Greenspan Casts Doubt on Impact Of China Actions By John M. Berry

Challenging what he labeled "a strain of so-called conventional wisdom," Greenspan said in a speech in Dallas: "The story on trade and jobs, in my judgment, is a bit more complex, especially with respect to China. . . . If the renminbi were to rise, presumably U.S. imports from China would fall as China loses competitive position to other low-wage economies.

"But would, for example, reduced imports of textiles from China induce increased output in American factories?" the Fed chairman asked. "Far more likely is that our imports from other low-wage countries would replace Chinese textiles."...

Another issue complicating the analysis is the existence of controls on some movements of money in and out of the country, he added.

Keeping the currency peg in place by buying all those dollars is creating problems in managing the Chinese economy. As a consequence of those purchases, the Chinese money supply has expanded much more than 20 percent this year. "Should this pattern continue, the central bank will be confronted with the choice of an overheated economy," which might be followed by a recession, or with cutting back its dollar purchases, which might force a revaluation of the currency, Greenspan said.