The Lawspeaker
10-05-2010, 12:25 AM
China plays by its own currency rules (http://www.atimes.com/atimes/China/LI25Ad01.html)
The past two years have been tough on China-oriented Western economists. China's archaic mercantilism, tight capital controls, over-regulated financial sector, managed exchange rate and, above all, its need to purchase and sterilize massive inflows of foreign exchange were, according the theorists, leading the country to economic calamity.
However, Western triumphalism in 2008 took a tumble as the West's most sophisticated financial innovators led the world economy off a cliff. Meanwhile, China's ham-fisted socialists saved China and, to a certain extent, the rest of the world with an enormous stimulus program (US$586 billion in domestic spending plus significantly relaxed limits on bank lending) that, as a ratio of the gross domestic products (GDP), dwarfed America's stimulus spending by a factor of more than five.
Pro-Western economists and advocates of sophisticated, US-style financial engineering took a hit inside China as well.
An important, but little-noted milestone was passed last week in Washington: the Reserve Primary Fund, a supposedly safe-as-houses $62 billion money market fund that went bust when Lehman Brothers imploded in November 2008, finally finished paying off its investors.
Its biggest creditor - China's sovereign wealth fund, China Investment Corp (CIC) (which had earned creditor status because it sent in a last-minute redemption order for its $5 billion-plus stake just before the fund closed) - was paid off in multiple installments totaling about 98.75 cents to the dollar.
However, in 2008 the incident sparked off a heated debate in Beijing concerning the wisdom of trying to ingratiate China to the United States by positioning itself as an eager participant in the Wall Street casino organized by politically powerful financial firms.
As the Wall Street Journal reported at the time, the Chinese leadership was appalled to discover it held $600 billion in Fannie Mae and Freddie Mac bonds just as these two government agencies were tottering near extinction, as well as the sizable stake in the Reserve Primary Fund:
Around October, a lengthy Chinese-language essay began circulating on the Internet excoriating [chairman and chief executive] Mr Lou [Jiwei] and other top CIC officials, along with Zhou Xiaochuan, China's central bank governor, for being too close to the US and then-Treasury secretary Henry Paulson. The diatribe quickly gained wide circulation in Chinese financial circles. One passage charged that Mr Zhou "colluded with Henry Paulson to buy US bonds, forced [Chinese yuan] appreciation, attached China's economy to the US and broke China's economic independence". [1]
At times like this, it's instructive to recall that economics is not a hard science, and the fact that 70% of recipients of the Nobel Prize in Economics are Americans is no guarantee of US omniscience on the subject. For that matter, the Nobel Prize in economics is not a real Nobel prize, owing its existence to the marketing and cross-branding savvy of the Sveriges Riksbank rather than any desire by Alfred Nobel to celebrate what is often called "the dismal science". [2]
Two years after Lehman fell, vociferous debate continues between economists of various ideological stripes about what caused the Great Recession, despite the fact that it occurred under their very noses.
The role and responsibilities of the rather non-transparent Chinese economy have proved an even more intractable conundrum. The only conclusion that everyone can agree on is the simple fact that the Chinese currency is undervalued and, as such, offers an unfair advantage to Chinese exporters. No one, however, seems to agree on what can and should be done about it.
Now, it appears that many economists have given up on waiting for the invisible hand to correct the yuan exchange rate and, if possible, rebalance the global economy. Instead, it's time for the mailed fist of government policy - the command economy, if one will - to try to obtain what market forces have failed to achieve.
There is widespread dispute over the degree of undervaluation, and what degree of appreciation would be most desirable for the world economy. There are growing calls for a multilateral confrontation with China to force Beijing to appreciate the yen by 25% or more - which, it is calculated, would leave China enjoying a trade surplus of 3% - or eliminate the surplus with an increase of 40% or more.
But disregarding the forces at play in China's economy - and in the calculations of the country's leaders - offers the prospect of conflict without progress.
American frustrations were given a full airing at the September 15 hearings of the US House of Representatives' ways and means committee. Leo Girard, president of United Steelworkers Union and Dan DiMicco, president of Nucor Corporation - Nucor made its fortune in the 1980s by ripping the heart out of America's integrated, unionized steel mills with its low-cost mini-mills that ran on scrapped cars - made for unlikely allies in condemning the massive job losses attributed to China's artificially low exchange rate.
Predictably, US farm-state senators also appeared before the committee to make the case for avoiding the trade war and sustaining the grain exports to China that underpin the economies of the American heartland.
But the most arresting testimony was provided by G Paul Bergsten, founder and president of the Petersen Institute. Over the years, Dr Bergsten and the Petersen Institute have attempted to claim the exchange rate/Chinese currency wonk franchise through thousands of pages of closely argued publications, testimony, and op-eds.
However, Bergsten has apparently abandoned economic theory and win-win suasion in favor of big-stick tactics to compel a Chinese revaluation. He proposed a multilateral effort justified and executed under the regulations of the World Trade Organization (WTO):
A general indictment of China under Article XV, which proscribes countries from "frustrating the intent of the provisions of this Agreement by exchange action", prosecution under which would authorize members to retaliate against China.
Approval of case-by-action action by individual countries that chose to regard China's currency undervaluation as an export subsidy under the Code on Subsidies and Countervailing Duties, which China would have to challenge to overturn. [3]
The key coercive measure would be the legally questionable tactic of imposing countervailing duties as retaliation for currency manipulation; its virtue would be that the United States and other countries could impose the duties unilaterally, and place the onus on China to go before the WTO to challenge and overturn them.
In return, Bergsten promised the US Congress in his oral testimony a gusher of 500,000 new US jobs (retreating to a more scholarly and cautious range of 300,000 in his written testimony) if China responded to this "shot across the bow" by revaluing its currency to eliminate its trade surplus with the US.
Bergsten's questionable powers of prediction - he had gained a certain amount of notoriety at Davos in January 2008 when he asserted that "a global recession was inconceivable" - were challenged by the Council for US-China Trade's John Frisbie. [4]
Frisbie glumly pointed out that a hefty US countervailing duty on Chinese automobile tires had, instead of yielding a bonanza for American employment, simply redirected imports away from China to other overseas suppliers:
... imports from China are down 26%; imports from Japan, South Korea, Taiwan, Indonesia, Thailand and Mexico have more than filled the void and imports of low-end tires overall are 21% higher than before the tariffs. [5]
On the theoretical level, the idea that exchange rate adjustments are a panacea for national trade and investment problems has been rebutted by Ronald MacKinnon of Stanford University. [6]
Unfortunately, what lies behind this unnecessary political crisis is a widely held but false economic belief: the idea that the exchange rate can be used to control any country's trade balance, which is the difference between its saving and investment rate. Instead, the problem is a saving deficiency in the US - with very large fiscal deficits and low personal saving - coupled with surplus saving in China.
