Martin Wolf China's fiscal quagmire

Chief Editor of Chinese traction excited FT FT interview with Martin Wolf, main economic critic Chinese 2008-12-15
FT FT interview with Chief Editor of tension Fen chief economic commentator. Wolf's view is that China is facing a time of relative penury in their own problems to become a superpower. The face of the current financial crisis, China's position which is very bad, because domestic demand and external demand are weakening. China's huge trade surplus missed the deal and the best time to let the yuan appreciate.
tension Fen (hereinafter referred to as sheets): Last, you said that the Obama ministry, the world will face a tougher United States. But from dissimilar outlook, such as the recent revealing signs that the G20 summit, do you think the global structure of economic decision-making may be starting to have some form of migrate of power? At least this idea has been to prepare 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 clash, but first
Martin? Wolf (hereinafter referred to as First, the slowdown in economic growth rate would be distant further the expectations of the Chinese people. World Bank (World Bank) to the latest forecast of 7.5% - the rate hack 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 measures. This is the first point.
second point relates to the ideological and wisdom. China must now make their own decrees above the situation, instead of copying others. Can mention that the first 30 years after the founding of the Republic, they emulated the Soviet prototype, and then as almost 30 years to some extent mock the American model,Womens Lacoste Observe Trainers, 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 market economy in part of more effective 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 cede 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 pragmatic approach 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 learn from the lessons of their efforts? Obviously, the aggravate the outcome of the crisis, the more the Chinese want to rethink their countermeasures. My point is: China in a large part have to rely on their own strength. They have inspected that people learn 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 error, learn from the lessons of their faults. Chinese people as well.
Zhang: China's reform and beginning up of the top chairmen of the Western economic preoccupied in the digestion can be said to be very credible, sedulous and study tolerance, quite to the economic ideology advocated. The most pressing economic meditative approximately 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 positiveness of the West was hit hard by the financial system, did not anticipate the global system actually proven so crisp, 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 production (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 - along to the differ metrics, ranking second or third.
Therefore, China still faces a relatively poor country become a superpower when the problem. If all works well, India will face the same problem. This means that China and India's hereafter generations will be the responsibility of the level of development far beyond the same with their own countries. This result is reasoned by its size, China must accept this reality. As China's global share of occupied and influence far beyond their level of development - simply because such a large scale - the world will inevitably demand that China make a difference and take liability. This is the number of utter power. Of course, it is also good, means that China may have a greater impact 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 amounts ​​in conflict. Therefore, it is essential to adjust to the superpower itself, but also accustom to a system is not created by themselves, this situation is entangling. 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 solitary 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 answer 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 infrequent combination, which also had a great encounter problem. Therefore, the challenges facing China's leaders 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 exercise this power.
Zhang: Now we rotate to the publish of RMB. China's chief bank recently issued as a clear signal: the global economic downturn for the moment, China does not rule out the possibility of devaluation. We kas long asin Washington, below the pressure of the yuan since the starting of the year to quicken the pace of appreciation. China may feel the issue is now on the RMB and the U.S. re game, adjust the situation of the time? Do you think that China should let its currency depreciate the moment to assist their weakening exports, China's growth is required?
(Editor's Note: In the few days after the interview, the RMB opposition the U.S. dollar began to depreciate slightly trend, generally confirms the market to make sure.)
Ma: I do not discern any devaluation of the RMB reasons. I think it should rise. No mistrust, 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 decision. Over the years, I have been advocating that China should reduce the current account surplus and increase domestic spending, granting the yuan to appreciate.
China's current position which is quite bad, because servant demand and external demand are weakening, the RMB will continue to face oppression to obliged. There is forever a peril that, when the Chinese eventually coerced to take movement, they have been in a fussy situation. I meditation the pressure of RMB appreciation will proceed. The pressure to amplify domestic demand will continue - I mean not merely to take off recession, merely also vigorously stimulate the demand respective to latent output.
China is to solve this problem may be in the most disadvantaged: the declining exports, or export growth is shrinking domestic demand is also shrinking. But I repeat again, notwithstanding China is unstated, but the kind that can be exported to the idea out of economic difficulties, is completely imaginary.
China can not do so for, if the recession continues,Lacoste Camden Trainers, the backup in the globe can not detect a area,Lacoste Gravitate Trainers, anyone place there namely no claim. We are in a international recession. Thus, along adjusting the commute rate path that China will promising to backup in some ways the motif out of the economic difficulties, can be narrated as erroneous.
Zhang: China may indeed miss the increased domestic demand, dramatically reducing the current account additional for the best time, that is, 4-5 years prior to the benign universal economic high-growth phase. But faced with sudden financial crisis is entering a recession, a delicate devaluation of the yuan that Beijing can lend a assisting hand to its exports, or at least expedient weigh 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 brim of recession, if the world's largest current account surplus, China is also attempting to export its way out,Lacoste Shoes, that would be seen as a with a lusty hostile behavior. This is a beggar thy adjoin policy. In my opinion, let the yuan against the dollar, the dollar is unnecessarily, and dangerously muscular, no doubt belongs to such acts. If that is the case, the new U.S. government will make such doings a very muscular answer.
