Martin Wolf China's fiscal quagmire

Chief Editor of Chinese tension incited FT FT interview with Martin Wolf, chief economic commentator Chinese 2008-12-15
FT FT interview with Chief Editor of tension Fen king economic critic. Wolf's view is that China is facing a time of comparative privation in their own problems to transform a superpower. The face of the current financial crisis, China's rank which is very bad, for domestic demand and external demand are disabling. China's huge commerce surplus missed the deal and the best time to let the yuan appreciate.
tension Fen (hereinafter referred to as canvases): Last, you mentioned that the Obama ministry, the world will face a tougher United States. But from distinct perspective, such as the recent revealing signs that the G20 summit, do you think the global framework of economic decision-making may be starting to have some form of transfer of power? At least this idea has been to arrange the United States. Realistic and and the Western U.S. From interests, hopes repulsed China greater role global recession. The signs are displayed from Beijing, the Chinese government itself is very anxious about the current situation, they want to know China's economic and trade in the end will be much impact, but first
Martin? Wolf (hereinafter referred to as First,Lacoste Gravitate Trainers, the slowdown in economic growth rate would be far further the expectations of the Chinese people. World Bank (World Bank) to the latest anticipate of 7.5% - the rate tear is magnificent, and I anticipate this downward trend will continue. I consider that China is a very open economy, its negative net exports will be dwindled, so the slowdown in economic growth rate will be very massive. They must be taken in the domestic stimulus amounts. This is the 1st point.
second point relates to the ideological and wisdom. China must now make their own decrees on the situation, instead of copying others. Can say that the first 30 years behind the founding of the Republic, they followed the Soviet model, and then for almost 30 years in a way mock the American model, and now they have to come up with China's own model. But the important point is that this Chinese model can not be the end of the market economy.
We kas long asthe mall economy to some extent more efficacious than additional models, these avails are in truth not changed. China's economy growth over the past 30 years is real, is based aboard the success of the mart up. Therefore, whether the Chinese administration judged to abdicate a mart economic, I would be quite many startled. However, in the financial sector, monetary liberalization and integration into the universal monetary system and other fields, there is a clear absence for a realistic approach holds a market economy, China must temporarily sidelined.
present, one obvious question is how the United States to successfully emerge from this crisis? Them out of the crisis, we can study from the lessons of their efforts? Obviously, the worse the result of the crisis, the more the Chinese want to rethink their countermeasures. My point is: China in a way must rely on their own strength. They have observed that people study from the lessons of this crisis, and I estimate that we will once again fulfil that there is no final model of economic development. Everything in life is trial and misdeed, learn from the courses of their blunders. Chinese people as well.
Zhang: China's reform and prologue up of the top leaders of the Western economic meditative in the absorption can be said to be quite credible, sedulous and learn tolerance, quite to the economic ideology advocated. The most urgent economic analytic about the West learn from naught other than the non-Chinese leaders. Nobel Laureate in Economics, Zhongnanhai are mostly discriminated guests. Encounter financial difficulties, the Chinese feel the West over the past 100 years of experience enough to help China find countermeasures. The current financial crisis is clearly the Chinese leaders the reassurance of the West was hit hard by the financial system, did not expect the global system actually proven so fragile, vulnerable. They lost the reference point. However, China has no choice but to set the financial system and the West co-exist.
Ma: I have always believed that China's integration into the global system there is a huge problem. There are three fundamental reasons. China faces difficulties were greater than any other country, because it is very large, and the economy is still quite underdeveloped. China remains the world's poorer countries, its per capita gross domestic product (GDP) probably ranked 100th in the world. Therefore, the per capita measure, with 99 countries richer than it, in all countries at an intermediate level. However, it has become one of the world's largest economy - according to the different metrics, ranking second or third.
