Early RMB revaluation would hurt the world economy
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'Seek truth from facts,' a maxim originating from the Han Dynasty, was favoured by Deng Xiaoping. Regrettably it seems to have been ignored by many urging an early increase in the RMB exchange rate. They seem neither to have studied the facts nor grasped that, in the short term, revaluation of the RMB would increase China's trade surplus, the opposite of what the world economy needs as it recovers from the international financial crisis.
Paul Krugman's New York Times column urging trade sanctions against China claims 'the International Monetary Fund expects China to have a 2010 current surplus of more than $450 billion.' Even if an IMF statistician made such a claim, it is false – as Krugman could discover by checking the figures. China's annual balance of payments surplus, which includes not only trade but also services and income from abroad, is about $120 billion over its unadjusted trade surplus – which was $198 billion in 2009 and running at $180 billion in February 2010. Factually therefore, China's balance of payments surplus will not remotely reach $450 billion this year. The falling trend of China's trade surplus is shown in Figure 1.
Will Hutton claims in The Observer that China is 'increasing its reliance on exports.' Again, quite untrue; China's exports declined to 25 percent of GDP in 2009 from 35.7 percent in 2006 – as shown in Figure 2. Increase in domestic demand in China has led to a sharp decline in the weight of exports in GDP.
China's commerce minister Chen Deming gave an excellent survey of China-US trade in the China Daily. If Paul Krugman, Will Hutton and others want to engage in serious discussion they should therefore first get the facts right.
