A pair of brand name sports shoes are made at the cost of 12 dollars in China but sold at 120 dollars a pair on the US market. Only two dollars goes to Chinese workers.

That makes some people believe that a suspension of trade with China would immediately push the US inflation rate up by two percentage points as China enjoys unparalleled labor cost advantage.

They are also assured by the fact that China has invested 300 billion US dollars on the overseas market while receiving 500 billion US dollars of foreign stakes.

But an expert on finance at Beijing Normal University warns against the "over optimism" about the risks of China's international account imbalance and the exchange rate issue and reminds of the lessons from the tragedy of the Japanese economy and Japanese currency yen in history.

The Japanese yen exchange rate has gone through three stages. During the first stage between 1949 and 1971, Japan achieved a 10 percent economic growth annually through its export-oriented strategy based on fixed exchange rate system with 380 yen against a dollar. Such a growth outraced Britain and France and modeled after by other East Asian economies.

A dramatic change occurred in December, 1971, when finance ministers of ten Western countries reached the Smithsonian Agreement in Washington requiring a precise yen appreciation of 16.88 percent and floating band of 2.25 percent around the newly agreed par value. That ended yen's 12-year old pegged rate system and the yen began to float since then.

The second stage since then lasted till 1985, during which the Japanese currency inflated from 315 yen against a dollar to 200 yen against a dollar with an annual growth of 5.2 percent. The upward yen did not seem to hinder Japan's prosperity. The huge trade surplus and capital influx pushed Japan's foreign exchange reserve up sharply.

However, nobody realized at that time that the yen's constant, moderate appreciation was leading to buddle economy which was injuring the dynamics of the Japanese economy.

That was followed by the third stage till 1989. On Sept. 22, 1985, the Group7, under the proposal of the United States, initiated the Plaza Accord maintaining the dollar's dominance and shrinking the value of other major currencies in the world by 30 percent in two years.

Then there was Louvre Accord dragging yen into uncontrollable uptick. The media reported that the land prices of the 23 districts of Tokyo could buy the whole US.

But the bubble of the Japanese economy went burst in 1989.

Recalling the history is to learn from it so that the same thing would not happen in the future. There are similarities in the two economies which both depend on foreign trade and capital. Comparing China in 2004 and Japan in 1967, we can see a lot of parities in terms of per capita GDP, per capita power consumption, the urban Engel's coefficient, industrial structure, and even the hosting of the World Expo and the Olympics.

The Chinese currency yuan, like yen, also was pushed into a period of slight appreciation after 22 years of fixed exchange rate system from 1983 to 2005. And China's foreign trade mix currently is nearly repeating Japan's when yen was going up slightly. Both began with textiles, evolved into electromechanical products and upgraded into automobiles.

Back to the issues of China's exchange rate and trade conflicts, how can a pair of 12-dollar Chinese shoes exported to the US for insignificant processing profits affect a pair of 120-dollar shoes significantly? How can we dare to say that the US orders would not shift to India or Indonesia where there is labor as smart and diligent as that in China so as to bring same economic miracle?

The difference between Japan's past and today's China does not lie in the way they go down, but on how far they have been on the way.

By People's Daily Online