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China's Role in a World in Crisis
By Tu Xinquan, China Institute for WTO Studies, University of International Business and Economics
[Chinese]
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With impressive growth rates and as the only country to record positive growth imports in 2009, China has contributed much to the global economic recovery
A trade surplus arises whenever trade happens. But now, continued criticism from developed countries in deficit have turned a trade surplus into something shameful. China, which has the biggest surplus in the world, certainly receives the bulk of that pressure. This is at least one reason why the Chinese government hurried to forecast a monthly trade deficit in March 2010. Premier Wen Jiabao and Chen Deming, minister of commerce, declared this forecast one month before the final statistics were released. Fortunately, of all Chinese statistics, trade data are considered the most trustworthy. Otherwise, some cynics might suspect the Chinese statistical agencies of manipulating the findings to support the government’s previously announced conclusion. Global trade imbalance is a problem that must be addressed. No matter whether it is economically significant, it has resulted in political disruptions in many countries, especially in developed ones, with the decline in public support for globalisation. But global trade balance is not a goal. Trade is only an approach to economic growth. Rather than emphasise rebalancing world trade, there should be a focus on boosting the global economy, particularly in less developed countries. The gap in the level of development between rich and poor countries is the most significant imbalance in the world. As income inequality in the domestic economy often diminishes demand, a large gap between developed and developing countries also creates excess supply, squeezing redundant money into a virtual economy. This, in fact, is one cause of the recent housing bubble in the United States. So supporting development is the best way to rebalance the world economy.
In turn, developing countries should recognise their role in stabilising the world economy. However, they need to deal with priority issues in their own economies, such as economic growth and social stability. It is not appropriate for developed countries to pressure developing countries on how to develop their own economies. There is no consensus on how a country should develop.
China has always continued to gain knowledge and use resources from the West throughout the process of opening up and reform. China has been successful because it finds an approach appropriate to its own situation and conditions. With regard to global imbalances, China has also been managing it in its own way, by stimulating domestic investment and consumption through fiscal, social and monetary policies. China believes that the increase in domestic demand rather than a sharp appreciation of renminbi is the best way to contribute to the global economic recovery. As a result, it is the only country recording a positive growth in imports (2.8 per cent) among major economies in 2009, although its exports decreased by 10.5 per cent. Just as Chinese leaders often state, the biggest contribution China can make to the world is to develop itself well. It turns out that the Chinese approach has worked.
In the first quarter of 2010, China’s growth rate accelerated to 11.9 per cent, which is impressive even in boom years. At the same time, Chinese trade saw a rapid recovery at the rate of 44.1 per cent, including a surge in imports of 64.6 per cent. It seems that the world should appreciate China’s generous contribution to the recovery. However, the headlines are still occupied by the endless debate over the appropriate level of the exchange rate. Some governments and experts assert that rebalancing the global economy depends on the readjustment of the Chinese currency, no matter what China has done already for the world. Fortunately, the US government lately reduced its criticism of Chinese currency policy, claiming that it should be decided by the Chinese government. Moderate foreign pressure helps because it can be used by the Chinese government to confront domestic opposition. But if it goes too far, the Chinese government must respond antagonistically in order to show its toughness.
With the rebound of domestic production and consumption and foreign trade, the Chinese government is considering an adjustment of its exchange rate policy. At the same time, it has finally started to cool down the overheated real estate market, releasing a rigid control policy in April 2010. If fully implemented, this policy will help inject money from the housing market into normal consumption and investment and will promote more balanced and sustainable economic growth. Such growth will, in turn, stimulate China’s imports and help the world economy.
Nonetheless, trade protectionism remains a concern for China. In 2009, 116 trade remedy cases were initiated against Chinese products, affecting $12.7 billion in exports. The situation in 2010 seems even worse. In the first quarter, there were 19 cases related to $1.2 billion of exports, for a growth rate of 93.5 per cent. Some countries are using low carbon emissions as an excuse to restrict Chinese exports. While Chinese imports represent a higher share of the world market, this kind of protectionist action will diminish China’s willingness to import. Trade liberalisation must be kept alive and moving forward. Unfortunately, the Doha round of trade negotiations at the World Trade Organization is still stagnating, due to inadequate political support from some major members.
The G20 is appreciated because of the diversity of its membership. It should allow its members, which are at various stages of development, to adopt diversified models and economic policy. Coordination does not necessarily mean rendering everything the same, but should make policies compatible. In fact, it is difficult to harm others while benefiting oneself in a globalised world, where each depends on the other. China has no such ability either. China has been sharing the benefits reaped from its own development with the rest of the world. A case in point is the recent Beijing Auto Show. All the major automakers from around the world came to Beijing because they know that China represents the biggest and fastest growing market.
The G20 Toronto Summit in June 2010 will face some hot issues. The Greek debt crisis may overtake the issue of Chinese currency policy. The summit shows the relevance of international policy coordination in a globalised world. A crisis in one country, even a small country, could produce a butterfly effect across the world. The G20 should take prompt action to deal with the crisis before it hurts other countries. China will feel lucky if it is not paid much attention – which means China could concentrate on its own issues.
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