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|Asunto:||[CeHuNews] 42/06 - Is China Growing at the United States' Expense? ( Two articules ).|
|Fecha:||Miercoles, 18 de Octubre, 2006 13:00:47 (+0000)|
|Autor:||Alexander von Humboldt <cehumboldt @.........ar>
CeHu News 42-06
Is China Growing at the United States' Expense? By Desmond Lachman, Stephen
Council on Foreign Relations
Publication Date: October 9, 2006
The Chinese economic boom could change the global order and lift Beijing above
Washington in economic might and influence. The United States is worried about
China's tactic of undervaluing its currency to boost exports, but Beijing has
resisted repeated calls to raise the yuan's value. The result has been a boost
for U.S. consumers buying low-cost Chinese goods, as well as what some say is a
severe trade imbalance. In addition, the overheating of the Chinese economy
would have worldwide repercussions. The U.S. Congress has entertained threats
of trade retaliation, but administration policymakers have adopted a more
cautious approach. Discussants Stephen Roach and Desmond Lachman debate the
seriousness of the challenge posed by China and appropriate steps to respond to
its rise in this online debate for the Council on Foreign Relations.
October 9, 2006
Stephen Roach: Don't Scapegoat China
China has become the scapegoat for one of America's toughest economic problems.
Workers and their elected representatives are understandably concerned about
the persistence of subpar job growth and a decade of nearly stagnant real
wages. With these pressures occurring in the midst of a record foreign trade
deficit and with China accounting for fully 25 percent of that imbalance, the
blame game is on. Since the beginning of 2005, fully twenty-seven pieces of
legislation have been introduced in the U.S. Congress that would impose
punitive actions on China for engaging in unfair trading practices with the
While I certainly think Washington needs to be tough in its trade negotiations
with China--especially in the area of intellectual-property rights--I fear the
politicians don't get it. The U.S. trade deficit--to say nothing of the Chinese
piece of this deficit--has not come out of thin air. It is a reflection of our
inability to face one of our biggest economic shortcomings as a nation--a
dearth of domestic saving. In 2005, America's net national saving--the combined
saving of individuals, the government, and the business sector net of
depreciation--fell to a record low of just 0.1 percent of national income.
Lacking in domestic saving, the United States must import surplus saving from
abroad in order to grow--and run massive current-account and foreign trade
deficits to attract the capital.
With the current account deficit running at an $870 billion annual rate in the
second quarter of 2006, the United States needs about $3.5 billion of foreign
capital each business day. The fact that the biggest portion of our trade
deficit is with China is actually a good thing--it provides Americans with
low-cost, high-quality products. If Washington were to get its way and raise
the cost of doing business with China, that would be the functional equivalent
of a tax on the American consumer. Barring an increase in national
saving--namely, a cut in the government budget deficit and a boost to personal
saving--the trade deficit would not go away. Instead, it would simply be
directed toward a higher-cost producer elsewhere in the world. And China, for
its part, would probably think seriously about its strategy of buying
Treasuries [government securities] and other dollar assets--putting pressure on
the dollar and U.S. interest rates.
It's time to stop blaming China for what ails us and look in the mirror. If we
don't get our own house in order and start saving more as a nation, the
scapegoating of China could end up being a policy blunder of monumental
October 10, 2006
Resident Fellow Desmond Lachman
Desmond Lachman: China Must Play by the Rules of the Game
Stephen Roach is certainly right in drawing attention to the important role
that improved U.S. savings performance must play in addressing today's record
payment imbalances and in improving U.S. labor market performance. However, he
is very wide of the mark in turning a blind eye to China's pursuit of
flagrantly mercantilist policies and to its deliberate manipulation of its
currency to gain an unfair competitive advantage.
Today's unprecedented large global payment imbalances raise the very real risk
of intensifying protectionist pressures that could in time undermine the
world's trading system. This calls for the orderly correction of the large U.S.
current account imbalance, which in turn will require both a reduction of U.S.
domestic expenditures as well as a switching of global expenditures toward the
U.S. traded goods sector.
In proposing that the United States substantially improve its savings
performance, Stephen Roach is focusing on only the expenditure reduction part
of the solution to the U.S. external deficit problem. However, if the United
States is to correct its external deficit, while at the same time avoiding a
deep recession, it will need not only a higher level of domestic savings but it
will also need a much cheaper dollar to promote its exports and to discourage
China now pays lip service to the need for a more appreciated Chinese renminbi
[Chinese currency consisting of yuan] as part of the solution to the global
payment imbalance problem. In July 2005, China did appreciate its currency by 2
percent and it committed itself to a more flexible currency policy. Over the
past fifteen months, however, nothing much has changed. China has only allowed
a further 2 percent appreciation in its currency and it still, in effect, pegs
to a depreciating dollar, which keeps its currency grossly undervalued by any
The net upshot of China's currency manipulation is that China has now become
the world's largest surplus country and the world's largest holder of foreign
exchange reserves. China's current account surplus has already surpassed that
of Japan and it is on the way to exceeding $250 billion (in U.S. dollars), or 9
percent of its gross domestic product (GDP), in 2007.
In short, I fully agree with Stephen Roach that the United States should not
simply scapegoat China and should address its own serious savings problem.
