have established their companies in China hence reaping the benefits of low-cost labour and production (Jeffries, 2006, pp. 56-78). Economically, the revaluation of the Yuan would steer economic growth in China with many small manufacturers establishing firms within china since the Yuan would gain strength over the dollar making the cost of manufacturing more expensive (Black, 2004, pp. 211-232). The increased costs of manufacturing eventually would discourage foreign multinational corporation investment though on the other hand, it would encourage domestic investment.
Economic Critics were against the revaluation especially the Chinese exporters and multinationals enterprises with core manufacturing bases in China(Antweiler, 2010, pp. 5-23).