Nevertheless, a common thread running through the testimony was a renewed appreciation for what might be turned the meat-ax approach to exchange-rate management symbolized by the 1985 Plaza Accord.
In the opinion of its advocates, the Plaza Accord seems to have been the last thing that worked the way it was supposed to in US exchange rate policy. As Asia Times Online readers know, it has emerged as a perennial in the US-China trade debate. [7]
In the 1980s, Japan posed problems that current critics of China will easily recognize: it was an export machine, accumulating huge surpluses, gutting the US auto industry with surging sales of Toyotas, Nissans and Hondas, and hiding behind capital controls and a yen/US$ exchange rate pegged as low as 260:1.
When jawboning failed, president Ronald Reagan and the European economies summoned Japan to New York and negotiated the Plaza Accord, which committed Japan to a currency realignment. The US dumped dollars and the Bank of Japan undertook to buy them, ultimately driving the yen from levels around 250 up to 122.
Mission accomplished? Well, maybe not.
The collapse of the dollar against the yen did not by itself trigger an outpouring of US exporting elan vis-a-vis Japan.
The efficiency advantages of Japanese industry survived the exchange rate realignment and the Japanese trade surplus with the United States turned out to be to a large extent structural. The weaker US dollar primarily reaped a diplomatically export boost in the markets of Washington's European allies instead.
Although the United States gained a handful of transplant auto plants operated with small, non-union workforces - and, as DiMicco pointed out in the hearings, Nucor also gained a Japanese partner for its zero-sum ravaging of the US steel industry - Japan continued to run large trade surpluses with the US and indeed does so to this day.
The US did not gain clear and massive benefits from the Plaza Accords and Japan didn't do too well, either - a fact that Chinese observers have understood and advertised ever since the US began beating the currency realignment drum vis-a-vis the Chinese.
The appreciation of the Japanese yen got out of hand, so it was necessary to follow the Plaza Accord with the Louvre Agreement in 1987, placing a bottom under the plunge of the dollar so that holders of the Japanese yen could start thinking about (and speculating on) something other than where the value of the yen might be tomorrow. [8]
Upward revaluation of the yen under the accord certainly did not eliminate US political pressure on Japan. To Japan's chagrin, US demands for managed trade - a voluntary cap on Japanese auto imports - also persisted despite Tokyo's avid consumption of the Plaza Accord Kool Aid.
The trade deficit with Japan remained stubbornly high, so US policymakers insisted on the opening up and deregulation of the Japanese financial sector to permit the invisible hand to freely harvest its economic bonanza that the Plaza Accord had promised but perversely failed to deliver.
To help Japanese corporations cope with the spike in the exchange rate - and boost domestic demand to placate American criticism of the persistent trade surplus - the Bank of Japan initiated an easy money policy.
Money poured out of Japanese banks to stimulate infrastructure development, stimulate domestic demand and assist Japanese manufacturers in further improving the cost efficiency of their operations. Ironically, a key cost-cutting measure for Japanese industry was the wholesale shift of manufacturing operations to the People's Republic of China, sowing the seeds of America's current Asian dilemma.
The Bank of Japan is blamed for creating a titanic real estate/asset bubble with easy money post-Plaza. However, an exhaustive study of the Plaza Accord aftermath by three Japanese economists illustrates the powerful external forces that were unleashed by the accord and which contributed to the subsequent bubble. [9]
The US and Group of 7 pressure was successfully applied to the Japanese government over the repeated objections of the Bank of Japan to stimulate Japanese domestic demand to reduce the politically offensive trade surpluses from 1985 to 1988.
The only time the Bank of Japan conspicuously dropped the ball was in the 1990s, when its excessively tight monetary policy after the real estate bubble burst in 1989 plunged Japan's economy into its lost decade.
Interviewed by the Financial Times, Bergsten acknowledged the less than edifying outcome of the Plaza Accord process but asserted that China could avoid a similar experience, presumably because its economists were "smarter":
In any case, Chinese officials often argue that the Plaza Accord was disastrous for Japan. The agreement encouraged the Bank of Japan to cut interest rates to offset the strengthening yen, and many in both Japan and China say that shift encouraged Japan's massive property and financial bubble at the end of the 1980s, followed by the "lost decade" of economic stagnation.
Mr Bergsten says that "smarter Chinese economists" privately accept that these arguments are bogus, and that Japan's poor banking regulation was more to blame for the bubble. Still, it does give Beijing a useful talking point. [10]
The lesson of the Japanese experience - that a new Plaza Accord would do little to solve the trade deficit problem or relieve US political pressure, would saddle China with the burden of further loosening its monetary policy to cope with the effects of a revaluation, and doom it to wrestling with a new asset bubble, albeit with the opportunity to draw on the wisdom of "smarter economists" to deflate the bubble better than Japan did - is probably not enough to sell China on the efficacy of this process.
Also, in an environment of ferocious mercantilist competition in the region, China's export industry apparently doesn't have the advantage of responding to onerous exchange rates with a massive strategic restructuring and migration to low-cost offshore sources, as Japan did in the 1980s, making a riskier reflation to boost domestic demand and restructuring more likely.
Finally, if and when unforeseen difficulties appeared in the execution of a revaluation, the United States would be unlikely to extend to its competitor, China, the same exchange rate lifeline it extended to its beholden ally Japan in 1987 with the stabilizing Louvre Agreement.
The ultimate wild card is whether the United States will proceed with retaliatory tariffs regardless of their apparent ineffectiveness as a tool to manage trade deficits, thereby simply redirecting America's enriching import trade (and deficits) away from China, its strategic competitor, to its allies in South and Southeast Asia.
Considering the massive amounts of erudite, mathematically buttressed ink that Western economists expend on the problems of Chinese macro-economic policy, there seems to be a certain inability to understand the roots of Chinese policy on the issue.
Economist and Nobel prize winner Paul Krugman, who, from his perch at the New York Times, is one of the most vociferous advocates of punitive tariffs on Chinese imports to compel a revaluation of the yuan, recently blamed Chinese recalcitrance on "politically influential Chinese companies" eager to preserve their export advantage.
Actually, the Chinese government is, to a large extent, in thrall not to exporters but to domestic and international real estate developers. This fact is, to a significant extent, crucial to understanding Chinese exchange rate preoccupations. This is because, to China, the forex revaluation problem is a hot money problem. And the hot money problem is a real estate problem.