However, if we are to avoid a train wreck in the global trading system, China
should start playing by the international rules of the game and stop
manipulating its currency. It should do so in both its own long-run interest
and in that of the global economy.
October 10, 2006
Stephen Roach: Beijing Not Ready for Reform
Like all disputes, there are two sides to the U.S.-China trade debate. What
concerns me is the one-sided nature of this dispute. Desmond Lachman's argument
is classic in that regard--as is that of the Washington Consensus [standard
economic reform package promoted by neoliberal economists]. To paraphrase:
Sure, we in America need to fix our deficits--and maybe some day we will--but
China needs to get its act together now.
A stronger RMB [yuan] may seem to be in our interest--although I have my
doubts, as noted below. But it may well be that a currency revaluation is
simply not in China's best interest at this point in time. The reason: China
has an undeveloped financial system. Its banks are only just starting to go
public and its capital markets are tiny by our standards. Currency fluctuations
could, as a result, place great strain on the Chinese financial system at a
critical juncture in its economic development. We may not accept that logic,
but at least we need to consider the possibility that China may know a good
deal more about the inherent risks in its financial system than we do.
This may be nothing more than a sequencing problem. Financial reforms may not
have gone far enough in China to allow it to cope with the stresses and strains
that might arise from sharp currency fluctuations. China is committed to the
long-run objective of a flexible currency, and as Desmond notes, has taken some
small steps in that direction. It has been very frank in admitting that it
needs to go much further. Linking the timetable to a broader financial market
reform agenda seems like a very prudent course of action.
Even if Washington were to get its way, it might end up being very disappointed
over what little would be accomplished by a sharp revaluation of the Chinese
currency. America's gaping trade deficit is, first and foremost, an excess
import problem. In the second quarter of 2006, U.S. merchandise imports were
fully 84 percent larger than exports. This voracious appetite for foreign-made
products is an outgrowth of an unsustainable consumer-buying binge--personal
consumption has surged to a record 71 percent of GDP while personal savings has
fallen into negative territory for the first time since 1933. A revaluation of
the RMB--unless it was of a draconian magnitude--would do next to nothing to
curtail excess consumption and reduce America's import-led trade deficit.
None of this is to argue that China shouldn't work harder to reduce its large
trade surplus. As I noted in my opening comment, it needs to do much more in
preventing the piracy of intellectual property. And China also must stimulate
its own consumer in order to boost purchases of foreign-made goods--actually, a
goal that was underscored in its recently enacted eleventh Five-Year Plan [for
economic and social development]. But just as America needs time to get its
deficits under control, China needs time on the reform front. Sadly, that's the
other side of the story that Washington doesn't want to hear.
October 11, 2006
Desmond Lachman: Current Deal Delays United States' "Day of Reckoning"
Stephen mischaracterizes my view as condoning U.S. inaction on its budget
deficit problem while pressing China for immediate currency action. To be
clear, my view is that resolution of today's global payment imbalances will
require both (a) an early and credible medium-term U.S. deficit reduction
program and (b) significant and early movement in China's exchange rate. More
substantive Chinese currency action is required not simply to address China's
extraordinarily large current account surplus, but it is also needed to
facilitate a more generalized appreciation of other Asian currencies.
Stephen condones China's paltry 2 percent currency appreciation over the past
fifteen months at a time when China's very large basic balance of payment
surplus would suggest that its currency is undervalued by around 20 percent. He
rationalizes China's currency inaction on the grounds that China 's fragile
banking system could not tolerate a greater degree of currency movement. He
makes this argument even though the Chinese banking system does not have any
significant currency mismatch between its assets and liabilities. He also does
so knowing full well that if meaningful currency movement awaits the
restoration to health of China's chronically undercapitalized banking system,
we will be waiting for many years to come.
To question, as Stephen does, whether a greater degree of currency movement is
in China's best long-term interest is misguided for at least three reasons:
First, without a greater degree of currency movement, together with measures to
encourage domestic consumption, China will continue to run unacceptably large
external current account surpluses. This will almost certainly invite damaging
protectionist pressures against China in both Europe and the United States,
especially in the event of a global economic downturn. Second, in the absence
of greater currency flexibility, China's central bank's scope to use
interest-rate policy to regulate the economy will continue to be highly limited
by the unwanted capital inflows that higher interest rates would attract. This
will make it difficult for China to avoid the type of overinvestment cycles and
speculative excesses that it is presently experiencing, which in the end will
further weaken China's rickety banking sector. Third, China's de facto pegging
of its exchange rate requires that the Chinese central bank engage in costly
foreign exchange intervention to the tune of a staggering $250 billion (in U.S.
dollars) a year. The dollars the central bank buys at an overvalued dollar rate
could end up costing China as much as 2 percentage points of GDP each year.
Stephen is, of course, right in suggesting that the United States presently has
a good deal going for itself by having China send goods to the United States in
exchange for dollar pieces of paper. The trouble with this deal, however, is
that it dangerously increases China's financial leverage over the United States
and it only delays the United States' day of reckoning for presently living
well beyond its means.
Desmond Lachman is a resident fellow at AEI. Stephen Roach is chief economist
and director of global economic analysis at Morgan Stanley.
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