Therefore,Lacoste, China still faces a relatively meager nation become a superpower when the problem. If all goes well, India will face the same problem. This means that China and India's future generations will be the duty of the level of development far beyond the same with their own countries. This outcome is reasoned at its size, China must accept this reality. As China's global share of occupied and affect far beyond their level of development - simply because such a large scale - the world will inevitably demand that China make a inconsistency and take responsibility. This is the number of perfect power. Of course, it is too good, means that China may have a greater clash on the world, can be more dominant than other countries in the world. This is the first question.
China faces second obvious problem is that it is integrated into the global system created by the West, this global system is Western, not Chinese-style. It is not China's own development to create a world system, in many respects China's history, norms and values ​​in conflict. Therefore, it is essential to adapt to the superpower itself, but also adapt to a system is not created by themselves, this situation is embarrassing. China can not be altered into the existing global system can create their own system, which is a reality. Very important reason is that I think China does not know how he would create a system. My interpretation of Chinese history is: because of its unique history, relatively closed, and its political and cultural position, the Chinese had not need to consider creating a global system. In modern times, the Chinese seldom equal exchanges with other countries, but only deal with the dependencies. Therefore, China has faced in integrating into the global system, a fundamental problem, which is not its own system, into which China is a new experience.
third question facing China is that for Westerners, the Chinese political system is very amusing moment, is to follow the Western economic system with Chinese characteristics, the Communist Party and a rare combination, which also had a great encounter problem. Therefore, the challenges facing China's chairmen is absolutely huge. However, China must continue to masquerade that he is still a small country on the impact is not possible. Whether China likes it or not, now is a great power, but its power will become much larger than it is now, it must decide how to discipline this power.
Zhang: Now we turn to the issue of RMB. China's central bank recently issued as a clear signal: the global economic downturn by far, China does not rule out the possibility of devaluation. We know thatin Washington, beneath the pressure of the yuan since the starting of the year to expedite the pace of appreciation. China may feel the issue is now on the RMB and the U.S. re game, adjust the position of the time? Do you think that China should let its currency depreciate the moment to support their weakening exports, China's growth is necessary?
(Editor's Note: In the few days after the interview, the RMB against the U.S. dollar began to devalue slightly trend, generally confirms the market to determine.)
Ma: I do not see any devaluation of the RMB reasons. I think it should ascend. No doubt, it should appreciate. China's current account surplus is too large. I think that Beijing three or four years ago did not make the right determination. Over the years, I have been advocating that China should reduce the current account surplus and increase domestic spending, allowing the yuan to appreciate.
China's current situation which is very bad, because domestic demand and external demand are weakening, the RMB will continue to face oppression to appreciate. There is forever a peril that, when the Chinese finally forced to take action, they have been in a critical situation. I think the pressure of RMB appreciation will continue. The pressure to expand domestic demand will continue - I average not only to take off recession, but also vigorously stimulate the demand relative to latent output.
China is to solve this problem may be in the most disadvantaged: the declining exports, or export growth is dwindling domestic demand is also shortening. But I repeat repeatedly, although China is unstated, but the kind that can be exported to the idea out of economic difficulties, is entirely fantastic.
China can not do so because, if the recession continues, the backup in the world can not ascertain a area, any place there is no demand. We are in a international recession. Thus, by modifying the exchange rate way that China will presumable to backup to some extent the fancy out of the economic difficulties, can be described as bad.
Zhang: China may indeed miss the increased domestic demand, dramatically reducing the current account surplus for the best time, that is, 4-5 years prior to the benign global economic high-growth time. But faced with sudden financial crisis is entering a recession,Lacoste Observe Strap Trainers, a delicate devaluation of the yuan that Beijing can lend a helping hand to its exports, or at least expedient measure of final resort. Do not you think, this idea has its practical rationality, should be sympathetic?
