DON'T HAVE YUAN FOR THE ROAD
William Daniel Garst
China Daily, March 10, 2010
China's central bank will keep the yuan's exchange rate relatively stable this year and deepen coordination with other countries on major policy issues. China opposes politicizing monetary issues, central bank governor Zhou Xiaochuan said on Saturday in response to growing foreign pressure to ease the yuan's exchange rate because it is hampering trade and could be slowing down global recovery.
China's swift rebound from the global financial crisis has fueled growing foreign hostility. At the beginning of this year, Nobel Prize winning economist Paul Krugman wrote in the New York Times that China's exchange rate policy "drains much-needed demand away from a depressed world economy". He argues that other countries were being victimized by China's "mercantilist" economic strategy and could respond by adopting protectionist policies.
I admire Krugman, for he is one of the few sane and intelligent voices left in the American media. In fact, my day in office usually begins with a cup of coffee and his blog on the Times website. But many of the criticisms of China, including Krugman's, look rather different when seen from inside the country.
Let's begin with some basic figures on China's exports (all from recent articles in the Economist) during the global downturn. In 2007, merchandise exports accounted for 36 percent of China's GDP; it plunged to 24 percent in 2009. Its surplus, too, fell from 11 to 6 percent of GDP. These sharp drops reflect the 14 percent decline in the country's exports through most of last year.
True, other countries have suffered greater setback in foreign trade - which perhaps helped China to overtake Germany as the world's second largest exporter last year. But their exports dropped largely because of two factors, both unrelated to China's exchange rate policy. First, declining incomes and greater job insecurity in wealthier economies have shifted consumer demand toward less expensive goods. Second, last year saw the end of the European Union and US quota on the import of Chinese textiles and footwear, which used to be a crucial provision of the long-standing Multi-Fiber Agreement. So even without a managed currency, China would have had a strong comparative advantage in these areas.
William Daniel Garst
China Daily, March 10, 2010
China's central bank will keep the yuan's exchange rate relatively stable this year and deepen coordination with other countries on major policy issues. China opposes politicizing monetary issues, central bank governor Zhou Xiaochuan said on Saturday in response to growing foreign pressure to ease the yuan's exchange rate because it is hampering trade and could be slowing down global recovery.
China's swift rebound from the global financial crisis has fueled growing foreign hostility. At the beginning of this year, Nobel Prize winning economist Paul Krugman wrote in the New York Times that China's exchange rate policy "drains much-needed demand away from a depressed world economy". He argues that other countries were being victimized by China's "mercantilist" economic strategy and could respond by adopting protectionist policies.
I admire Krugman, for he is one of the few sane and intelligent voices left in the American media. In fact, my day in office usually begins with a cup of coffee and his blog on the Times website. But many of the criticisms of China, including Krugman's, look rather different when seen from inside the country.
Let's begin with some basic figures on China's exports (all from recent articles in the Economist) during the global downturn. In 2007, merchandise exports accounted for 36 percent of China's GDP; it plunged to 24 percent in 2009. Its surplus, too, fell from 11 to 6 percent of GDP. These sharp drops reflect the 14 percent decline in the country's exports through most of last year.
True, other countries have suffered greater setback in foreign trade - which perhaps helped China to overtake Germany as the world's second largest exporter last year. But their exports dropped largely because of two factors, both unrelated to China's exchange rate policy. First, declining incomes and greater job insecurity in wealthier economies have shifted consumer demand toward less expensive goods. Second, last year saw the end of the European Union and US quota on the import of Chinese textiles and footwear, which used to be a crucial provision of the long-standing Multi-Fiber Agreement. So even without a managed currency, China would have had a strong comparative advantage in these areas.
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