A region-wide free trade agreement in Asia
Pradumna B. Rana 25 June 2012
China, Japan, and South Korea are currently negotiating a free trade agreement (FTA) lending support to the possibility of an agreement for the South-East Asian region as a whole. This column calls for more of the same – and quickly.
The Trilateral Summit last month announced that negotiations would begin later this year on a China/Japan/South Korea FTA or the C/J/K FTA (Joint Declaration 2012). This suggests that two pathways to a region-wide FTA are starting to evolve in Asia. One is the ASEAN-led East Asian FTA and the Comprehensive Economic Partnership for East Asia (CEPEA) comprising the ASEAN+6 including India. The alternative pathway is the US-led Trans-Pacific Partnership, which is already under negotiation.
China, Japan, free trade agreement, ASEAN, South Korea
International rules for capital controls
John Williamson, Olivier Jeanne, Arvind Subramanian 11 June 2012
Do we need international rules for capital controls? This column looks at the different regimes in countries such as Brazil and China and argues that we do.
Although economists generally agree that countries can derive substantial gains from international economic integration, the extent to which they should open themselves to international capital flows remains a controversial issue. There is still, 20 years after the rise of emerging markets finance, a wide diversity of approaches to capital account policies. Some emerging market economies maintain a completely open capital account. Others, most notably Brazil, have experimented more actively with market-based prudential capital controls since the crisis.
Global governance International trade
China, capital controls, Brazil
Do ‘animal spirits’ matter to firms’ internationalisation?
Yasuyuki Todo 07 June 2012
How do firms go international? This column reviews evidence from industrialised and emerging economies, including Japan and China, with some surprising findings.
The internationalisation of firms’ production activities is having a massive impact on the global economy – everything from facilitating the rapid industrialisation and income growth in China and other emerging economies to the hollowing out of G7 manufacturing sectors. This growth and de-industrialisation is, in turn, blamed for booming commodity prices and rising wage inequality. Plainly, understanding the determinants of firms’ internationalisation is critical to comprehending today’s globalisation.
China, Japan, foreign direct investment, exports, imports, animal spirits
Germany should follow in the footsteps of China
Kamil Yilmaz 19 May 2012
Germany’s fiscal response to the crisis was timid compared with those of China and the US. This column uses business-cycle connectedness indices to show that Germany should follow in the footsteps of China and increase its domestic spending so that it will generate net positive connectedness to others. Germany was able to increase its exports thanks to the fact that countries like the US, China and Japan stimulated domestic spending significantly.
After the bankruptcy of Lehman Brothers in September 2008, leading governments around the world announced fiscal packages to provide stimulus to their respected economies. The Chinese government was one of the first. As early as November 2008, it announced a stimulus package that was planned to go into effect immediately in early 2009. The Chinese government also stood out in terms of the size of the package. Its stimulus package contained an additional fiscal spending of $586 billion over a two-year period (each year’s spending was equivalent to 6.9% of 2008 GDP).
Global economy Macroeconomic policy
Germany, China, fiscal policy, business cycle
When should China start cutting its emissions?
Carlo Carraro, Emanuele Massetti 25 April 2012
In 2006 China became the world’s largest carbon dioxide polluter. This column argues that China is not rich enough to start reducing emissions immediately, but it is far too big not to do anything. The question is when and at what rate it is reasonable to call on China to start cutting back.
China’s economy has grown at a record-breaking pace for almost two decades. This growth was fuelled by a rapid industrial expansion and it causes an ever-growing appetite for natural resources in general and energy in particular, with worldwide implications on commodity markets and on the environment (Moran 2010). China became the world leading carbon dioxide emitter in 2006, five to nine years earlier than what was forecasted as recently as in 2004.
China, climate change
China: No longer the villain
Marco Annunziata 21 April 2012
According to its latest projections, the IMF no longer sees China as the main source of imbalances in the global economy. This column argues that fears of a stalling Chinese economy are exaggerated, and that sustained and more balanced Chinese growth will actually be a rare nugget of good news for the global economy.
While concerns about Spain and, to a lesser extent, Italy have again taken centre-stage, a number of experts and market participants are almost as worried and sceptical about China as they are about the Eurozone. The China bears have been predicting a crash within the next one to two years for the last several years. As China’s growth is unbalanced, there is no shortage of concerns:
global imbalances, China
Can China’s growth lower welfare in developed countries? A refutation of the Samuelson conjecture
Julian di Giovanni, Andrei Levchenko, Jing Zhang 02 April 2012
The late Nobel Laureate Paul Samuelson argued that if China’s productivity growth accelerates in areas where it does not currently have a comparative advantage – notably the service sector – developed countries may suffer. This column presents a multi-country, multi-sector model, and reaches the opposite conclusion: the world, including developed countries, is far better off when China’s growth favours its current comparative disadvantage sectors.
Global economy International trade
China, comparative advantage
Beggar-thy-neighbours? Spillover effects of exchange rates
Aaditya Mattoo, Arvind Subramanian, Prachi Mishra 23 March 2012
Do exchange rate movements in one country affect its competitors? This column suggests that a 10% appreciation of the renminbi increases other developing countries’ exports by about 2%. Where competition with China is especially intense, the increase could be as large as 6%. The results imply that an appreciation of the renminbi could provide a boost to developing country exports.
Nearly all of the empirical research on exchange rates is focused on the impact of their changes on the country experiencing or undertaking them. This is true of the older, voluminous literature on the trade consequences of exchange rates (surveyed in Goldstein and Khan 1985), as well as more recent contributions like Rodrik (2008) and Berman et al. (2012). There is less evidence quantifying the effect of exchange rate movements on the exports of competitor countries, a classic case of spillover that, in its adverse manifestation, is dubbed the “beggar-thy-neighbour” effect.
China, spillovers, beggar-thy-neighbour
China’s economic rebalancing is already underway
Yiping Huang 17 February 2012
The international community, and particularly policymakers in the US, put great expectations on the contribution that China can make to a global economic recovery by rebalancing its economy through promoting consumption growth. This column, drawing on both official and unofficial data, argues that China’s long-awaited economic rebalancing is already well under way.
The international community, and particularly policymakers in the US, put great expectations on the contribution that China can make to a global economic recovery by rebalancing its economy through promoting consumption growth (see, for example, O’Neill 2010 on this site).
The Chinese authorities broadly accept this priority and have put in place a number of policy measures that aim to achieve it.
China, consumption, rebalancing
The renminbi’s prospects as a global reserve currency
Eswar Prasad, Lei (Sandy) Ye 16 February 2012
Is China’s currency destined to become the dominant global reserve currency? This column argues that despite not yet having a flexible exchange rate or open capital account, China’s government is pursuing ‘liberalisation with Chinese characteristics’. It argues that the renminbi will become a reserve currency within the next decade, eroding but not displacing the dollar’s dominance.
Popular discussions about the prospects of China’s currency – the renminbi – range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital-account opening poses serious risks for China.
International finance International trade
China, globalisation, renminbi, exchange-rate policy