It is unlikely that the Chinese government can openly accept a planned, major upward valuation of the yuan. Speculative money - hot money - has poured in and out of China as the political winds have shifted vis-a-vis yuan revaluation.
Stanford's MacKinnon has pointed out that, as international pressure for revaluation intensifies, yuan revaluation looks more and more like a "one way bet" - without downside risk. By this perception, anybody holding yuan is guaranteed an eventual payout of 25% if they can only hold on to it long enough to buy dollars at the more favorable rate after the revaluation goes through.
The prospect of this return is enough to tempt the most virtuous economic actors to evade China's capital controls to speculate on the future of the yuan. Even with China awash in foreign exchange, Chinese enterprises that can borrow dollars overseas do so - in order to gamble on a yuan/US$ revaluation.
Foreign investors and domestic business both inflate their capital needs to import dollars, convert them to yuan, and hold them against a future exchange rate bonanza. In 2009, as the undervaluation debate gathered steam, perhaps US$200 billion of hot money poured into China. [11]
In 2010, the monthly flow of hot money has fluctuated between $12 billion and almost $50 billion per month, according to Shanghai Securities News. [12]
Hot money is anathema to the Chinese government for historical reasons. Massive speculative bets by hedge fund on Southeast Asian currencies unprotected by strict exchange controls overwhelmed national currency managers and triggered the Asian economic crisis of 1997 - a crisis that China escaped, with considerable self-congratulation, because its tight capital controls kept George Soros and his ilk at bay.
Nevertheless, today, with China regarding itself as a burgeoning world economic power, it might seem that allowing some lucky speculators to enjoy a massive forex revaluation windfall - and subsequent repatriation of hundreds of billions of dollars of windfall profits - while coping with the economic fallout of a prompt 25% revaluation might be an acceptable price for getting the US off its back.
However, even with tight capital controls still in place and the sizable economic heft and tools available to the People's Bank of China, a quick and painful lancing of the forex boil may not be an option for China.
Currently, a lot of hot money is parked in China's stock market and, more importantly, its real estate market, while awaiting the longed-for revaluation. Real estate is the 800-pound gorilla in the Chinese economy.
Massive population movements away from the impoverished country and into the burgeoning cities (perhaps 10 million to 15 million people per year) is triggering a real estate boom that - thanks to the freely available bank loans released as part of the anti-recession stimulus package - also looks more and more like a real-estate bubble.
In classic bubble fashion, prices in Beijing and Shanghai rose 50% to 60% in 2009, so that residential real estate trades at multiples of 13 to 14 times average annual earnings, according to Sun Mingchun of Nomura. [13]
Crucially, the sale of real estate development rights, in addition to fueling runaway corruption and illegal confiscation on a massive scale, finances the provision of much of the infrastructure and services that undemocratic, incompetent and overwhelmed local governments are able to provide in order to keep a lid on public dissent.
About 1.6 trillion yuan (US$238 billion) - fully a third of overall local government revenues, according to Chinastakes' Simon Hand - is derived from the sale of development rights. [14] Victor Shih of Northwestern University estimated that 50% of Shanghai's municipal budget derives from transactions in its white-hot real-estate market.
The local governments also rely on the promise of these windfalls to borrow pell-mell from banks to fill the holes in their capital accounts and balance sheets that revenues can't fill, and place billion-yuan bets on real-estate developments in hopes that they can profit from the bubble. [15]
If and when the bubble goes pop, local government revenues, bank balance sheets and social order might very well go pop with it. Slowly deflating the bubble and carefully unwinding the overextended debt position of local governments is the key economic challenge facing the Chinese government today. Nomura is predicting a 10% to 20% correction in real-estate prices before the end of 2011.
The government estimates that it will take at least two to three years to gradually deflate the real-estate bubble and bring supply and prices in line with demand. [16]
The Chinese government has raised reserve requirements for banks to cut back on real-estate lending and discouraged mortgages for second- and third-home speculative purchases. The headlong increase in real estate prices has apparently slowed since the policy slowdown in April 2010, although it is unclear that the local governments have actually stepped back from the action.
In this delicate time, the last thing the Chinese government needs is a sudden gush of hot money in (to feed the bubble) or out (to threaten bank liquidity).
China Daily reported:
Andy Xie, a former Morgan Stanley chief Asian economist, asserts that China's property market is the biggest bubble in the history of finance, and only by raising the interest rate can the bubble be pierced, says an article in China Times. Here is an excerpt: Xie underlines that priority should be given to increasing interest rates rather than to appreciation of the renminbi [yuan]. Revaluation of the renminbi alone would further exacerbate the property bubble and inflationary pressure, potentially causing a major economic crisis in the next two years. [17]
And that means that the Chinese government is adamant that no explicit, orderly exchange revaluation will take place "under outside pressure".
An advisor to the People's Bank of China stated the Chinese case bluntly on September 15 in a China Daily story entitled "No Repeat of Japan's Mistake: Official":
Li Daokui, an economist and member of the monetary policy committee of the People's Bank of China, said the exchange rate is just one of the many tools that China could deploy to adjust the structure of its economy. The country may choose other means, such as boosting domestic consumption and increasing imports, to achieve a trade balance, he said.
"China will not go down the path that Japan did and give in to foreign pressure on the yuan's exchange rate," Li said at an industry forum in Beijing. [18]
China wants to keep the yuan valuation process non-transparent and unpredictable, deterring influxes of hot money with the threat that incautious speculators who make big and reckless bets on the appreciation of the yuan can get squeezed by a sudden downward revaluation. At the same time, the government is trying to increase the holding charges associated with parking hot money inside the country and funneling it toward the real-estate sector.
According to the People's Daily, Chinese economists recently estimated that, given the costs of parking hot money, China could safely appreciate the yuan around 3% per year. At that rate, it would take nearly a decade to put the exchange rate where the US wants it:
If the annual appreciation of the currency can be kept below 3 percent, it will make it hard for speculators to profit, since they will have to pay dual-way transaction costs that will be close to what they can gain from a rising yuan, said Zhou Shijian, senior economist at the China-US relations research center of Tsinghua University. "If the yuan rises, it must be narrow-floating."
A hasty, swift appreciation of the yuan will make it difficult to control an influx of "hot money" and endanger the Chinese economy, Zhou said, citing widespread trade sector bankruptcies and job losses in the country from October 2007 to July 2008, when the yuan appreciated by 11 percent against the dollar, compared with about 8 percent in the previous two and a half years. [19]
Given these constraints, it would appear almost impossible for China to risk a major, rapid appreciation of the yuan, especially one transparently mandated by an international agreement.
