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
Does the renminbi matter? Evidence from China’s disaggregated processed exports
Willem Thorbecke 29 January 2012
Understanding China’s economy is becoming as difficult as it is important. This is particularly the case for China’s exports and its exchange rate, which have been the source of controversy and intense debate in recent years. Shedding light on the issue, this column disaggregates China’s processing trade, with some surprising implications for policy in the region and elsewhere.
China’s surging exports and its exchange rate have elicited consternation from economists, politicians, and pundits. How would a stronger renminbi affect China’s exports and its trade surplus? China’s entire surplus is in a customs regime called processing trade. Imports for processing are intermediate inputs that are imported duty-free to produce final goods for re-export.
Exchange rates International trade
China, exports, exchange-rate policy
Rogue aid? On the importance of political institutions and natural resources for China’s allocation of foreign aid
Axel Dreher, Andreas Fuchs 27 January 2012
China is often accused of providing ‘rogue aid’. China is said to be more interested in securing natural resources, export markets, and political alliances than concerned about the development of needy countries This column looks at the data on China’s aid allocations between 1996 and 2005. It finds that China is in fact no more self-serving than most Western donors.
In an obvious reference to China, US Secretary of State Hillary Clinton recently warned during her visit to Burma to “[b]e wary of donors who are more interested in extracting your resources than in building your capacity” (quoted in FT 2011). China’s allocation of foreign aid not only receives widespread attention, but is also a major source of concern for Western policymakers. Recent examples include China’s massive support for Belarus – ‘Europe’s last dictatorship’ – and the recurrent provision of aid to North Korea, China’s Communist neighbour.
Development Politics and economics
China, natural resources, development aid, rogue aid
Are China and India converging?
Ejaz Ghani 23 January 2012
Mention China and India to economists and their first thought will be rapid growth. Their second thought might be how differently the two economies are achieving this: China through manufacturing, India through services. This column asks whether that stereotype may be changing.
Both China and India have attracted global attention for rapid growth, but their growth patterns are very different (Rajan 2006, Pack 2008, Bosworth and Maertens 2010). China took the conventional route of manufacturing-led growth and is recognised as a global leader in manufactured exports. India followed the unconventional route of service-led growth and has acquired a global reputation for service exports. Are their growth patterns converging? Is China catching up in services? Is India catching up in manufacturing? Or has hysteresis kept their growth patterns different?
Development International trade
China, India, manufacturing, services
Global value chains are not all born identical: Policymakers beware
Carlo Altomonte, Filippo di Mauro, Gianmarco I.P. Ottaviano, Vincent Vicard, Armando Rungi 04 January 2012
Trade in today’s global economy is not a simple game of exchange-rate muddling. The complex web of global value chains ensures that products marked “Made in China” are often in fact made all over the world. This column looks at firm-level data from French firms between 2007 and 2009 and explores how their structure affects their behaviour, with insights for policymakers the world over.
Global value chains are increasingly important in international trade. The breakup of goods and services production between different companies often operating in different parts of the world (creating a ‘global’ value chain) can be seen all around us. (Take, for instance, the omnipresent iPhone from Apple; see Xing (2011) on this site).
Global crisis International trade
US, China, exchange-rate policy, global value chains
The contribution of Chinese FDI to Africa’s pre-crisis growth surge
John Whalley, Aaron Weisbrod 21 December 2011
In the three years before the global crisis, the average GDP growth in sub-Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.
In the three years before the 2008 financial crisis, GDP growth in sub-Saharan Africa (averaged over individual economies) was around 6%, 2 percentage points above the mean growth in the preceding ten years. This period also coincided with significant Chinese foreign direct investment (FDI) flows into these countries, accounting for as much as 10% of total inward FDI for some countries. In our research (Weisbrod and Whalley 2011) we use growth-accounting methods to assess what portion of this elevated growth can be attributed to Chinese inward FDI.
growth, China, Africa, FDI
China’s dominance hypothesis and the emergence of a tripolar global currency system
Marcel Fratzscher, Arnaud Mehl 15 December 2011
Is the international monetary system tripolar – with the US dollar, the euro, and the Chinese renminbi at each corner? This column presents empirical evidence to suggest that the renminbi is already well on its way to being the dominant currency in Asia.
The 2007–08 global financial crisis has brought the reform of the international monetary system back to the forefront of the international policy debate. Some G20 leaders, notably from emerging economies, are questioning the configuration of the current system based on a single currency, the US dollar, as global reference currency, and the euro, as a more regional currency.
International finance Monetary policy
China, exchange-rate policy
The renminbi and poor-country growth
Helmut Reisen 05 December 2011
China’s currency has appreciated substantially in recent years. While many in the west still argue that this is not sufficient and focus on the effects on their domestic industry, this column asks what the effects have been for the world’s poor countries.
China’s current-account surplus over the past two decades can be explained in large part by its savings rate. Song et al (2010) have stressed the role of rising corporate savings due to reallocation within the manufacturing sector from low- to high-productivity companies. Wei (2010), meanwhile, explains China’s rising household savings with gender imbalances. Still, large appreciations do impact the current account and – in developing countries – do depress growth (Keppler et al 2011), as evidenced by data over the past 50 years.
Development International trade
China, exchange-rate policy, poor countries
The price of children and fertility responses: Evidence from the Israeli Kibbutz
Avraham Ebenstein, Moshe Hazan, Avi Simhon 02 December 2011
For years, policymakers trying to influence the decisions of would-be parents have tried to change the ‘price’ of having children. In France they have made it cheaper; in China more expensive. This column looks at whether such policies are likely to have their desired effect. It examines unique evidence of a shock to the cost of having a child in Israeli communities between 1990 and 2000.
To what extent does economics affect fertility decisions? Ever since Gary Becker’s seminal work on the economics of the family in the 1960s (Becker 1960), economists have argued that money weighs heavily on the minds of would-be parents, and policymakers throughout the world have been heavily influenced by such research.
Frontiers of economic research Health economics
France, China, fertility, demographics, Israel, population