Home » Opinion » Chinese Views
Bashing China won't fix surplus problem
By Liu Jie, Ma Shukun and Jiang Tingting |
February 10, 2010, Wednesday
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Print Edition
Print Edition
AS US President Barack Obama vowed to get "much tougher" with China on exchange rates and trade, economists from Beijing said China should not give in to increased US pressure that stems from its domestic problems.
Obama's talk of putting "constant pressure" on China to strengthen the yuan to ensure the price of US goods was not artificially inflated has drawn heated comments from economists in Beijing.
"His words are only aimed to appeal to domestic interest groups," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University. Given the lack of jobs in the United States, Obama will certainly try to make China change its currency policy as this is an easy way to weaken China's export industry, she said.
Although the US economy recovered to 5.7 percent growth in the fourth quarter last year, a record high in six years, the jobless rate surged to more than 10 percent. The fiscal deficit is set to hit US$1.56 trillion in 2010, or 10.6 percent of its GDP, a record since World War II.
In the State of the Union Address on January 28, Obama made it clear he would focus on jobs in 2010 and pledged to double exports in five years, which he said could create 2 million jobs in the States.
Tan Yaling said Obama's export drive could not fix the job problem, while a stronger yuan would add costs for US consumers.
A 20 percent rise in the yuan and other major Asian currencies would at best lead to a rise in US exports worth 1 percent of gross domestic product, as International Monetary Fund (IMF) estimates suggest, said Olivier Blanchard, economic counselor and director of the Research Department of IMF.
"I think it's very important not to bash China over the RMB. What China should do, and is actually doing, is to decrease its saving rate, thus increase domestic demand, and reorient production to satisfy this higher domestic demand," he said in an interview with Reuters on January 29.
The yuan has gained around 21 percent since July 2005 when the government de-linked the yuan from the US dollar. However, China's trade surplus with its major trading partners did not fall accordingly.
"The exchange rate of renminbi is not the main reason for the Chinese-US trade deficit," Foreign Ministry Spokesman Ma Zhaoxu said last Thursday. "We expect the United States to view bilateral trade issues rationally and to negotiate fairly. Accusation and pressure would not bring a solution."
The main reason for the enormous trade gap, instead of the exchange rate, was the US restriction on high-tech exports to China.
"Although there's a massive demand in China for technology and industrial equipment amid its industrialization drive, this is ignored by the US," said Zhao Jinpin, Deputy Director of the Foreign Economic Relations Department of Development Research Center under the State Council, China's cabinet.
The US limitation dates back to the United States Policy Regarding Trade with China in 1949, also known as NSC 41. During the Cold War, the restricted items for exports to China more than doubled compared to those to the Soviet Union. Only 8 percent of China's high-tech imports were from the United States, sharply down from 18.3 percent in 2001 because of the policy limitation.
In 2007, the US Department of Commerce unveiled a new export control regulation, known as the China Rule, imposing additional licensing requirements for exports on high-tech products in 31 entries to China, including aircraft and aircraft engines, avionics and inertial navigation systems and high performance computers.
Zhang Yansheng said it seemed China was caught in a dilemma. "If China lets the yuan weaken to shore up exports, it is called 'irresponsible.' However, if it does not do so, it is accused of 'manipulating' the currency. It is really a vexing problem."
Nobel Prize Winner Andrew Michael Spence has noted in an article in the Financial Times that "the West is wrong to obsess about the renminbi."
"The singular focus on the exchange rate appears based on the assumption that it is the key cause of the surplus and the main policy instrument for removing it. The reality is more complex. Exchange rate appreciation by itself will not get rid of the trade surplus," he said.
(The authors are Xinhua writers.)
Obama's talk of putting "constant pressure" on China to strengthen the yuan to ensure the price of US goods was not artificially inflated has drawn heated comments from economists in Beijing.
"His words are only aimed to appeal to domestic interest groups," said Tan Yaling, an expert at the China Institute for Financial Derivatives at Peking University. Given the lack of jobs in the United States, Obama will certainly try to make China change its currency policy as this is an easy way to weaken China's export industry, she said.
Although the US economy recovered to 5.7 percent growth in the fourth quarter last year, a record high in six years, the jobless rate surged to more than 10 percent. The fiscal deficit is set to hit US$1.56 trillion in 2010, or 10.6 percent of its GDP, a record since World War II.
In the State of the Union Address on January 28, Obama made it clear he would focus on jobs in 2010 and pledged to double exports in five years, which he said could create 2 million jobs in the States.
Tan Yaling said Obama's export drive could not fix the job problem, while a stronger yuan would add costs for US consumers.
A 20 percent rise in the yuan and other major Asian currencies would at best lead to a rise in US exports worth 1 percent of gross domestic product, as International Monetary Fund (IMF) estimates suggest, said Olivier Blanchard, economic counselor and director of the Research Department of IMF.
"I think it's very important not to bash China over the RMB. What China should do, and is actually doing, is to decrease its saving rate, thus increase domestic demand, and reorient production to satisfy this higher domestic demand," he said in an interview with Reuters on January 29.
The yuan has gained around 21 percent since July 2005 when the government de-linked the yuan from the US dollar. However, China's trade surplus with its major trading partners did not fall accordingly.
"The exchange rate of renminbi is not the main reason for the Chinese-US trade deficit," Foreign Ministry Spokesman Ma Zhaoxu said last Thursday. "We expect the United States to view bilateral trade issues rationally and to negotiate fairly. Accusation and pressure would not bring a solution."
The main reason for the enormous trade gap, instead of the exchange rate, was the US restriction on high-tech exports to China.
"Although there's a massive demand in China for technology and industrial equipment amid its industrialization drive, this is ignored by the US," said Zhao Jinpin, Deputy Director of the Foreign Economic Relations Department of Development Research Center under the State Council, China's cabinet.
The US limitation dates back to the United States Policy Regarding Trade with China in 1949, also known as NSC 41. During the Cold War, the restricted items for exports to China more than doubled compared to those to the Soviet Union. Only 8 percent of China's high-tech imports were from the United States, sharply down from 18.3 percent in 2001 because of the policy limitation.
In 2007, the US Department of Commerce unveiled a new export control regulation, known as the China Rule, imposing additional licensing requirements for exports on high-tech products in 31 entries to China, including aircraft and aircraft engines, avionics and inertial navigation systems and high performance computers.
Zhang Yansheng said it seemed China was caught in a dilemma. "If China lets the yuan weaken to shore up exports, it is called 'irresponsible.' However, if it does not do so, it is accused of 'manipulating' the currency. It is really a vexing problem."
Nobel Prize Winner Andrew Michael Spence has noted in an article in the Financial Times that "the West is wrong to obsess about the renminbi."
"The singular focus on the exchange rate appears based on the assumption that it is the key cause of the surplus and the main policy instrument for removing it. The reality is more complex. Exchange rate appreciation by itself will not get rid of the trade surplus," he said.
(The authors are Xinhua writers.)
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