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China's high or hidden rural unemployment can't be ignored

Comments on Yiping Huang “Misperceptions about the RMB and Chinese exchange rate policy”, http://www.eastasiaforum.org/2010/04/11/misperceptions-about-the-rmb-and-chinese-exchange-rate-policy/

Yiping has discussed a number of issues related to the Chinese exchange rate that may go beyond my capacity to comment.

However, I would like to raise an issue on one of the points that is the impact of an appreciation on China's huge unemployment or hidden unemployment.

As we all know, China's rural population share is high, or in another word, its urbanisation is low. As a result of its economic reforms, some rural labour has become mobile workforce. But addmittingly, there are still huge numbers of rural workers who are surplus to rural needs and are the hidden unemployed, due to the very limited and low land per capita and mechanisation in rural production.

That has always been why most mobile rural workers are not paid much and kept the Chinese products competitive internationally.

Further, it has been reported that there are seemingly shortage of mobile workers from rural areas in some big manufacturing areas. While seemingly contradictory to the hidden unemployment still existing in rural areas, it is a sign that the costs of labour will rise soon.

On top of that, the recent trade figures already show a trade deficit for China.

So it is difficult to understand why the Chinese currency should or would appreciate and its economic rationale.

It seems many analyses are based on political pressure. Alternatively, they may have been based on some prevailing views.

But the GFC has shown that some prevailing views or consensus are not necessarily always correct.

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