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【Beijing Forum 2010】China and Global Imbalances

NOV . 12 2010

Peking University, Nov. 6, 2010: Less than a month ago, the US Department of The Treasury delayed a highly anticipated report on international exchange rate policies and thereby avoided the delicate question of whether to label China a currency “manipulator.” Nevertheless, Americans are still expecting more significant appreciation of RMB to slash China’s large trade surplus.

 

On Nov. 6, Beijing Forum 2010 provided a chance for those concerning global imbalances, especially the Sino-US currency battle. This afternoon, economists from around the world congregated at Peking University (PKU) Yingjie Overseas Exchange Center and started a fierce debate over it.

 

At present, most studies on global imbalances focused on macro factors, such as insufficient consumption in China, low savings in the US, and China’s exchange rate regime, according to Prof. Xing Yuqing from National Graduate Institute for Policy Studies in Japan. However, Prof. Xing held an opposite point of view. Based on his data analysis covering China’s 54 trading partners from 1993 to 2008, China’s trade structures, along with other micro factors, appeared to increase trade imbalances, too.

 

Besides, as Prof. Xing revealed, real exchange rates affected China’s processing exports and imports almost in the same direction (though to quite different extents). Seen from this perspective, RMB appreciation might be less efficient than predicted.

 

Compared with the rationality of RMB appreciation, Australian scholar Rod Tyers showed more interest in how it really happened. As he noticed, China had performed perfectly since the 1990s - without strengthened RMB before 2004. It was a counterexample of the renowned Balassa-Samuelson hypothesis, which regarded growth as stemming from the increase in traded sector productivity.

 

With a dynamic general equilibrium model, Prof. Tyers finally discovered the offsetting forces of real appreciation during that period, such as trade reforms, labor abundance, and a rising national saving rate. Naturally, he then attributed the present rising pace of RMB to the inflation of agricultural commodities and labor shortage in China since 2005.

 

The last speaker, Prof. Sun Lijian from Fudan University, advised Asian countries to take warning from the Eurozone. As far as he was concerned, the Euro system was born to be seriously flawed. One of the typical examples was a tough dilemma - in order to promote macro economy, the countries usually had to sacrifice the stability of Euro.

 

Accordingly, Prof. Sun uttered his implications for the forming of monetary network of Asia, including more flexible policies. Additionally, he laid much stress on a complete supervision system.

 

Later, during the discussion, the audience posed several questions. An undergraduate from PKU China Center for Economic Research (CCER) raised doubts about Prof. Xing Yuqing’s data of China’s imports and exports. In response, Xing thoroughly explained the trade situation between China and other major countries respectively — in the Sino-Japanese case, for example, Japan had obvious surplus over China.

 

The panel session of “Global Imbalances and Their Solutions” will continue Sunday morning with the theme “Toward a New Global Governance Architecture."

 

 

Reported by: Jin Ludi

Edited by: Jacques