Ma: I think, in the adult world in the grasp of a deep recession, some of which are in the brim of recession, if the world's largest current account surplus, China is also attempting to export its way out, that would be watched as a with a muscular hostile action. This is a mendicant thy adjoin policy. In my attitude, let the yuan against the USD, the dollar is unnecessarily, and dangerously strong, no doubt belongs to such acts. If that is the case, the new U.S. government will make such deeds a very strong answer.
I fully understand the problems faced by China, but the reality is that only in the repose of the world economic boom, the case of high demand, China can export to get out of their predicament through. I think people do not understand this.
since the Asian financial crisis, the world has been dependent on the United States, Britain and some other very large economies, the demand and excess output. The output of these economies accounted for almost 35% of global output. Reputable and compliant personal borrowers are now no longer exists, now only person in government lending. Therefore, if China pursues the policy, the U.S. ration deficit will be much greater, which tin not supply for the United States, this plan will finally make the United States bankruptcy.
Since China has huge foreign commute reserves, they should spend the money, it should amplify domestic spending. In this circumstance, you must understand namely China over the elapse seven alternatively 8 annuals of export-led growth model is now clearly has been unable to sustain.
Zhang: Right now China's economic policy makers may ambition to make a difference in both, but not very clear what is the optimal choice in the end? For China, there is such a win-win situation to save the interests of internal and external strategy?
MA: Many people have been via inner and external sources to Beijing, recommended that China should begin 5 years antecedent to let the yuan appreciative. For China, the overriding imperative is to build a more healthy domestic purchaser market. Because of low household income, the Chinese consumer market is very weak,Lacoste Trainers, they need to expand the economic structural correction. This is a slow process, it should be started 5 years ago, yet fell sharply in the new economic location to start economic restructuring, the timing is very great disadvantage.
next year or two, China may have to depend on the continued rapid growth of net exports, but this situation is not sustainable in the long run. In addition to momentary investment stimulus program, China is now actually should make a determined exertion to carefully consider how to motivate the product of new domestic demand.
to do so, one of the reasons is that the current policy a consume of a great foreign exchange reserves. China has nearly two trillion dollars in foreign exchange reserves. I diagramed that these reserves may be the actual rate of return of -8%, which is negative, that is close to 2000 billion U.S. dollars. If a poor country, poor people can be assigned to every lot of money. The money spent in China, than to waste in this way, or inability to use the Americans to lend more sensible. Therefore, China's foreign exchange reserve growth should be stopped, rather reduced. This part of the revenue should be spent in China, to achieve more balanced growth. China is not a small country like Korea did in the past, through the export out of difficulty. Do wrong.
Zhang: China's central government's economic stimulus package of 580 billion U.S. dollars. We do not know where the essential details, in the end those are the old money, those are new. However, the government's purpose is clear, precedence is given to infrastructure and social security. I think few people would thing to substantially increase the expenditure of China, for China to establish a basic social security system. But many people in Beijing to further commitment to the present large-scale investment in infrastructure was not quite understanding? China's investment rate has been high.
horse: in the long escape, China should beyond cultivate the infrastructure, apparently, it's infrastructure than the developed world there is a gap. Thus, infrastructure investment is justified, but in the long sprint there's a poise. I coincide with your point of view, China's investment rate has naturally the highest level in world history. It is obvious that a large number of the marginal rate of return on such investments is very low. I do not know the specific form of such investment, maybe some of the investment is very nice, but overall, the development of any attention to China's people will come to conclusion: China's investment is also lofty and savings too much. It should reduce investment and pursue higher rate of return should increase expense.
countries favor China, a more regular state of equilibrium should be this: At present, China's investment share of GDP, 50%, savings of 60%. Therefore, it's current account surplus of about 10% of GDP, while the consumption share of GDP, roughly 40%. For a country, a more reasonable equilibrium should be: the proportion of investment accounted for 40% of GDP, savings accounted for 40% of total GDP, consumption, GDP, accounting for 60%. That is, consumption should be no growth in the economic growth of 50% of the cases. Household saving may be slightly lower, but may not reduce overall economic growth, but the same current, the current account will not have accumulated huge reserves of no use.
consumption level increased by 50%, the sum is absolutely huge, it can be used to the Chinese people - especially the most impoverished inland places, from economic development projects to behalf the people at least - a huge benefit. This, in my opinion is a win-win situation. China will develop in a more balanced state, reducing investment and economic growth more balanced, ordinary Chinese people are better off. At the same time, ease global economic imbalances, more easily implemented in the global balance of economic growth. This achieved a win-win. In my opinion, the Chinese government should take this as the goal.