I fully understand the problems faced by China, but the reality is that only in the rest of the world economic rumble, 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,Lacoste Swerve Keyline Trainers, the demand and excess output. The output of these economies accounted for about 35% of global output. Reputable and compliant personal borrowers are now no longer exists, now only person in government borrowing. Therefore, if China pursues the policy, the U.S. allowance deficit will be much greater, which can not afford for the United States, this policy will finally make the United States bankruptcy.
Since China has mammoth foreign exchange reserves, they should spend the money, it should increase domestic spending. In this circumstance, you must understand that China over the past seven or 8 years 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 feud in both, but not very clear what is the optimal alternative in the end? For China, there is such a win-win situation to save the interests of internal and external tactics?
MA: Many people have been through interior and external sources to Beijing, suggested that China should start five years ago to let the yuan appreciate. For China, the overriding mandatory is to establish a more healthy domestic user market. Because of cheap family earnings, the Chinese buyer market is very feeble, they absence to expand the economic structural correction. This is a slow process, it should be started five years ago, but fell sharply in the current economic situation to start economic restructuring, the timing is very great disadvantage.
afterward year or two, China may must depend on the continued quick growth of net exports, but this situation is not sustainable in the long run. In counting to instant investment incentive procedure, China is now actually should make a decisive exertion to carefully consider how to stimulate the product of current domestic demand.
to do so, an of the reasons is that the current plan a waste of a excellent exotic exchange reserves. China has nearly 2 trillion greenbacks in foreign exchange reserves. I diagramed that these reserves may be the substantial rate of return of -8%, which is negate, that is close to 2000 billion U.S. dollars. If a meager country, poor human can be assigned to each lot of money. The money spent in China, than to consume in this course, or inability to use the Americans to lend extra advisable. Therefore, China's diplomatic exchange keep growth should be stopped, rather diluted. This part of the revenue ought be spent in China, to accomplish extra balanced growth. China is not a small country favor Korea did in the past, through the export out of distress. Do wrong.
Zhang: China's central government's economic stimulus archive of 580 billion U.S. dollars. We do not know where the important details,Buy Lacoste, in the end those are the antique money, those are new. However, the government's aim is clear, priority is given to infrastructure and social security. I think few people would object to substantially increase the disburse of China, for China to establish 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 scamper, China should beyond enhance the infrastructure, obviously, it's infrastructure than the adult world there is a breach. Thus, infrastructure investment is justified, but in the long run there's a balance. I coincide with your point of outlook, China's investment rate has indeed the maximum level in world history. It is apparent that a great number of the peripheral rate of return on such investments is very low. I do not know the specific manner of such investment, perhaps some of the investment is very good, but overall, the evolution of any consideration to China's people will come to conclusion: China's investment is also high and savings too much. It should reduce investment and chase higher rate of return should boost expense.
countries like China, a more natural state of balance 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 rational equilibrium should be: the proportion of investment accounted for 40% of GDP, savings accounted for 40% of aggregate 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 accustom to the Chinese people - especially the most impoverished inland districts, from economic development projects to benefit the people at least - a huge benefit. This, in my attitude 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 accessible implemented in the global balance of economic growth. This achieved a win-win. In my attitude, the Chinese government should take this as the goal.
Zhang: China has equitable overtaken Japan as the largest holder of U.S. Treasury bonds, in fact, has become America's largest moneylender. Do you think that in the negotiating table with the Americans, the Beijing how to use this piece? It is a bargaining chip or secluded weapon?
Ma: I do not think it will be greatly affected. China, of lesson, can intimidate the overall sell-off of these bonds, that would be terrible, but also very hostile. If China to the United States said, Americans absolutely 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, so the implementation of policies - especially economic policies, inflation and other policies, the United States must consider the interests of creditors. In fact, Larry? Summers (Larry Summers) has been described as this checks and balances (Balance of Mutual Distraction). This method that ... ... In this case, both parties can not easily use or threat of such weapons. Americans can not also threats and confiscation of the debt bonds, the Chinese people but also can likely to sell them. If China were to sell, they will fall in the value of assets and become poorer. If the Americans confiscated bonds, no one will finance their financial deficits. This is the checks and balances.If the relationship is broken, both parties will undergo losses. Therefore, I do not think that holdings of U.S. Treasury bonds will give a great affect 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 amass 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 procurement of the Chinese administration, such as GM (General Motors), which is really 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 catch on 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 avoid it - particularly the United States - the bond market, because Chucierwai almost no other big fluid markets . This is China's problems. That is why they must stop accumulating foreign exchange reserves. China's reserves are now ample.
Zhang: We are British Do you have any instances of the most proper to describe your feelings?
Ma: Do you refer to is Philip? Stephens (Philip Stephens)'s wonderful talk. Almost each piece has occurred in the elapse was considered unthinkable, and immediately have become inevitable. Including the amplified world, the nationalization of the whole monetary system. Radical trade protectionism also be likely, I wish this will not convert a reality. Government to buy stock is also a potentiality. I may have lost someone of the imagination ... ...
I think, in the economic sphere is now about naught is inconceivable. If the Chinese decide 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 much surprised. This is incredible, but it is a good thing. If it can be implemented. Would be very sage.
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 chat recording in English, amended, added attach. Translator / Yang, the educate Translation / Bin He)