And, given the Chinese position that the structural nature of the US trade deficit implies that a revaluation will merely shift the source of the deficit away from China to its Asian competitors, US calls for a revaluation are unlikely to attract a favorable hearing either from Chinese politicians or economists.
MacKinnon of Stanford argues that the best solution is to take hot money out of the equation by freezing the yuan now at its current rate, and thereby allow the Chinese economy to rationalize, break the linkage between hot money and real-estate speculation, and allow Chinese planners to reduce the share of the national wealth that is dumped into the creation of fixed assets. [20]
Beyond criticizing the US fixation on the exchange rate, the Chinese government took various pro-active measures to try to defuse the confrontation. It engineered some upward motion in the yuan (the Chinese currency has appreciated about 2% against the dollar since June 19 after holding steady for the previous two years), sent a 50-person trade delegation led by the minister of commerce to the United States to boost US exports to China; and it announced efforts to rebalance the economy by encouraging domestic consumption.
These moves have apparently been of limited avail.
On September 16, Secretary of the Treasury Timothy Geithner appeared before the House committee to declare that the US government would look at its coercive options, including WTO proceedings, in trying to get China to adjust its US dollar exchange rate. The balance of his remarks seemed to display a distinct reluctance to mix it up with China in an exchange rate confrontation that may yield the United States few benefits.
Nevertheless, the Obama administration is on the political defensive in the runup to the November mid-term congressional elections, and electoral considerations may carry the day.
Krugman, in arguing for a punitive tariff, minimized the risks without, perhaps, a clear understanding of the consequences both inside and outside of China: "Without a credible threat, we're not going to get anywhere," he said. "The chance that we would trigger a trade war is very small and it's hard to see any alternative." [21]
In a debate largely driven by politics, illogic and emotion - and the inability or unwillingness of tariff-war advocates to perceive alternatives - the forces favoring the status quo have their work cut out for them.
Notes (http://www.atimes.com/atimes/China/LI25Ad03.html)
1. Read Dean, Areddy and Ng on the management of China's reserves during the crisis (http://blogs.cfr.org/setser/2009/01/29/read-dean-areddy-and-ng-on-the-management-of-chinas-reserves-during-the-crisis/#more-4584), Council on Foreign Relations, Jan 29, 2009.
2. And The Fake Nobel Goes To (http://yglesias.thinkprogress.org/2009/10/and-the-fake-nobel-goes-to/) ... Think Progress, Oct 12, 2009.
3. Correcting the Chinese exchange rate (http://waysandmeans.house.gov/media/pdf/111/2010Sep15_Bergsten_Testimony.pdf), Committee on Ways and Means, US House of Representatives, Sep 15, 2010.
4. Inigo Montoya was right and C. Fred Bergsten was wrong about global recession (http://curiouscapitalist.blogs.time.com/2008/11/10/inigo-montoya-was-right-and-c-fred-bergsten-was-wrong-about-global-recession/), Time, Nov 10, 2008.
5. China's Exchange Rate Policy (http://waysandmeans.house.gov/media/pdf/111/2010Sep15_Frisbie_Testimony.pdf), Committee on Ways and Means, US House of Representatives, Sep 15, 2010.
6. China Bashing Over Yuan Needs a Long Rest (http://www.bloomberg.com/news/2010-07-06/china-bashing-over-yuan-needs-a-long-rest-commentary-by-ronald-mckinnon.html): Ronald I. McKinnon, Bloomberg, Jul 6, 2010.
7. China and the legacy of the Plaza Accord (http://www.atimes.com/atimes/Global_Economy/GI21Dj01.html), Asia Times Online, Sep 21, 2005.
8. The "Nixon Shock" and the "Plaza Agreement" (http://en.iwep.org.cn/download/upload_files/qhlv5i45am1dlk5504kvtyqp20070504152952.pdf), China & World Economy, Vol. 12, 2004.
9. Monetary Policy in Japan since The Late 1980s (http://www.iie.com/publications/chapters_preview/319/6iie289X.pdf), Institute for International Economics (http://www.atimes.com/atimes/China/LI25Ad03.html#).
10. Steep path to a modern-day Plaza Accord (http://www.ft.com/cms/s/0/5be5e788-c1ba-11df-9d90-00144feab49a.html), FT, Sep 16, 2010.
11. China: Hot money inflow heats up further (http://mediaserver.fxstreet.com/Reports/ec9a150d-8773-45c5-988d-d8a08a4fb198/47bcd758-a35c-444d-9f9e-11fbf26fc0b7.pdf), Danske Research, Jan 15, 2010.
12. SAFE: No big hot money flows into nation (http://www2.chinadaily.com.cn/bizchina/2010-05/26/content_9894516.htm), China Daily, May 26, 2010.
13. China Property Bubble to Burst ‘Quickly (http://www.businessweek.com/news/2010-06-15/china-property-bubble-to-burst-quickly-nomura-says-update1-.html),' Nomura Says, Bloomberg, Jun 15, 2010.
14. China's Economy at the Most Critical Point (http://www.chinastakes.com/2010/8/chinas-economy-at-the-most-critical-point.html), China Stakes, Aug 13, 2010.
15. Why China Can't Cool Its Overheated Real Estate Boom (http://www.dailyfinance.com/story/real-estate/why-china-cant-cool-its-overheated-real-estate-boom/19371786/), Daily Finance, Feb 27, 2010.
16. Property regulation not to impact economy (http://en.ce.cn/subject/chinaproperty/chinapropertyopinion/201009/15/t20100915_21820767.shtml), China Economic Net, Sep 15, 2010.
17. Economist says China's property market the biggest bubble in history (http://www.chinadaily.com.cn/opinion/2010-04/14/content_9730021.htm), China Daily, Apr 14, 2010.
18. No repeat of Japan's mistake: official (http://www.chinadaily.com.cn/china/2010-09/20/content_11325570.htm), China Daily, Sep 20, 2010.
19. "Hot Money" controllable as yuan reform proceeds (http://english.peopledaily.com.cn/90001/90778/90859/7032429.html), People's Daily, Jun 21, 2010.
20. China's Financial Conundrum and Global Imbalances (http://www.uni-leipzig.de/%7Ewipo/documents/Institut/Conference/Conference_McKinnon_Schnabl_BIS_Jun2008.pdf), University of Leipzig, Jun 27, 2008.
21. Krugman Says China Yuan Policy Depresses Global Economic Growth, Bloomberg (http://www.businessweek.com/news/2010-03-12/krugman-says-china-yuan-policy-depresses-global-economic-growth.html), Mar 12, 2010.
