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.
Topics: International finance
Tags: China, dollar trap, inflation, US debt
The rise of “consumer cities” in China
Matthew E. Kahn, Siqi Zheng, 14 April 2009
What should China do about its noted pollution problems? This column shows that Chinese cities with less air pollution have higher home prices, suggesting that “green amenities” enter housing prices. Moreover, this marginal valuation of clean air is rising over time. China’s major cities may be becoming cleaner as their inhabitants demand improved environmental conditions.
China’s population is rapidly urbanising. The share of the population living in cities in China increased from 28% in 1990 to 44% in 2006. The annual real wage of an average urban worker in 2006 was four times higher than in 1990.
Topics: Development, Environment
Tags: China, cities, environmental Kuznets curve, green amenities, pollution
Currency “manipulation” and world trade: A caution
Robert W. Staiger, Alan O. Sykes, 30 January 2009
Many critics argue that Chinese currency undervaluation amounts to an export subsidy and import tariff responsible for global trade imbalances. This column cautions against that equivalence. In the long run, currency devaluation does not alter export volumes, and in the short run, its effects depend on firms’ invoicing decisions. Policymakers should take care before turning to trade sanctions as a remedy.
The Chinese yuan was pegged from 1994 until mid-2005 at 8.28 yuan to the US dollar. China shifted in 2005 to a policy of loosely pegging the yuan to a basket of major currencies. Since then the yuan has appreciated against the dollar, and the current yuan/dollar exchange rate stands at roughly 6.84.
Topics: Exchange rates, International trade
Tags: China, Currency manipulation, renminbi, yuan undervaluation
How can China help reduce climate policy costs?
Carlo Carraro, Valentina Bosetti, Massimo Tavoni, 1 October 2008
Policymakers seeking to fight global warming need to reach an international agreement for post-2012 climate change policy, but developing countries seem unlikely to immediately participate. This column explains the importance of full global participation in reducing greenhouse gas emissions and proposes means of inducing developing countries, most notably China, to participate in an international agreement.
In parallel to the growing scientific consensus regarding climate change, the climate challenge has become a public policy priority and now ranks high on the political agendas of many countries.
Tags: China, climate change, developing countries
Lessons in humility: Estimating currency misalignment
Menzie D. Chinn , Yin-Wong Cheung , Eiji Fujii, 12 September 2008
For years, policy analysts and policy makers asserted that the Chinese currency was substantially undervalued. This column shows that statistical and data uncertainties should humble those making strong claims about the renminbi’s value.
For years, various policy analysts and policy makers have asserted that the Chinese currency, the Renminbi (RMB), is substantially undervalued (Goldstein 2007).
Topics: Exchange rates
Tags: China, renminbi, undervaluation
The growth future – India and China
Arvind Subramanian, 29 August 2008
Growth begets further growth, which is good news for both China and India. But this column argues that it is easier to create or improve a market than to build state capacity, which means that China, with its lagging private sector, is likely to fare better than India, which has deteriorating institutions.
Can China and India sustain their current growth rates?
Tags: China, growth, India, reform
Chinese companies worldwide
Philippe Gugler, 23 August 2008
Chinese enterprises are making high profile forays into foreign markets. While these firms’ motivations are explained by traditional theories of multinational enterprises, this column identifies notable characteristics of many Chinese companies that make them distinct. China’s cultural context, market structures, and resources may necessitate changing our thinking about multinational enterprises’ strategies and motives.
Some of the recent, high profile acquisitions of Chinese companies have become widely known. The acquisitions of IBM’s personal computer business by the Chinese Lenovo or MG Rover by Nanjing Automobile Group Corporation are famous examples. After all, we will soon see the first Chinese car company actually producing vehicles in Europe!
Topics: Global economy
Tags: China, China multinational enterprises foreign direct investment, foreign direct investment, multinational enterprises
Too many boys…
Esther Duflo, 18 August 2008
China’s one-child policy led to an explosion of the boy-girl ratio in the ‘80s and ‘90s. As this “only child” generation reaches adulthood, problems – including rising crime rates – are starting to appear.
China is gradually getting rid of the vestiges of its communist past. But the demographic policy of the 1980s and 1990s planted a time bomb, and its effects are just starting to be felt.
Tags: China, crime, one child policy
How much of Chinese exports is really made in China?
Robert B. Koopman, Zhi Wang, Shang-Jin Wei, 8 August 2008
Many policy assessments, such as the effect of a currency revaluation on trade balances, are sensitive to the share of domestic content in a country’s exports. The current method might be problematic for countries with a high share of processing exports, such as China, Mexico and Vietnam. This column introduces a new method for calculating domestic content shares and presents some striking estimates for China. The share of domestic content in China’s exports is about 50%, much lower than most other countries: this implies that an exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries.
China is the archetype of an economy that is well integrated into global production chains. It imports raw material, equipment, and other intermediate inputs, and then exports 37% of its output to the world market (in 2006), which is huge when compared to the United States (8%) or India (13%).
Topics: International trade
Tags: China, domestic content, exchange rate appreciation, export processing
Doha Round failure: This is the way the round ends…
Joseph Francois, 1 August 2008
The WTO talks were as much a distraction as an opportunity. The agenda was aimed at a world that no longer exists. Negotiations of some form should and will resume: the questions are "where?" and "between whom?" Success will require a different game, with different rules and different players. This column considers the options.
Trade negotiators in Geneva have finally admitted the obvious and given up on their efforts to negotiate a new WTO trade agreement. As a result, the Doha Round of trade negotiations has been allowed to collapse. Next comes the blame game, with finger pointing across the Atlantic and across the rich-poor-countries trench.
Topics: International trade
Tags: China, Commodity prices, Doha Round, food prices, MFN, plurilateral agreements, regional agreements, South-South liberalization, WTO