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
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.
China, pollution, cities, green amenities, environmental Kuznets curve
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. Over the same period, the yuan generally depreciated against the euro, falling from 10.06 in June 2005 to 10.79 in June 2008. With the recent financial crisis, however, the euro has depreciated and the yuan/euro exchange rate presently stands at 8.99.
Exchange rates International trade
China, renminbi, Currency manipulation, yuan undervaluation
How can China help reduce climate policy costs?
Carlo Carraro, Valentina Bosetti, Massimo Tavoni 01 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. No longer treated as just an environmental issue, climate change control is often discussed by heads of state, who gave it top priority in recent G8 meetings and who commissioned and helped disseminate dedicated reports such as the Stern Review (2006).
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). The observers in this camp generally point to the large and – until recently expanding – Chinese trade surplus as prima facie evidence in favour of this argument. The burgeoning foreign exchange reserves have only reinforced this view.
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?
growth, China, 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! Other outward investments of Chinese companies, such as investments in the natural resources industry in Africa, are known to the wider public as a phenomenon, but with few insights into the Chinese companies executing these investments.
China, foreign direct investment, multinational enterprises, China multinational enterprises foreign direct investment