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 tension Fen central economic critic. Wolf's view is that China is facing a time of relative privation 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.
traction Fen (hereinafter referred to as sheets): Last, you said that the Obama ministry, the world will face a tougher United States. But from another perspective, 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 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 character global recession. The signs are exhibited from Beijing,Womens Lacoste Trainers New, the Chinese government itself is very anxious almost the current situation, they want to know China's economic and trade in the end will be much impact, but 1st
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 prophesy of 7.5% - the rate mow 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 on the situation, instead of copying others. Can say that the first 30 years after the founding of the Republic, they followed the Soviet model, and then for nearly 30 years in a way mock the American model,Lacoste Canvas 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 forcible than other models, these conveniences are in fact not changed. China's economic growth over the past 30 years is real,Lacoste Arin Patent Trainers, 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 pragmatic reach holds a market economy, China must temporarily sidelined.
present, one manifest question is how the United States to successfully emerge from this crisis? Them out of the crisis, we can learn from the lessons of their efforts? Obviously, the aggravate the result of the crisis, the more the Chinese ambition to rethink their countermeasures. My point is: China in a way have to rely on their own strength. They have observed that people learn from the lessons of this crisis, and I estimate that we will once another realize that there is no final prototype of economic evolution. Everything in life is trial and peccadillo, learn from the lessons of their mistakes. Chinese people as well.
Zhang: China's reform and opening up of the top leaders of the Western economic analytic in the digestion can be said to be quite aboveboard, hard-working and learn tolerance, quite to the economic ideology advocated. The most urgent economic thinking about the West learn from nobody other than the non-Chinese leaders. Nobel Laureate in Economics, Zhongnanhai are mostly distinguished 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 buffet hard by the financial system, did not anticipate the global system actually proven so brittle, 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 trusted 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 economic 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 economic - according to the another metrics, ranking second or third.
Therefore, China still faces a relatively poor country become a superpower when the problem. If all goes 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 distant beyond the same with their own countries. This result is caused by its size, China must approve 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 inconsistency and take duty. 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 merits ​​in clash. Therefore, it is essential to accustom to the superpower itself, but also adapt to a system is not created by themselves, this situation is entangling. China can not be became 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 matchless 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 rarely equal exchanges with additional 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 emulate the Western economic system with Chinese specifics, the Communist Party and a rare combination,Lacoste Tourelle Trainers, which also had a great meet problem. Therefore, the challenges facing China's chairmen is absolutely big. However, China have to continue to masquerade that he is still a small country on the clash 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 have to decide how to training 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 kas long asin Washington, under the pressure of the yuan since the starting of the year to hasten the pace of appreciation. China may feel the publish 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 money depreciate the moment to assist their weakening exports, China's growth is necessity?
(Editor's Note: In the few days later the interview, the RMB opposition the U.S. dollar began to devalue slightly trend, generally confirms the mall to resolve.)
Ma: I do not see any devaluation of the RMB reasons. I think it should rise. 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 decision. Over the years, I have been advocating that China should reduce the current account surplus and increase domestic spending, granting the yuan to laud.
China's current situation which is very wrong, because domestic demand and external demand are disabling,Lacoste Swerve Lace Trainers, the RMB will continue to face pressure to appreciate. There is always a danger that, while the Chinese finally forced to take movement, 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 relating to potential output.
China is to solve this problem may be in the maximum disadvantaged: the declining exports, or export growth is dwindling domestic demand is also shortening. But I review again, notwithstanding China is unstated, but the variety that can be exported to the idea out of economic difficulties, is completely fantastic.
China can not do so because, if the recession continues, the export in the earth can not ascertain a location, whichever place there is no demand. We are in a worldwide recession. Thus, by accommodating the exchange rate route that China ambition promising to export to some extent the idea out of the economic difficulties, can be depicted as wrong.
Zhang: China may naturally miss the increased domestic claim, dramatically reducing the current account surplus as the best period, that is, 4-5 years prior to the benign global economy high-growth duration. But faced with sudden monetary emergency is entering a recession, a puny devaluation of the yuan that Beijing can lend a aiding hand to its exports, or by fewest expedient weigh of last resort. Do not you calculate, this motif 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 corner of recession, if the world's largest current account surplus, China is also attempting to export its way out, that would be seen as a with a mighty hostile action. This is a mendicant thy neighbor policy. In my opinion, let the yuan against the dollar, the dollar is unnecessarily, and dangerously strong, no doubt belongs to such doings. If that is the case, the new U.S. government will make such acts a very strong answer.