Zhang: China has just overtaken Japan as the largest holder of U.S. Treasury bonds, in fact, has become America's largest creditor. Do you think that in the negotiating table with the Americans, the Beijing how to use this piece? It is a bargaining piece or secret weapon?
Ma: I do not think it will be greatly affected. China, of course,Lacoste Radiate Croc Trainers, can intimidate the overall sell-off of these bonds, that would be hideous, but also very hostile. If China to the United States mentioned, Americans indeed can confiscate them. United States simply say: I was fair a course to tactfully said, it is not something that can accessible be accustomed in weapons.
, of course, China is a very large debtor countries, while the United States also need to creditors, so the implementation of policies - principally economic policies, inflation and other policies, the United States have to think the interests of creditors. In fact, Larry? Summers (Larry Summers) has been described as this checks and balances (Balance of Mutual Distraction). This means that ... ... In this case, either parties can not easily use or menace of such weapons. Americans can not also threats and confiscation of the debt bonds, the Chinese people but also can threaten to sell them. If China were to sell, they will fall in the merit of assets and become poorer. If the Americans confiscated bonds, no an will finance their fiscal deficits. This is the checks and balances.If the relationship is broken, both parties will suffer losses. Therefore, I do not think that holdings of U.S. Treasury bonds will give a great influence in China. Of course, based on the on mentioned reasons, I do not think that holding U.S. debt to deal with the wealth of the Chinese people the right way.
Zhang: Clearly, the continued accumulation of U.S. Treasury bonds to China have no real sense financially, but also incredible. But why the Chinese in the hands of U.S. Treasury bonds still on the increase? The problem is no choice, right?
Ma: I think there are two reasons. First, China has a large structural current account surplus, because they did not take the appropriate policy. Secondly, if you will accumulate such a large sum of money, will not know where to put them. If you start to buy stock, you will become very unpopular. If the proposed gain of the Chinese government, such as GM (General Motors), which is actually very interesting, but it is politically very acute. Now, perhaps more sensible to buy stocks, they can buy a team of stocks, but in fact they may care for it very bad. I think if you are by this speed and scale of the collection of wealth, it is difficult to put into power to lest it - especially the United States - the bond market,Womens Lacoste Arin Trainers, because Chucierwai virtually no other huge liquid markets . This is China's problems. That is why they have to stop accumulating foreign exchange reserves. China's reserves are now enough.
Zhang: We are British Do you have anybody instances of the most applicable to narrate your emotions?
Ma: Do you refer to is Philip? Stephens (Philip Stephens)'s wonderful talk. Almost every chip has happened in the past was considered unthinkable, and now have become inevitable. Including the developed world, the nationalization of the whole financial system. Radical trade protectionism also be feasible, I wish this will not become a reality. Government to purchase stock is also a possibility. I may have lost something of the imagination ... ...
I think, in the economic sphere is now virtually nought is inconceivable. If the Chinese decide that, since large current account surplus is unavoidable, then let people hold much more rational than the government surplus, so to liberalization of the chief outflow, and not all the reserves held by the government. If you see this information, I would be very much surprised. This is incredible, but it is a good thing. If it can be implemented. Would be very wise.
Zhang: Thank you, Martin. (End)
(Editor's note: This interview on November 26, 2008 FT headquarters in London. This txt is based on the long conversation recording in English, amended, added attach. Translator / Yang, the school Translation / Bin He)