In a June 25 report, Morgan Stanley economist Manoj Pradhan predicted only a very modest appreciation of the yuan against the dollar, but anticipates difficulties for the Chinese unless they tighten monetary policy and limit foreign capital inflows.
On June 23, the Senate Finance Committee held a hearing on the U.S.-China trade relationship. The witnesses were Secretary of Commerce Gary Locke and U.S. Trade Representative Ronald Kirk.
In a June 22 post, economist Michael Mandel examined U.S. imports from China. He finds that the official data understate China’s import penetration because they overestimate the cost of Chinese goods.
In a June 21 commentary, University of California, Berkeley, economists Barry Eichengreen and Andrew Rose looked at China’s decision to allow its exchange rate to rise. Although this will reduce Chinese growth somewhat because Chinese exports will become more expensive in terms of dollars, they don’t anticipate that the effect will be large and will have a positive effect on the world economy.
Also on June 21, CIBC economist Krishen Rangasamy examined the prospective rise in the Chinese yuan and anticipates only a modest reduction in Chinese exports because the rise will be phased in very slowly.
On June 16, the House Ways and Means Committee held a hearing on China’s trade and industrial policies. Among the issues examined were China’s indigenous innovation initiative, its alleged failure to enforce intellectual property rights, subsidies et al.
A June study from the Bank for International Settlements examined China’s extraordinarily high savings rate—the aggregate marginal propensity to save is estimated at 50 percent. The study finds that every sector of the economy—households, businesses and government—contributes to the high saving rate. Key factors include rapid economic growth, structural transformation, corporate restructuring and the rapid aging of society. The authors expect China’s saving rate to peak in the medium term.
On May 26, the OECD forecast real GDP growth in China of 11.1 percent this year, up from 8.7 percent last year. However, its current account surplus is expected to shrink to 2.8 percent of GDP from 6.1 percent last year and 10.6 percent in 2007.
In an essay published on May 14, Federal Reserve Bank of St. Louis economist Yi Wen argues that China’s extraordinarily high saving rate is largely a function of the lack of financial institutions in China from which people can borrow. (Borrowing would constitute negative saving.)
In a May 4 study, Cato Institute economist Dan Ikenson argued that taking a “get tough” attitude toward China was unlikely to improve the trade balance and that trade frictions should be resolved through existing channels.
In a May paper, Asian Development Bank economist Yuqing Xing estimated that a one percent rise in the value of the Chinese yuan vis-à-vis the dollar would only raise the dollar price of Chinese imports by 0.23 percent in the short run and 0.47 percent in the long run.
In a late 2009 article, Federal Reserve Bank of Philadelphia economists Behzad Kianian and Kei-Mu Yi looked at China’s manufacturing sector. They note that its competitiveness is declining as wages are rising and that China’s import penetration is exaggerated by failure to note that much of the final sale price of Chinese goods involves mark-ups that accrue to the importing country.
Bruce Bartlett is an American historian and columnist who focuses on the intersection between politics and economics. He blogs daily and writes a weekly column at The Fiscal Times. Read his most recent column here. Bartlett has written for Forbes Magazine and Creators Syndicate, and his work is informed by many years in government, including as a senior policy analyst in the Reagan White House. He is the author of seven books including the New York Times best-seller, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy (Doubleday, 2006).
Previous posts:
June 25: Weekly Roundup
June 24: Focus on Global Imbalances
June 23: Focus on Sin Taxes
June 22: Focus on Inflation