Peter Lee writes on East and South Asian affairs and their intersection with US foreign policy.
(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved.
The past two years have been tough on China-oriented Western economists. China's archaic mercantilism, tight capital controls, over-regulated financial sector, managed exchange rate and, above all, its need to purchase and sterilize massive inflows of foreign exchange were, according the theorists, leading the country to economic calamity.
However, Western triumphalism in 2008 took a tumble as the West's most sophisticated financial innovators led the world economy off a cliff. Meanwhile, China's ham-fisted socialists saved China and, to a certain extent, the rest of the world with an enormous stimulus program (US$586 billion in domestic spending plus significantly relaxed limits on bank lending) that, as a ratio of the gross domestic products (GDP), dwarfed America's stimulus spending by a factor of more than five.
Pro-Western economists and advocates of sophisticated, US-style financial engineering took a hit inside China as well.
An important, but little-noted milestone was passed last week in Washington: the Reserve Primary Fund, a supposedly safe-as-houses $62 billion money market fund that went bust when Lehman Brothers imploded in November 2008, finally finished paying off its investors.
Its biggest creditor - China's sovereign wealth fund, China Investment Corp (CIC) (which had earned creditor status because it sent in a last-minute redemption order for its $5 billion-plus stake just before the fund closed) - was paid off in multiple installments totaling about 98.75 cents to the dollar.
However, in 2008 the incident sparked off a heated debate in Beijing concerning the wisdom of trying to ingratiate China to the United States by positioning itself as an eager participant in the Wall Street casino organized by politically powerful financial firms.
As the Wall Street Journal reported at the time, the Chinese leadership was appalled to discover it held $600 billion in Fannie Mae and Freddie Mac bonds just as these two government agencies were tottering near extinction, as well as the sizable stake in the Reserve Primary Fund:
Around October, a lengthy Chinese-language essay began circulating on the Internet excoriating [chairman and chief executive] Mr Lou [Jiwei] and other top CIC officials, along with Zhou Xiaochuan, China's central bank governor, for being too close to the US and then-Treasury secretary Henry Paulson. The diatribe quickly gained wide circulation in Chinese financial circles. One passage charged that Mr Zhou "colluded with Henry Paulson to buy US bonds, forced [Chinese yuan] appreciation, attached China's economy to the US and broke China's economic independence". [1]
At times like this, it's instructive to recall that economics is not a hard science, and the fact that 70% of recipients of the Nobel Prize in Economics are Americans is no guarantee of US omniscience on the subject. For that matter, the Nobel Prize in economics is not a real Nobel prize, owing its existence to the marketing and cross-branding savvy of the Sveriges Riksbank rather than any desire by Alfred Nobel to celebrate what is often called "the dismal science". [2]
Two years after Lehman fell, vociferous debate continues between economists of various ideological stripes about what caused the Great Recession, despite the fact that it occurred under their very noses.
The role and responsibilities of the rather non-transparent Chinese economy have proved an even more intractable conundrum. The only conclusion that everyone can agree on is the simple fact that the Chinese currency is undervalued and, as such, offers an unfair advantage to Chinese exporters. No one, however, seems to agree on what can and should be done about it.
Now, it appears that many economists have given up on waiting for the invisible hand to correct the yuan exchange rate and, if possible, rebalance the global economy. Instead, it's time for the mailed fist of government policy - the command economy, if one will - to try to obtain what market forces have failed to achieve.
There is widespread dispute over the degree of undervaluation, and what degree of appreciation would be most desirable for the world economy. There are growing calls for a multilateral confrontation with China to force Beijing to appreciate the yen by 25% or more - which, it is calculated, would leave China enjoying a trade surplus of 3% - or eliminate the surplus with an increase of 40% or more.
But disregarding the forces at play in China's economy - and in the calculations of the country's leaders - offers the prospect of conflict without progress.
American frustrations were given a full airing at the September 15 hearings of the US House of Representatives' ways and means committee. Leo Girard, president of United Steelworkers Union and Dan DiMicco, president of Nucor Corporation - Nucor made its fortune in the 1980s by ripping the heart out of America's integrated, unionized steel mills with its low-cost mini-mills that ran on scrapped cars - made for unlikely allies in condemning the massive job losses attributed to China's artificially low exchange rate.
Predictably, US farm-state senators also appeared before the committee to make the case for avoiding the trade war and sustaining the grain exports to China that underpin the economies of the American heartland.
But the most arresting testimony was provided by G Paul Bergsten, founder and president of the Petersen Institute. Over the years, Dr Bergsten and the Petersen Institute have attempted to claim the exchange rate/Chinese currency wonk franchise through thousands of pages of closely argued publications, testimony, and op-eds.
However, Bergsten has apparently abandoned economic theory and win-win suasion in favor of big-stick tactics to compel a Chinese revaluation. He proposed a multilateral effort justified and executed under the regulations of the World Trade Organization (WTO):
A general indictment of China under Article XV, which proscribes countries from "frustrating the intent of the provisions of this Agreement by exchange action", prosecution under which would authorize members to retaliate against China.
Approval of case-by-action action by individual countries that chose to regard China's currency undervaluation as an export subsidy under the Code on Subsidies and Countervailing Duties, which China would have to challenge to overturn. [3]
The key coercive measure would be the legally questionable tactic of imposing countervailing duties as retaliation for currency manipulation; its virtue would be that the United States and other countries could impose the duties unilaterally, and place the onus on China to go before the WTO to challenge and overturn them.
In return, Bergsten promised the US Congress in his oral testimony a gusher of 500,000 new US jobs (retreating to a more scholarly and cautious range of 300,000 in his written testimony) if China responded to this "shot across the bow" by revaluing its currency to eliminate its trade surplus with the US.
Bergsten's questionable powers of prediction - he had gained a certain amount of notoriety at Davos in January 2008 when he asserted that "a global recession was inconceivable" - were challenged by the Council for US-China Trade's John Frisbie. [4]
Frisbie glumly pointed out that a hefty US countervailing duty on Chinese automobile tires had, instead of yielding a bonanza for American employment, simply redirected imports away from China to other overseas suppliers:
... imports from China are down 26%; imports from Japan, South Korea, Taiwan, Indonesia, Thailand and Mexico have more than filled the void and imports of low-end tires overall are 21% higher than before the tariffs. [5]
On the theoretical level, the idea that exchange rate adjustments are a panacea for national trade and investment problems has been rebutted by Ronald MacKinnon of Stanford University. [6]
Unfortunately, what lies behind this unnecessary political crisis is a widely held but false economic belief: the idea that the exchange rate can be used to control any country's trade balance, which is the difference between its saving and investment rate. Instead, the problem is a saving deficiency in the US - with very large fiscal deficits and low personal saving - coupled with surplus saving in China.
