In the same year that China became South Africa's largest trading partner, and South Africa the Asian giant's second largest market on the African continent, international attention is yet again fixed on the financial policy tussle between China and the United States regarding currency value. Current U.S. Treasury Secretary Timothy Geithner has led calls for China to be labelled a "currency manipulator" in a yet-to-be-released report, accusing Beijing policymakers of purposely depressing the value of the Chinese renminbi against the U.S. dollar, among other international currencies it trades against. The chief issue for U.S. policymakers in the current situation is the detrimental effect this is having on the already cavernous U.S. trade deficit.

The issue is by no means new. Since the early 2000s, several international bodies, including the G20 and the World Bank, have urged China to allow the renminbi to appreciate to help balance global trade and capital flows. Beijing's policy of enforcing the global competitiveness of its goods by depressing the value of its currency has not gone unnoticed and now the United States seems ready to ramp up pressure on Beijing to remedy the situation.

Politically speaking, this is not the first open tête-à-tête between Washington and Beijing in the past 12 months. Recently, the two powers have politely butted heads over several issues ranging from military activity in the Taiwan Straits to the operations of Internet giant Google in Chinese netspace. If one trend can be identified in these events, it is that increasingly, issues that have consistently yet subtly shaped China's foreign relations for decades, such as Taiwan, and Beijing's restrictive domestic communications policies (among others) are being debated and defended more aggressively via open diplomatic channels. The previously cosy financial relationship between the Chinese renminbi and the U.S. dollar is only the latest talking point.

Already, despite the trans-Pacific posturing, both sides have begun to consolidate their previously indignant positions; Messrs. Geithner et co. have yet again delayed the long-awaited U.S. Treasury Report, now due mid-April, and spokespersons for China's Ministries of Finance and Commerce (MOFCOM) have been going to lengths to defuse tensions by pointing at the emergence of China's first trade deficit in half a decade, reported for the first quarter of 2010, as further evidence that the lower valued renminbi is not solely to blame for the United States' trade woes, nor China's. As with previous bouts, the initial posturing has given way to softer rounds of diplomatic concession making; talks between the financial envoys of both nations are ongoing whilst the international media pick at what dwindling controversy remains in the issue. Despite American pressure, China insists it will let the renminbi appreciate, but certainly not the kind of hike being proposed by outsiders, and not in response to American threats of sanction.

What are the implications of a sudden appreciation of the renminbi against the dollar? For Africa, there are a few, but certainly in Asian markets the effects will be felt. A substantial handful of Chinese industries reliant on favorable export conditions are certain to react badly to an abrupt hike in renminbi value. China has long benefited from the global competitiveness its low-valued currency lends it. That said, several years of appreciation in the Chinese currency against the dollar before 2008 had little inherent impact on the trade balance between the United States and China, principally because there are too many other factors at play to single out currency value as the prime catalyst, especially in a country that controls so many of the capital flows across its borders. That point remains the primary defence of the renminbi's current value from within China's financial and governmental policymaking circles. Aside from diplomatic posturing, most would recommend a slower appreciation of the renminbi (as has been the trend until recently) rather than any rapid hikes in the currency's value. This would allow affected domestic industries and international markets to respond more naturally to the change.

With regards to Africa, and South Africa in particular, what might such high-powered diplomatic tussling mean for South Africa or the continent in general? Given the recent conclusion of high level trade talks between China and South Africa, ending with the signing of almost $311 million worth of trade agreements between the two nations, there is certainly reason to keep a firm eye on any currency policy decisions in Beijing. Any rapid appreciation of the Chinese currency is going to have repercussions for all China's foreign trade partners, specifically because Beijing maintains a trade surplus against many of them (including South Africa, although this is on the decline). In the shadows of the global recession, it might be foolish for any economy to invite too sharp an economic shock as would be caused by the revaluation of the renminbi. Once again, a slow, considered appreciation is far more likely to benefit all involved, no matter which hemisphere or global financial position they are trading from. 

Matthew McDonald is a research analyst at the Center for Chinese Studies at Stellenbosch University, South Africa