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"Everybody is
talking about
China. In fact,
everybody should
be talking about
China. According
to the Nobel
Laureate
economist Joseph
Stiglitz
of Columbia
University,
China is today
experiencing
“the most
remarkable
economic
transformation
in history." But
this “most
remarkable
economic
transformation
in history” has
come with its
cost, and this
cost could be
huge. Economists
such as Morgan
Stanley Andy
Xie
argues that
China has been
stuck in “macro
trap” that
disallows itself
to freely
control its
interest rate or
the exchange
rate, and the
hard landing due
to the real
estate bubble in
2007-08 is very
possible.
The other side
of the picture
of
China's
trade surplus
has been the US
current account
deficit that has
reached an
unprecedented
level of $820
billion in 2005
alone.
Policymakers
such as
Schumer
and Graham have
been trying to
impose tariff
rates on the
Chinese imports.
Now
Grassley
and
Backus
are taking
actions to put
sanctions on the
Chinese imports
if necessary.
John Snow of the
US Treasury
Department
expressed his
opinion that
China has been
manipulating its
currency
exchange rate
for its export
advantage.
Chinese
President
Hu
Jintao
came to
Washington to
discuss the
trade friction
issue with
President Bush
but only left
without making
much progress.
People's Bank of
China has
recently risen
its domestic
lending rate by
27 basis point
and appreciated
RMB
below 8RMB-1USD.
Yet, the
internationally
community
remains
unsatisfied.
The world has
seen such trade
frictions
before; during
the Great
Depression or
the rise of
Japan in the
1980s.
Unfortunately,
the world has
never witnessed
any good result
out of these
economic
conflicts
either. For
example,
economists such
as Robert
McKinnon
of Stanford
University points
out that one of
the main causes
of Japan’s Lost
Decade in Great
Deflation was
due to the
forced
appreciation of
Japanese Yen in
the 1980s.
My
research combines
information from
different
credible
sources, and
reaches several
conclusions.
Some of them
are:
-
There has been
an economy
recycle
between the US
and China.
-
China does
manipulate
currency
exchange rate,
although
plenty of
countries have
done the same
in history.
-
People’s Bank
of China has
not raised its
rate partially
to justify the
devalued
exchange rate
of Chinese
currency
Rembini.
-
RMB
is pegged to
the basket
with the
USD
being the
dominant force
inside the
basket.
-
The global
imbalance has
been expanding
in its
magnitude day
by day, and
both China and
the US have
roles to
play."
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