Nevertheless, a common thread running through the testimony was a renewed appreciation for what might be turned the meat-ax approach to exchange-rate management symbolized by the 1985 Plaza Accord.
In the opinion of its advocates, the Plaza Accord seems to have been the last thing that worked the way it was supposed to in US exchange rate policy. As Asia Times Online readers know, it has emerged as a perennial in the US-China trade debate. [7]
In the 1980s, Japan posed problems that current critics of China will easily recognize: it was an export machine, accumulating huge surpluses, gutting the US auto industry with surging sales of Toyotas, Nissans and Hondas, and hiding behind capital controls and a yen/US$ exchange rate pegged as low as 260:1.
When jawboning failed, president Ronald Reagan and the European economies summoned Japan to New York and negotiated the Plaza Accord, which committed Japan to a currency realignment. The US dumped dollars and the Bank of Japan undertook to buy them, ultimately driving the yen from levels around 250 up to 122.
Mission accomplished? Well, maybe not.
The collapse of the dollar against the yen did not by itself trigger an outpouring of US exporting elan vis-a-vis Japan.
The efficiency advantages of Japanese industry survived the exchange rate realignment and the Japanese trade surplus with the United States turned out to be to a large extent structural. The weaker US dollar primarily reaped a diplomatically export boost in the markets of Washington's European allies instead.
Although the United States gained a handful of transplant auto plants operated with small, non-union workforces - and, as DiMicco pointed out in the hearings, Nucor also gained a Japanese partner for its zero-sum ravaging of the US steel industry - Japan continued to run large trade surpluses with the US and indeed does so to this day.
The US did not gain clear and massive benefits from the Plaza Accords and Japan didn't do too well, either - a fact that Chinese observers have understood and advertised ever since the US began beating the currency realignment drum vis-a-vis the Chinese.
The appreciation of the Japanese yen got out of hand, so it was necessary to follow the Plaza Accord with the Louvre Agreement in 1987, placing a bottom under the plunge of the dollar so that holders of the Japanese yen could start thinking about (and speculating on) something other than where the value of the yen might be tomorrow. [8]
Upward revaluation of the yen under the accord certainly did not eliminate US political pressure on Japan. To Japan's chagrin, US demands for managed trade - a voluntary cap on Japanese auto imports - also persisted despite Tokyo's avid consumption of the Plaza Accord Kool Aid.
The trade deficit with Japan remained stubbornly high, so US policymakers insisted on the opening up and deregulation of the Japanese financial sector to permit the invisible hand to freely harvest its economic bonanza that the Plaza Accord had promised but perversely failed to deliver.
To help Japanese corporations cope with the spike in the exchange rate - and boost domestic demand to placate American criticism of the persistent trade surplus - the Bank of Japan initiated an easy money policy.
Money poured out of Japanese banks to stimulate infrastructure development, stimulate domestic demand and assist Japanese manufacturers in further improving the cost efficiency of their operations. Ironically, a key cost-cutting measure for Japanese industry was the wholesale shift of manufacturing operations to the People's Republic of China, sowing the seeds of America's current Asian dilemma.
The Bank of Japan is blamed for creating a titanic real estate/asset bubble with easy money post-Plaza. However, an exhaustive study of the Plaza Accord aftermath by three Japanese economists illustrates the powerful external forces that were unleashed by the accord and which contributed to the subsequent bubble. [9]
The US and Group of 7 pressure was successfully applied to the Japanese government over the repeated objections of the Bank of Japan to stimulate Japanese domestic demand to reduce the politically offensive trade surpluses from 1985 to 1988.
The only time the Bank of Japan conspicuously dropped the ball was in the 1990s, when its excessively tight monetary policy after the real estate bubble burst in 1989 plunged Japan's economy into its lost decade.
Interviewed by the Financial Times, Bergsten acknowledged the less than edifying outcome of the Plaza Accord process but asserted that China could avoid a similar experience, presumably because its economists were "smarter":
In any case, Chinese officials often argue that the Plaza Accord was disastrous for Japan. The agreement encouraged the Bank of Japan to cut interest rates to offset the strengthening yen, and many in both Japan and China say that shift encouraged Japan's massive property and financial bubble at the end of the 1980s, followed by the "lost decade" of economic stagnation.
Mr Bergsten says that "smarter Chinese economists" privately accept that these arguments are bogus, and that Japan's poor banking regulation was more to blame for the bubble. Still, it does give Beijing a useful talking point. [10]
The lesson of the Japanese experience - that a new Plaza Accord would do little to solve the trade deficit problem or relieve US political pressure, would saddle China with the burden of further loosening its monetary policy to cope with the effects of a revaluation, and doom it to wrestling with a new asset bubble, albeit with the opportunity to draw on the wisdom of "smarter economists" to deflate the bubble better than Japan did - is probably not enough to sell China on the efficacy of this process.
Also, in an environment of ferocious mercantilist competition in the region, China's export industry apparently doesn't have the advantage of responding to onerous exchange rates with a massive strategic restructuring and migration to low-cost offshore sources, as Japan did in the 1980s, making a riskier reflation to boost domestic demand and restructuring more likely.
Finally, if and when unforeseen difficulties appeared in the execution of a revaluation, the United States would be unlikely to extend to its competitor, China, the same exchange rate lifeline it extended to its beholden ally Japan in 1987 with the stabilizing Louvre Agreement.
The ultimate wild card is whether the United States will proceed with retaliatory tariffs regardless of their apparent ineffectiveness as a tool to manage trade deficits, thereby simply redirecting America's enriching import trade (and deficits) away from China, its strategic competitor, to its allies in South and Southeast Asia.
Considering the massive amounts of erudite, mathematically buttressed ink that Western economists expend on the problems of Chinese macro-economic policy, there seems to be a certain inability to understand the roots of Chinese policy on the issue.
Economist and Nobel prize winner Paul Krugman, who, from his perch at the New York Times, is one of the most vociferous advocates of punitive tariffs on Chinese imports to compel a revaluation of the yuan, recently blamed Chinese recalcitrance on "politically influential Chinese companies" eager to preserve their export advantage.
Actually, the Chinese government is, to a large extent, in thrall not to exporters but to domestic and international real estate developers. This fact is, to a significant extent, crucial to understanding Chinese exchange rate preoccupations. This is because, to China, the forex revaluation problem is a hot money problem. And the hot money problem is a real estate problem.
