The FT yesterday gave us another reminder that China's policy when it comes to the value of the RMB is all about the domestic economy, not about international pressure:

But the bilateral prism through which Washington sees the issue gives a distorted picture of the reasons for the renminbi’s strengthening, say analysts, and also exaggerates the real changes in the currency’s value. “A small factor is the pressure from the US. A big factor is inflationary pressure in China,” said Gao Shanwen, an economist with Essence Securities in Beijing.

This is true, and has always been true. But it has not stopped lots of foreign governments, particularly the U.S., from castigating China on the value of its currency and demanding a change in policy. And officials here politely nod and then go back to their macroeconomic analysis and their (up to now) number one policy priority: employment.

It's all a bit of a show, really. The U.S. government, or at least parts of it, understand what China will/won't do. Some folks in the State Department and USTR, perhaps even Treasury, even understand why.

But U.S. Treasury Secretary Paulson will come here on Wednesday and most likely see the RMB bust through the 7.00 mark. He will then give a speech, return to D.C., and the Bush Administration will take credit for "talking tough" to the Chinese and getting "tangible results".

Yeah. Well, politics is what it is. Enjoy the show.