Tag Archives: surplus

China Turns Down U.S. Currency War Offer It Was Always Going To Refuse

As this Bystander expected, prospects for the G-20 calling a truce in the currency wars seem remote. Reuters news agency is reporting that China, India and Germany are rejecting out of hand a U.S. proposal to set numerical targets for trade surpluses and deficits at the G-20 finance ministers meeting in Seoul this weekend.

The American proposal would put far too much flesh for the taste of the surplus nations on the bone of a mom-and-apple-pie agreement among the G20 a year ago that big surplus countries like China would aim to shift growth away from being export led while the big deficit economies like the U.S. would seek to boost domestic savings. We expect the communiqué to be issued after this weekend’s meeting will be long on good intentions but short on any agreed measures — let alone commitments — to make good on them, not the ideal preparation for the G-20 leaders’ summit next month.

This post was first published on Market Bystander.

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Shrinking The Surplus

Cheng Siwei, vice-chairman of the National People’s Congress and thus an economist who carries more political clout than most, forecasts that China’s surplus will shrink this year as the yuan is allowed to appreciate against the U.S. dollar and continue its (very) long march towards convertibility.

That prediction brought more than one raised eyebrow from an audience gathered at the annual meeting of the World Economic Forum at Davos in Switzerland, where Cheng was on a panel discussing the degree to which the slowdown in the U.S. economy would affect the rest of the world.

It also brought the retort from one of Cheng’s fellow panelists, C. Fred Bergsten, an economist who runs the Institute for International Economics in Washington, D.C., that on a trade-weighted basis, the yuan hadn’t appreciated at all, nullifying the trade impact of the 15% appreciation against the dollar since Beijing loosened its peg with the greenback in July 2005.

Cheng also forecast that China’s economic growth will slow a tad this year, but still be as near as 10% as makes no difference.

The Bystander’s man among the good and the great tells us that there was a lively discussion on whether China’s and India’s growth in 2008 would be vigorous enough to prevent the U.S. falling into recession. Bergsten argued that it would be, and so all the doom and gloom about the U.S. drawing the world economy down with it, was both overdone and misplaced. He also offered a contrarian view that fears of protectionism taking greater hold on the U.S. congress were misplaced.

Those are brave words in a U.S. presidential election year — almost as brave a predicting China’s surplus will shrink this year, though Cheng did say Beijing plans a crack down on the hot money flooding into the country which has helped swell its foreign exchange reserves, so he might know something we don’t.

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