Things That Don’t Make Sense, Yuan Edition

“World Bank Chief Economist Justin Yifu Lin staked out a strong position against forcing China to let its currency appreciate as a way to rebalance the world economy.

“’Currency appreciation in China won’t help this imbalance and can deter the global recovery,’ he said in a lecture Monday at Hong Kong University.

“In an interview after the lecture, he said other countries shouldn’t intervene to keep their currencies cheap to boost their export sectors, calling it the ‘equivalent of protectionism.'”

You can read the rest at Real Time Economics. No, it doesn’t make more sense — except possibly as an expression of China’s policy.

By James Kwak

21 responses to “Things That Don’t Make Sense, Yuan Edition

  1. I’m gonna say this once and only once, and the WISE among us (are you there Professor Johnson?) will pay attention, because I know China pretty well. Like in SOME ways better than Michael Pattis well.

    This country is not ANYWHERE NEAR to experiencing a “bubble”. It may happen but that is years and years off (like 5+). There are many many more ways to compare China to Russia, NOT Japan.

    End of story.

  2. ok, just one more time….. CHINA IS NOT ANYWHERE NEAR TO EXPERIENCING AN ECONOMIC BUBBLE AND WILL NOT FOR THE NEXT 5 YEARS OR MORE!!!!!!!!!!!!!!!

  3. Ted K, what’s your point? The issue is not that China is or isn’t in a bubble. It’s that they are basically screwing up the world economy with their currency policy.

  4. Rickstersherpa

    And at the same time they don’t want to buy anymore dollar denominated Treasuries? How do they keep the peg without buying enough U.S. credit instruments to zero out the trade deficit they have with us.

    I do note that the one place that China probably is in deficit is with Middle East due to its oil imports. And the Middle East, rather than going on a spending spree is also building up its reserves.

  5. aka Michael Pettis

  6. Whateva………..

  7. I think the important thing to remember about this is, even though we lost many jobs to the Chinese, we have gotten so many great products from them at low prices. They just had a story this morning about that from the Associated Press.

    http://www.google.com/hostednews/ap/article/ALeqM5j-As8NbcnaKNGuAxu79ivaU1kWwwD9BS5BEO1

  8. I’ve never liked comparing apples with oranges, particularly when it comes to China and its under valued currency,
    What seems more important are work conditions, workers rights, workers salaries and the development of democratic institutions.
    China scores rather low on all these points.
    Although I understand the US leaves a great deal to be desired, particularly as far as unionisation is concerned – allegedly bad for business.
    When we talk about China, its usually referring to what is good for the Communist party, whilst in the US its what’s good for the ruling elite – bankers, some industrialists and Washington lobbyists.
    If the US loses any more manufacturing jobs to China, there will be no one left to buy their goods in the USA.
    As for consumerism in China taking up the slack, that seems like a pipe dream given the fact that the middle class receive quite low salaries compared to their US counterparts.
    Perhaps what is called for is a level playing field before any comparisons can be made.
    As such, perhaps the US can import the Chinese system of government – its surprising the results you can magically summon up in a totalitarian state.
    Perhaps Mrs. Clinton can give this some of her attention!!!
    A case of come back Ross Perot, you were right and the majority of economists were wrong.

  9. Wow, Ted, I didn’t think you had a sense of humor.

    At least it’s grim.

    Cheers! (sort of)
    JzB

  10. This is totally ridiculous. *Sigh

  11. Doesn’t matter much what the ‘experts’ think right now. It’s about raw power between various ruling class factions around the world. Russia just bought over a billion dollars to drive down the rubble. Yeah, this is going to end well.

  12. Well, Politico.com is reporting this morning that the President intends to directly address China’s currency policy during his upcoming trip to Asia because of the “deeply imbalanced” relationship between the US and that country.

    Alrighty, then…this should prove interesting.

    http://www.politico.com/morningmoney/

  13. I think Lin is right and I think those who do Obama’s thinking know he’s right. China’s dollar surplus is the only thing holding up the Treasury market. This call for China to revalue is like Bernanke talking every month about having to raise interest rates sometime in the future while maintaining them at zero to support bank hedge fund lending and speculation. America’s global political capital now amounts to hot air.

    Our political class and our bankers live in an Alice in Wonderland world all their own. We just have to keep supporting them as best we can.

  14. Have all the commenters missed the point? This post is hilarious because Lin is saying China should not be forced to step back and allow its currency to appreciate (ie stop intervening to keep the value of the Yuan low)… and then immediately after says “other countries shouldn’t intervene to keep their currencies cheap to boost their export sectors”… which of course is exactly what China is doing and what he just said China shouldn’t be forced to stop doing.

    Like James said – that’s China’s official policy for you. Awesome

  15. Ok sorry, I didn’t really mean ALL commenters… just some. Funniest thing I’ve read all day – gotta love mindless political rhetoric. Hopefully Geither comes out and makes it 2 for 2 today and says “A strong dollar is in the US’s national interest”

    Although wait… this Lin guy isn’t a spokesperson for the Chinese government, he’s a World Bank Chief Economist, so I guess this isn’t political rhetoric… is this is what he actually thinks?!

  16. Don’t be so sure. Estee Lauder Re-Nutriv Revitalizing Comfort Eye Cream 15ml/0.5oz selss for $65 here in Amazon and 558 RMB in China. A pair of Levi jeans that costs $35 in Sears sells for 600RMB in Shanghai. While RMB may look 40% undervalued by Big Mac index, it is overvalued by a cup of Starbucks espresso (17RMB for a single shot) …

    http://www.smarter.com.cn/cosmetics-693/pspec-70950456/

  17. I thought the currency problem with China had more to do with a savings problem in the U.S. and that if we want to maintain a strong dollar long term we need to boost savings and get the Chinese to consume more.

    Wouldn’t a mismanaged appreciation of the Juan or a devaluation of the dollar lead to asset depreciation in China and a reduction of wealth over there? And if so, would that lead to a decrease consumption in China for all goods including imports from the U.S.? And, as a result, no real significant boost in exports from the U.S. to China? I don’t see how reducing the value of dollar assets held by Chinese will spur them to import more U.S. goods.

  18. Some facts and thoughts:

    Justin Lin chief economist at the World Bank is opposed to forcing China to appreciate the Yuan “as a way to rebalance the world economy”

    Simon Johnson former chief economist at the IMF views the US trade deficit with China as harmful to the American economy. SJ says the IMF has not been unsuccessful in getting China to appreciate the Yuan; and that this might be a role for the WTO

    These are contradictory positions by two leading economists. No doubt, Lin’s position is shaped by what he considers best for China. While SJ’s position is shaped by what he considers best for America.

    I would argue that “ordinary” people in China and North America share the same aspirations and dreams for security and prosperity.

    The question is what are “instruments” to achieve this? The answer lies somewhere in the “inter-connectedness” between international law, national law; and the intellectual life and leadership that informs and creates these laws.

    As a final note. I have concluded (this is really an observation) the modern world is nearly entirely a male construction. The integration of women into academe and public life is really a new phenomena. It goes nearly without saying, this is the right way forward.

  19. typo, should read: “the IMF has not been successful in getting China to appreciate the Yuan”

  20. Fantastic – Sure enough, Geithner came out and said it today… this is too easy

    “U.S. Treasury Secretary Timothy Geithner said a strong dollar is in the nation’s interest”:

    http://www.bloomberg.com/apps/news?pid=20602096&sid=aSyeSGYB1wTA