Global Imbalance:Onus On the United States

During the China-U.S. Business Forum held in Beijing February 14-15, Xia Bin, Director of the Financial Research Institute of the Development Research Center under the State Council, makes a speech on the United States' responsibility for global economic imbalances. His main ideas as reported in the China Business News, follow:

Global and Euro Imbalances:China and Germany

We analyze global and euro area imbalances by focusing on China and Germany as large surplus and creditor countries. In the 2000s, domestic reforms expanded the effective labor force, restrained wages, shifted income toward profits and increased corporate saving. As a result, the Chinese and German current account surpluses widened, and that of Germany has proven more persistent, with subdued domestic investment. China is an early-stage creditor, holding a short equity position and a longposition in safe debt. Germany＇s balanced net debt and equity claims mark it as a mature creditor thatprovides insurance to the rest of the world. China pays to lay off equity risk, while Germany, by contrast, harvests a moderate yield on its net claims. In both economies, the shortfall of the net international investment position from cumulated current account surpluses arises from exchange rate changes, asymmetric valuation gains, and, in Germany＇s case, credit losses.

China as a Global Manufacturing Powerhouse:Strategic Considerations and Structural Adjustment

This study examines the nature and consequences of China＇s rise to the center of world economic affairs through manufacturing-led development. Our historical analysis shows that China is still well short of the point in its developmental process where its growth might be reasonably expected to slow, or the energy, resource and carbon intensity of growth to recede. The study argues that the current trajectory of industrialization will have to be altered when China becomes more actively engaged in dealing with structural issues at home and abroad against the background of the unwinding of global imbalances. One profitable strategy that China might employ wouM be to approximate the incredibly fruitful mass-market integration efforts of the USA that eventually elevated it to its position of global primacy. The cyclical re-emergence of excess capacity in Chinese heavy industry, serious questions about the medium term ability of other major regions to accommodate further large gains in Chinese market share, and the stark conflict between the contemporary style of industrial development and the health of the biosphere indicate strongly that now is the time to catalyze the required adjustment and reform processes that will underpin sustainable long-run prosperity.

Global Rebalancing and the Future of the Sino-US Codependency

The crisis of 2008 has shown the unsustainability of the global imbalances centered on the US-China symbiotic relationship that characterized the previous decade. This has revived the so-called growth-rebalancing debate. In particular, the new emerging consensus calls for a re-orientation of the US economy away from consumption and toward exports, and for policy shifts that can help China to reduce its dependence on external demandand inefficiently high rates of capital accumulation. We discuss the economic and political feasibility of the proposed patterns of re-adjustment by focusing on the short-term and long-term trade-offs faced by the policy-makers. We argue that the rebalancing will be gradual and partial because of the costs associated with a radical shift in the growth models adopted by both countries. We believe that this scenario will be consistent with a world economy expanding at lower rates than over the past decade.

Trade Balance: Numbers Can be Deceiving

Trade disputes have become more prevalent and acute in recent years. Almost all center on bilateral trade balance and/or market access of certain merchandise or services. However, since at least the mid 1980s, affiliate sales have become a more direct and more powerful form of market access than the traditional cross-border commercial transactions for developed countries, whereas developing countries still rely predominantly on traditional trade. The importance of the international production supply chain is increasing with a bias against downstream producers. The current data collection and compilation system of trade balance can not reflect these changes in the world economic environment. It overstates exports of developing countries and understates their imports. None of the countries in the world can illustrate the weakness of the conventional system better than China.