It is unlikely that the Chinese government can openly accept a planned, major upward valuation of the yuan. Speculative money - hot money - has poured in and out of China as the political winds have shifted vis-a-vis yuan revaluation.
Stanford's MacKinnon has pointed out that, as international pressure for revaluation intensifies, yuan revaluation looks more and more like a "one way bet" - without downside risk. By this perception, anybody holding yuan is guaranteed an eventual payout of 25% if they can only hold on to it long enough to buy dollars at the more favorable rate after the revaluation goes through.
The prospect of this return is enough to tempt the most virtuous economic actors to evade China's capital controls to speculate on the future of the yuan. Even with China awash in foreign exchange, Chinese enterprises that can borrow dollars overseas do so - in order to gamble on a yuan/US$ revaluation.
Foreign investors and domestic business both inflate their capital needs to import dollars, convert them to yuan, and hold them against a future exchange rate bonanza. In 2009, as the undervaluation debate gathered steam, perhaps US$200 billion of hot money poured into China. [11]
In 2010, the monthly flow of hot money has fluctuated between $12 billion and almost $50 billion per month, according to Shanghai Securities News. [12]
Hot money is anathema to the Chinese government for historical reasons. Massive speculative bets by hedge fund on Southeast Asian currencies unprotected by strict exchange controls overwhelmed national currency managers and triggered the Asian economic crisis of 1997 - a crisis that China escaped, with considerable self-congratulation, because its tight capital controls kept George Soros and his ilk at bay.
Nevertheless, today, with China regarding itself as a burgeoning world economic power, it might seem that allowing some lucky speculators to enjoy a massive forex revaluation windfall - and subsequent repatriation of hundreds of billions of dollars of windfall profits - while coping with the economic fallout of a prompt 25% revaluation might be an acceptable price for getting the US off its back.
However, even with tight capital controls still in place and the sizable economic heft and tools available to the People's Bank of China, a quick and painful lancing of the forex boil may not be an option for China.
Currently, a lot of hot money is parked in China's stock market and, more importantly, its real estate market, while awaiting the longed-for revaluation. Real estate is the 800-pound gorilla in the Chinese economy.
Massive population movements away from the impoverished country and into the burgeoning cities (perhaps 10 million to 15 million people per year) is triggering a real estate boom that - thanks to the freely available bank loans released as part of the anti-recession stimulus package - also looks more and more like a real-estate bubble.
In classic bubble fashion, prices in Beijing and Shanghai rose 50% to 60% in 2009, so that residential real estate trades at multiples of 13 to 14 times average annual earnings, according to Sun Mingchun of Nomura. [13]
Crucially, the sale of real estate development rights, in addition to fueling runaway corruption and illegal confiscation on a massive scale, finances the provision of much of the infrastructure and services that undemocratic, incompetent and overwhelmed local governments are able to provide in order to keep a lid on public dissent.
About 1.6 trillion yuan (US$238 billion) - fully a third of overall local government revenues, according to Chinastakes' Simon Hand - is derived from the sale of development rights. [14] Victor Shih of Northwestern University estimated that 50% of Shanghai's municipal budget derives from transactions in its white-hot real-estate market.
The local governments also rely on the promise of these windfalls to borrow pell-mell from banks to fill the holes in their capital accounts and balance sheets that revenues can't fill, and place billion-yuan bets on real-estate developments in hopes that they can profit from the bubble. [15]
If and when the bubble goes pop, local government revenues, bank balance sheets and social order might very well go pop with it. Slowly deflating the bubble and carefully unwinding the overextended debt position of local governments is the key economic challenge facing the Chinese government today. Nomura is predicting a 10% to 20% correction in real-estate prices before the end of 2011.
The government estimates that it will take at least two to three years to gradually deflate the real-estate bubble and bring supply and prices in line with demand. [16]
The Chinese government has raised reserve requirements for banks to cut back on real-estate lending and discouraged mortgages for second- and third-home speculative purchases. The headlong increase in real estate prices has apparently slowed since the policy slowdown in April 2010, although it is unclear that the local governments have actually stepped back from the action.
In this delicate time, the last thing the Chinese government needs is a sudden gush of hot money in (to feed the bubble) or out (to threaten bank liquidity).
China Daily reported:
Andy Xie, a former Morgan Stanley chief Asian economist, asserts that China's property market is the biggest bubble in the history of finance, and only by raising the interest rate can the bubble be pierced, says an article in China Times. Here is an excerpt: Xie underlines that priority should be given to increasing interest rates rather than to appreciation of the renminbi [yuan]. Revaluation of the renminbi alone would further exacerbate the property bubble and inflationary pressure, potentially causing a major economic crisis in the next two years. [17]
And that means that the Chinese government is adamant that no explicit, orderly exchange revaluation will take place "under outside pressure".
An advisor to the People's Bank of China stated the Chinese case bluntly on September 15 in a China Daily story entitled "No Repeat of Japan's Mistake: Official":
Li Daokui, an economist and member of the monetary policy committee of the People's Bank of China, said the exchange rate is just one of the many tools that China could deploy to adjust the structure of its economy. The country may choose other means, such as boosting domestic consumption and increasing imports, to achieve a trade balance, he said.
"China will not go down the path that Japan did and give in to foreign pressure on the yuan's exchange rate," Li said at an industry forum in Beijing. [18]
China wants to keep the yuan valuation process non-transparent and unpredictable, deterring influxes of hot money with the threat that incautious speculators who make big and reckless bets on the appreciation of the yuan can get squeezed by a sudden downward revaluation. At the same time, the government is trying to increase the holding charges associated with parking hot money inside the country and funneling it toward the real-estate sector.
According to the People's Daily, Chinese economists recently estimated that, given the costs of parking hot money, China could safely appreciate the yuan around 3% per year. At that rate, it would take nearly a decade to put the exchange rate where the US wants it:
If the annual appreciation of the currency can be kept below 3 percent, it will make it hard for speculators to profit, since they will have to pay dual-way transaction costs that will be close to what they can gain from a rising yuan, said Zhou Shijian, senior economist at the China-US relations research center of Tsinghua University. "If the yuan rises, it must be narrow-floating."
A hasty, swift appreciation of the yuan will make it difficult to control an influx of "hot money" and endanger the Chinese economy, Zhou said, citing widespread trade sector bankruptcies and job losses in the country from October 2007 to July 2008, when the yuan appreciated by 11 percent against the dollar, compared with about 8 percent in the previous two and a half years. [19]
Given these constraints, it would appear almost impossible for China to risk a major, rapid appreciation of the yuan, especially one transparently mandated by an international agreement.
