Who pays for the weak renminbi?
Arvind Subramanian 11 February 2010
What is the consequence of China’s exchange rate policy? This column argues that focusing on global imbalances clouds the real costs, and that China’s exchange rate regime is a mercantilist trade policy whose costs are mainly borne by other developing and emerging market countries.
China’s exchange rate policy has largely been viewed through the prism of global imbalances. This has had three unfortunate consequences. First, it has allowed China to deflect attention away from its policy. Second, it has obscured the real victims of this policy. And third, it has made political resolution of this policy more difficult.
Exchange rates International trade
global imbalances, China, renminbi, developing nations
How disciplining China could save the WTO
Susan Ariel Aaronson 09 February 2010
Is the WTO doomed? This column argues that the WTO’s credibility is waning and that to get it back it needs to reign in China’s erratic governance. China’s failure to enforce trade laws threatens the concept of mutual benefit that underpins the WTO. China is broken, and a broken China could break the WTO.
2010 could be a daunting year for the WTO. Many observers believe it is condemned to irrelevance if it does not find common ground among its 153 member states on the Doha Round – now in its tenth year. Many of these same countries bypass the WTO as they seek to expand trade. As an example, WTO members completed some 25 new preferential trade agreements in 2009, bringing the total of such bilateral or regional agreements to 186.
Global governance International trade
China, WTO, rule-of-law
The mystery of Chinese savings
Shang-Jin Wei 06 February 2010
What is the connection between China’s one-child policy and its savings glut? This column provides a pioneering explanation. China’s surplus of men has produced a highly competitive marriage market, driving up China’s savings rate and, therefore, global imbalances.
Much attention has been directed toward China’s high savings rate (Broda et al. 2009, Prasad 2009, Reisen 2009). Not only is the savings rate disproportionately high compared to virtually any other country, but it directly impacts China’s current account surplus and the US consumer debt and trade deficit. When national savings exceeds investment, the excess savings becomes China’s current account surplus.
Frontiers of economic research
global imbalances, China, savings glut
The greenness of China: Household carbon dioxide emissions and urban development
Matthew E. Kahn, Siqi Zheng 19 January 2010
China’s economic growth has profound environmental implications. This column estimates the household carbon emissions of China’s major cities. Even in China’s most polluting city, per household emissions are just one-fifth of those in San Diego, the greenest city in the US.
China’s economic growth has profound environmental implications. Past research has examined the them using an Environmental Kuznets Curve framework either using national panel data (see Schmalensee et al 1998) or using regional aggregate data. Auffhammer and Carson (2008) create a panel data set for 30 Chinese provinces covering the years 1985 to 2004. Today, per capita carbon emissions in the US are about five times the per capita emissions in China. If China’s per capita greenhouse gas emissions rose to US levels, then global carbon emissions would increase by more than 50%.
development, China, carbon emissions
Looking ahead from Copenhagen: How challenging is the Chinese carbon intensity target?
Carlo Carraro, Massimo Tavoni 05 January 2010
China has promised to lower its carbon intensity by 40%–45% by the year 2020. This column says that standard estimates imply that China could meet that target simply by continuing its long-term historical trend. But China’s recent experience of a lower income elasticity of carbon intensity suggests additional efforts and leadership could be required.
At COP15 in Copenhagen, China announced that its carbon emissions per unit of GDP would be reduced in 2020 by 40% to 45% with respect to 2005 levels (this commitment is in the Annex to the so-called Copenhagen Accords). This marks a point of departure from its long-standing reference to the UNFCCC principle of “common but differentiated responsibilities”, which requires Annex 1 countries to take on the initial responsibility in reducing carbon emissions.
China, Copenhagen Summit, Carbon policy
Are China’s market-determined interest rates influenced by regulation?
Nathan Porter, TengTeng Xu 23 December 2009
China’s financial liberalisation remains incomplete. The behaviour of short-term market-determined interest rates is influenced by regulated rates. This column says that China should further liberalise its retail interest rates to allow all interest rates to better reflect liquidity conditions and the scarcity of capital.
By now, most agree that better economic outcomes are achieved when interest rates are market-determined. Market-determined rates allow investors and savers to base their decisions on market conditions and the scarcity of capital and also provide policymakers with clearer signals of market conditions, improving the conduct of macroeconomic policies. For many countries, interest rate liberalisation has also been a necessary building block for further financial sector reforms and development.
interest rates, China, financial regulation
Making room for China in the world economy
Dani Rodrik 17 December 2009
Policymakers blame the undervalued RMB for the global imbalances. Here one of the world’s leading development economists argues that the undervalued currency boosts China’s growth, and this, in turn, is good for the world’s recovery and the alleviation of poverty. China could maintain its growth without trade imbalances if it could introduce industrial subsidies to offset a rising yuan. It is better to subsidise tradables directly than to subsidise them indirectly through the exchange rate. This may run afoul of WTO rules, but that doesn’t diminish the economic case for the policy.
As it comes out of the crisis, the world economy faces two apparently conflicting demands. On the one hand, achieving global macroeconomic stability and preventing a protectionist backlash will require that we avoid large current account imbalances of the type that the world economy experienced in the run-up to the crisis. On the other hand, returning to rapid growth in the developing nations will require that they resume their conquest of global market share in tradable goods.
exchange rates, global imbalances, China
Will the BRICs (read: China) really become the new global growth engine?
Markus Jäger 26 September 2009
Can the BRICs replace the much-touted US consumer as the world’s main growth engine? This column says the Chinese economy will continue to increase relative to all others, while the US share of global output will stagnate. But while China’s relative contribution to global growth will increase, it won’t be “driving” growth in the developed economies.
The BRIC countries’ economic growth is holding up relatively well.
China, BRICs, global growth
Has China de-industrialised other developing countries?
Adrian Wood, Jörg Mayer 28 July 2009
Did China’s engagement with the global economy de-industrialise other developing countries? This column uses a factor-endowment approach to assess the magnitude of its impact. China’s opening to trade diminished labour-intensive manufacturing in other developing economies, primarily in East Asia, but its impact was not massive, and other developments often swamped its influence.
The least disputable of China’s impacts on the world has been the explosion of studies of China’s impact on the world.1 Many such studies have tried to measure the effects on trade or output in other countries. They have reached widely varying conclusions by a wide variety of methods: inspection of trade data (e.g. Lall et al. 2005; Mesquita Moreira, 2007; Kaplinsky and Morris, 2008); revealed comparative advantage calculations (Lederman et al., 2008); gravity models (e.g.
Development International trade
China, manufacturing, industrialisation
A simpler way to solve the “dollar problem” and avoid a new inflationary cycle
Domingo Cavallo, Joaquín Cottani 12 May 2009
Economists’ opionions diverge greatly on how to resolve China’s “dollar trap”. This column suggests all US creditors need to do is demand that the US government swap nominal US Treasury bills, notes, and bonds for inflation-adjusted instruments. This will reduce the incentive of the US government to “inflate its way out of debt”, protect the value of emerging market reserves and redcue the risk of a resurgence in world inflation.
When China’s Premier Wen Jiabao recently expressed concerns about the future of the US dollar, the currency in which most of his country’s official reserves are denominated, his remarks provoked contrasting reactions among US economists.
inflation, China, dollar trap, US debt