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China's economy
Published in The Saudi Gazette on 01 - 11 - 2010

China's artificially cheap exports are flooding foreign markets, undercutting industries, threatening the global recovery, and angering many, said The New York Times in an editorial published Sunday. Excerpts:
Beijing has resisted demands to allow its currency to rise against the dollar. A new proposal could offer a way out. The Obama administration, which has been trying to rally pressure on Beijing, is calling on the world's largest economies to agree to a target for the size of their trade imbalances.
At a meeting of finance ministers of the Group of 20 leading economies, the United States proposed that deficits or surpluses in a country's current account – the trade balance and some financial transactions – should be brought under 4 percent of GDP, by 2015. This country's current account deficit amounts to 3 percent of its GDP. Still, a 4 percent target could help reduce the world's largest imbalances. China's surplus is 5 percent of its GDP; Germany's surplus is 6 percent. These huge surpluses mean exports from China and Germany are hogging demand in other countries. As consumer spending falters in deficit countries, including the United States, surplus countries must start buying more of their own, and others', products. Some countries balked at the number. The group agreed in principle, and China has signed on so far.
Focusing on its surplus wouldn't mean that China's currency manipulation was off the hook. To meet the target, it would have to let the renminbi rise to increase its imports and temper export growth. __


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