And, given the Chinese position that the structural nature of the US trade deficit implies that a revaluation will merely shift the source of the deficit away from China to its Asian competitors, US calls for a revaluation are unlikely to attract a favorable hearing either from Chinese politicians or economists.
MacKinnon of Stanford argues that the best solution is to take hot money out of the equation by freezing the yuan now at its current rate, and thereby allow the Chinese economy to rationalize, break the linkage between hot money and real-estate speculation, and allow Chinese planners to reduce the share of the national wealth that is dumped into the creation of fixed assets. [20]
Beyond criticizing the US fixation on the exchange rate, the Chinese government took various pro-active measures to try to defuse the confrontation. It engineered some upward motion in the yuan (the Chinese currency has appreciated about 2% against the dollar since June 19 after holding steady for the previous two years), sent a 50-person trade delegation led by the minister of commerce to the United States to boost US exports to China; and it announced efforts to rebalance the economy by encouraging domestic consumption.
These moves have apparently been of limited avail.
On September 16, Secretary of the Treasury Timothy Geithner appeared before the House committee to declare that the US government would look at its coercive options, including WTO proceedings, in trying to get China to adjust its US dollar exchange rate. The balance of his remarks seemed to display a distinct reluctance to mix it up with China in an exchange rate confrontation that may yield the United States few benefits.
Nevertheless, the Obama administration is on the political defensive in the runup to the November mid-term congressional elections, and electoral considerations may carry the day.
Krugman, in arguing for a punitive tariff, minimized the risks without, perhaps, a clear understanding of the consequences both inside and outside of China: "Without a credible threat, we're not going to get anywhere," he said. "The chance that we would trigger a trade war is very small and it's hard to see any alternative." [21]
In a debate largely driven by politics, illogic and emotion - and the inability or unwillingness of tariff-war advocates to perceive alternatives - the forces favoring the status quo have their work cut out for them.
Notes (http://www.atimes.com/atimes/China/LI25Ad03.html)
1. Read Dean, Areddy and Ng on the management of China's reserves during the crisis (http://blogs.cfr.org/setser/2009/01/29/read-dean-areddy-and-ng-on-the-management-of-chinas-reserves-during-the-crisis/#more-4584), Council on Foreign Relations, Jan 29, 2009.
2. And The Fake Nobel Goes To (http://yglesias.thinkprogress.org/2009/10/and-the-fake-nobel-goes-to/) ... Think Progress, Oct 12, 2009.
3. Correcting the Chinese exchange rate (http://waysandmeans.house.gov/media/pdf/111/2010Sep15_Bergsten_Testimony.pdf), Committee on Ways and Means, US House of Representatives, Sep 15, 2010.
4. Inigo Montoya was right and C. Fred Bergsten was wrong about global recession (http://curiouscapitalist.blogs.time.com/2008/11/10/inigo-montoya-was-right-and-c-fred-bergsten-was-wrong-about-global-recession/), Time, Nov 10, 2008.
5. China's Exchange Rate Policy (http://waysandmeans.house.gov/media/pdf/111/2010Sep15_Frisbie_Testimony.pdf), Committee on Ways and Means, US House of Representatives, Sep 15, 2010.
6. China Bashing Over Yuan Needs a Long Rest (http://www.bloomberg.com/news/2010-07-06/china-bashing-over-yuan-needs-a-long-rest-commentary-by-ronald-mckinnon.html): Ronald I. McKinnon, Bloomberg, Jul 6, 2010.
7. China and the legacy of the Plaza Accord (http://www.atimes.com/atimes/Global_Economy/GI21Dj01.html), Asia Times Online, Sep 21, 2005.
8. The "Nixon Shock" and the "Plaza Agreement" (http://en.iwep.org.cn/download/upload_files/qhlv5i45am1dlk5504kvtyqp20070504152952.pdf), China & World Economy, Vol. 12, 2004.
9. Monetary Policy in Japan since The Late 1980s (http://www.iie.com/publications/chapters_preview/319/6iie289X.pdf), Institute for International Economics (http://www.atimes.com/atimes/China/LI25Ad03.html#).
10. Steep path to a modern-day Plaza Accord (http://www.ft.com/cms/s/0/5be5e788-c1ba-11df-9d90-00144feab49a.html), FT, Sep 16, 2010.
11. China: Hot money inflow heats up further (http://mediaserver.fxstreet.com/Reports/ec9a150d-8773-45c5-988d-d8a08a4fb198/47bcd758-a35c-444d-9f9e-11fbf26fc0b7.pdf), Danske Research, Jan 15, 2010.
12. SAFE: No big hot money flows into nation (http://www2.chinadaily.com.cn/bizchina/2010-05/26/content_9894516.htm), China Daily, May 26, 2010.
13. China Property Bubble to Burst ‘Quickly (http://www.businessweek.com/news/2010-06-15/china-property-bubble-to-burst-quickly-nomura-says-update1-.html),' Nomura Says, Bloomberg, Jun 15, 2010.
14. China's Economy at the Most Critical Point (http://www.chinastakes.com/2010/8/chinas-economy-at-the-most-critical-point.html), China Stakes, Aug 13, 2010.
15. Why China Can't Cool Its Overheated Real Estate Boom (http://www.dailyfinance.com/story/real-estate/why-china-cant-cool-its-overheated-real-estate-boom/19371786/), Daily Finance, Feb 27, 2010.
16. Property regulation not to impact economy (http://en.ce.cn/subject/chinaproperty/chinapropertyopinion/201009/15/t20100915_21820767.shtml), China Economic Net, Sep 15, 2010.
17. Economist says China's property market the biggest bubble in history (http://www.chinadaily.com.cn/opinion/2010-04/14/content_9730021.htm), China Daily, Apr 14, 2010.
18. No repeat of Japan's mistake: official (http://www.chinadaily.com.cn/china/2010-09/20/content_11325570.htm), China Daily, Sep 20, 2010.
19. "Hot Money" controllable as yuan reform proceeds (http://english.peopledaily.com.cn/90001/90778/90859/7032429.html), People's Daily, Jun 21, 2010.
20. China's Financial Conundrum and Global Imbalances (http://www.uni-leipzig.de/%7Ewipo/documents/Institut/Conference/Conference_McKinnon_Schnabl_BIS_Jun2008.pdf), University of Leipzig, Jun 27, 2008.
21. Krugman Says China Yuan Policy Depresses Global Economic Growth, Bloomberg (http://www.businessweek.com/news/2010-03-12/krugman-says-china-yuan-policy-depresses-global-economic-growth.html), Mar 12, 2010.
Peter Lee writes on East and South Asian affairs and their intersection with US foreign policy.
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