Martin Wolf China's fiscal quagmire

Chief Editor of Chinese tension excited FT FT interview with Martin Wolf, chief economic commentator Chinese 2008-12-15
FT FT interview with Chief Editor of stress Fen main economic commentator. Wolf's outlook is that China is facing a period of respective privation in their own problems to become a superpower. The face of the current financial crisis, China's position which is very wrong, because domestic demand and outer demand are weakening. China's huge commerce surplus missed the deal and the best time to let the yuan appreciate.
tension Fen (hereinafter referred to as sheets): Last, you mentioned that the Obama ministry, the world will face a tougher United States. But from dissimilar 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 migrate 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 character global recession. The signs are exhibited 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, the slowdown in economic growth rate would be far beyond the expectations of the Chinese people. World Bank (World Bank) to the latest forecast of 7.5% - the rate slit is great, and I expect this downward trend will continue. I think that China is a very open economy, its negative net exports will be reduced, so the slowdown in economic growth rate will be very large. They must be taken in the domestic stimulus amounts. This is the first point.
second point relates to the ideological and sagacity. China have to now make their own decrees ashore the situation, instead of copying others. Can mention namely the 1st 30 years later the founding of the Republic, they followed the Soviet prototype, and then because almost 30 annuals in a way mimic the American prototype, and now they must come up with China's own model. But the essential point is that this Chinese model can no be the end of the mall economy.
We kas long asthe market economy in some ways more telling than other models, these advantages are in fact not changed. China's economic growth over the past 30 years is real, is based on the success of the market up. Therefore, if the Chinese government decided to abdicate a market economy, I would be very much surprised. However, in the financial sector, financial liberalization and integration into the global financial system and other fields, there is a clear need for a realistic reach holds a market economy, China must temporarily sidelined.
present, an obvious question is how the United States to successfully at one time this crisis? Them out of the crisis, we can study from the courses of their efforts? Obviously, the aggravate the result of the crisis, the more the Chinese absence to rethink their countermeasures. My point is: China in a way have to rely on their own strength. They have scrutinized that people learn from the courses of this crisis, and I estimate that we will once again realize that there is no last model of economic development. Everything in life is trial and peccadillo, learn from the courses of their blunders. Chinese people as well.
Zhang: China's reform and prologue up of the altitude leaders of the Western economic thinking in the absorption can be said to be very genuine, industrious and learn tolerance, quite to the economic ideology advocated. The most pressing economic thinking almost the West learn from none other than the non-Chinese leaders. Nobel Laureate in Economics, Zhongnanhai are mostly discriminated guests. Encounter fiscal difficulties, the Chinese feel the West over the past 100 years of experience enough to aid China find countermeasures. The current financial crisis is clearly the Chinese leaders the trust of the West was hit hard by the financial system, did not expect the global system really proven so fragile, vulnerable. They lost the reference point. However, China has no alternative 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, China still faces a relatively meager nation chance a superpower when the problem. If all works well, India will face the same problem. This means that China and India's future generations ambition be the liability of the class of evolution far further the same with their own countries. This result is reasoned along its size,Lacoste Strap Trainers, China must approve this reality. As China's global share of occupied and affect far further their class of development - simply for such a colossal scale - the globe will inevitably claim that China make a inconsistency and take responsibility. This is the digit of absolute power. Of course, it is also nice, means that China may have a greater impact on the earth,Buy Lacoste Trainers, 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 adjust to the superpower itself, but also adapt to a system is not created by themselves, this situation is perplexing. 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 interesting moment, is to follow the Western economic system with Chinese specifics, the Communist Party and a rare fusion, which also had a great encounter problem. Therefore, the challenges facing China's leaders is absolutely huge. However, China must continue to pretend 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 exercise this power.
Zhang: Now we rotate to the issue of RMB. China's central bank recently issued as a clear signal: the global economic downturn even now, China does not rule out the possibility of devaluation. We know thatin Washington, below the pressure of the yuan since the starting of the year to accelerate 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 aid their weakening exports, China's growth is essential?
(Editor's Note: In the few days after the interview, the RMB against the U.S. dollar began to depreciate slightly trend, generally confirms the market to decide.)
Ma: I do not penetrate anybody devaluation of the RMB reasons. I muse it should ascend. No doubt, it ought laud. China's present list surplus is also large. I calculate that Beijing three or four years ago did not make the right decision. Over the years, I have been advocating that China should depress the current list extra and addition domestic costing, granting the yuan to obliged.
China's current situation which is very bad, because domestic demand and external demand are weakening,Lacoste UK, the RMB will continue to face pressure to appreciate. There is forever a danger that, when the Chinese eventually coerced to take action, they have been in a fussy situation. I think the pressure of RMB appreciation will continue. The pressure to expand domestic demand will continue - I mean not only to take off recession, but also vigorously stimulate the demand relative to potential output.
China is to solve this problem may be in the maximum disadvantaged: the declining exports, or export growth is shrinking domestic demand is also shrinking. But I repeat again, 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 export in the world can not find a area, any area there is no demand. We are in a worldwide recession. Thus, by accommodating the exchange rate path that China will likely to export to some extent the idea out of the economic difficulties, can be described as wrong.
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, a puny devaluation of the yuan that Beijing can lend a helping hand to its exports, or at least expedient measure of last resort. Do not you think, this idea has its practical rationality, should be sympathetic?