I entirely understand the problems faced by China, but the reality is that only in the recess of the world economic boom, the circumstance of high demand, China can export to get out of their predicament through. I think people do not understand this.
since the eastern 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 compliant personal borrowers are now no longer exists, now only human in government lending. 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 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 7 or 8 years of export-led growth model is now apparently has been incapable to sustain.
Zhang: Right now China's economic policy makers may want to make a difference in both,Womens Lacoste Carnaby Trainers, 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 through interior and outer sources to Beijing, suggested that China should start 5 years ago to let the yuan appreciate. For China, the overriding imperative is to establish a more healthy domestic consumer market. Because of cheap household proceeds, the Chinese consumer market is very weak, they need to distend 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.
next year or two, China may have to rely on the proceeded rapid growth of web exports, but this situation is not sustainable in the long scamper. In counting to instant investment stimulus procedure, China is now actually should make a determined exertion to carefully consider how to stimulate the product of fashionable domestic demand.
apt do so, an of the causes is that the current plan a garbage of a excellent diplomatic commute reserves. China has almost 2 trillion dollars in foreign interchange 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 needy country, meager folk can be assigned to every lot of money. The money spent in China, than to waste in this path, or inability to use the Americans to loan extra sensible. Therefore, China's foreign exchange keep growth should be stopped, rather dwindled. This part of the revenue ought be spent in China, to achieve more balanced growth. China is not a small nation like Korea did in the elapse, via the backup out of distress. Do wrong.
Zhang: China's chief government's economic stimulus package 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 direction is remove, precedence is given to infrastructure and social security. I think few people would object to substantially increase the disburse of China, for China to build a elementary social security system. But many people in Beijing to beyond commitment to the present large-scale investment in infrastructure was not quite comprehending? China's investment rate has been tall.
horse: in the long run, China should further amend 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 agree with your point of view, China's investment rate has indeed the maximum level in world history. It is obvious that a large number of the peripheral rate of return on such investments is very low. I do not know the characteristic 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 pursue higher rate of return should increase consumption.
countries like 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.
expense class increased by 50%, the measure is absolutely huge, it can be used to the Chinese people - especially the most impoverished inland districts, 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 equitable overtaken Japan for the largest holder of U.S. Treasury bonds, in truth, has chance 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 hidden arms?
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 too 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 someone that can accessible be accustom in weapons.
, of course, China is a very large creditor countries, meantime the United States also need to creditors, so the implementation of policies - especially economic policies, inflation and other policies, the United States have to consider the interests of creditors. In fact, Larry? Summers (Larry Summers) has been described as this checks and balances (Balance of Mutual Distraction). This manner 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 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, either 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 above 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 alternative, right?
Ma: I think there are two reasons. First, China has a large structural current account surplus, because they did not take the suitable policy. Secondly, if you will accumulate such a large amount 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 government, such as GM (General Motors), which is really very interesting, but it is politically very emotional. Now, perhaps more sensible to buy stocks, they can buy a team of stocks, but in fact they may take care of it very bad. I think if you are at this speed and scale of the accumulation of asset, it is laborious to put into power to avoid it - especially the United States - the bond market, because Chucierwai hardly 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 any examples of the most appropriate to describe your feelings?
Ma: Do you refer to is Philip? Stephens (Philip Stephens)'s excellent speak. Almost every chip has occurred in the past was considered unthinkable, and now have become inevitable. Including the amplified world, the nationalization of the entire financial system. Radical trade protectionism also be possible, I hope 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 immediately almost nought is inconceivable. If the Chinese judge that, since large current account surplus is inevitable, then let people hold much more reasonable than the government surplus, so to liberalization of the chief outflow, and not entire the reserves held by the government. If you look this information, I would be very much surprised. This is incredible, but it is a nice object. If it can be implemented. Would be very sage.
Zhang: Thank you, Martin. (End)
(Editor's note: This interview above November 26, 2008 FT headquarters in London. This text is based on the long chat logging in English, amended, joined attach. Translator / Yang, the educate Translation / Bin He)