Ma: I think, in the developed world in the grasp of a deep recession, some of which are in the edge of recession, if the world's largest current account surplus, China is also trying to export its way out, that would be seen as a with a mighty hostile behavior. This is a beggar thy neighbor policy. In my opinion, let the yuan against the dollar, 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 doings a very strong reaction.
I fully understand the problems faced by China, but the reality is that only in the recess of the world economic prosperity, the case of high demand, China can export to obtain 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 about 35% of global output. Reputable and willing private borrowers are now no longer exists, now only person in government borrowing. Therefore, if China pursues the policy,Lacoste Tourelle Trainers, the U.S. budget deficit will be much greater, which can not furnish for the United States, this policy will eventually make the United States bankruptcy.
Since China has huge foreign exchange reserves, they should spend the money, it should increase domestic spending. In this case, you must understand that China over the past seven or eight years of export-led growth model is now clearly has been incapable to sustain.
Zhang: Right now China's economic policy makers may want 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 inner and external strategy?
MA: Many people have been through internal and external sources to Beijing, recommended that China should start five years ago to let the yuan appreciate. For China, the overriding mandatory is to establish a more healthy domestic consumer market. Because of low home earnings,Lacoste Arin Patent Trainers, the Chinese consumer market is very languid, they need to amplify the economic structural correction. This is a slow process, it should be started 5 years ago, but fell sharply in the current economic situation to begin economic restructuring, the timing is very great disadvantage.
afterward year or two, China may must rely on the proceeded fast growth of web exports, but this situation is not sustainable in the long flee. In adding to momentary investment stimulus program, China is now really should make a insistent effort to carefully consider how to stimulate the product of new domestic demand.
to do so, one of the reasons is that the current plan a waste of a great alien interchange reserves. China has nearly two trillion greenbacks in diplomatic interchange reserves. I diagramed that these reserves may be the substantial rate of return of -8%, which is negate, that is near to 2000 billion U.S. greenbacks. If a poor country, poor people can be assigned to each lot of money. The money spent in China, than to consume in this way, or inability to use the Americans to borrow more advisable. Therefore, China's foreign exchange reserve growth should be stopped, rather reduced. This chapter of the revenue should be spent in China, to attain more balanced growth. China is not a small country favor Korea did in the past, via the backup out of trouble. Do wrong.
Zhang: China's chief government's economic incentive archive of 580 billion U.S. dollars. We do not understand where the important details, in the end those are the age money, those are new. However, the government's purpose is explicit, precedence is given to infrastructure and social security. I think few people would object to substantially increase the disbursement of China, for China to create a elementary social security system. But many people in Beijing to further commitment to the present large-scale investment in infrastructure was not quite comprehending? China's investment rate has been high.
horse: in the long run, China should further enhance the infrastructure, apparently, it's infrastructure than the developed world there is a gap. Thus, infrastructure investment is justified, but in the long run there's a balance. I coincide with your point of view, China's investment rate has naturally the maximum 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, perhaps some of the investment is very good, but overall, the development of any care to China's people will come to conclusion: China's investment is too high and savings too much. It should reduce investment and chase higher rate of return should increase consumption.
countries like China, a more customary 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, expense, 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 amassed huge reserves of no use.
consumption level additional 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, mediocre 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 chip or hidden arms?
Ma: I do not think it will be greatly affected. China, of course, can threaten the overall sell-off of these bonds, that would be hideous, but also very hostile. If China to the United States said, Americans indeed can confiscate them. United States simply say: I was just a way to tactfully said, it is not something that can easily be used in weapons.
, of course, China is a very large creditor countries, while the United States also need to creditors,Lacoste Shua Lace Trainers, so the implementation of policies - particularly economic policies, inflation and other policies, the United States have to think the interests of creditors. In fact, Larry? Summers (Larry Summers) has been narrated as this checks and balances (Balance of Mutual Distraction). This means that ... ... In this case, both parties can not lightly use or menace of such weapons. Americans can not also threats and confiscation of the debt bonds, the Chinese people merely also can intimidate to sell them. If China were to sell, they will fall in the merit of assets and become poorer. If the Americans confiscated bonds, not one will finance their financial 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 upon said reasons, I do not think that holding U.S. debt to handle with the asset of the Chinese human the right way.
Zhang: Clearly, the continued collection 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 donation of the Chinese government, such as GM (General Motors), which is actually very interesting, but it is politically very perceptive. 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 at this speed and scale of the accumulation of wealth, it is complicated to put into power to lest it - especially the United States - the bond market, because Chucierwai hardly no other big liquid markets . This is China's problems. That is why they must stop accumulating foreign exchange reserves. China's reserves are now enough.
Zhang: We are British Do you have any examples of the most applicable to describe your emotions?
Ma: Do you refer to is Philip? Stephens (Philip Stephens)'s excellent speak. Almost every piece has occurred in the past was considered unthinkable, and now have become inevitable. Including the adult world, the nationalization of the plenary financial system. Radical trade protectionism also be likely, I wish this will not become a reality. Government to buy stock is also a feasibility. I may have lost something of the imagination ... ...
I think, in the economic sphere is now nearly naught is inconceivable. If the Chinese resolve that, since large current account surplus is inevitable, then let people clutch much more reasonable than the government surplus, so to liberalization of the capital outflow, and not all the reserves held by the government. If you see this information, I would be very many startled. This is amazing, but it is a good entity. If it can be implemented. Would be very sapient.
Zhang: Thank you, Martin. (End)
(Editor's note: This interview on November 26, 2008 FT headquarters in London. This text is based on the long chat logging in English, edited, added attach. Translator / Yang, the school Translation / Bin He)