https://www.scmp.com/rss/15609/feed Michael Pettis is a senior fellow at Carnegie China and teaches finance at Peking University. His most recent book is “Trade Wars are Class Wars”. en https://assets.i-scmp.com/static/img/icons/scmp-meta-1200x630.png https://www.scmp.com By now, even the most optimistic of analysts recognise the deep structural imbalances from which the Chinese economy suffers. These distortions are striking. China accounts for roughly 17 per cent of the global economy but only about 12 per cent of global consumption, with Chinese investment estimated to make up an astonishing 30 per cent of the global total. This clearly isn’t sustainable. As part of its gross domestic product, China’s investment level is already very high. If it wants to... https://www.scmp.com/comment/opinion/article/3233610/china-must-slow-down-investment-if-it-wants-rebalance-its-debt-laden-economy?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3233610/china-must-slow-down-investment-if-it-wants-rebalance-its-debt-laden-economy?utm_source=rss_feed Mon, 11 Sep 2023 17:00:16 +0000 Mainland developers have seen their share prices surge recently on rumours that the government plans to revive the property market. This worries many analysts who had assumed Beijing was serious about reining in the out-of-control sector. Even with prices having declined in the past two years, and the sharp fall in property-related activity, China needs a further substantial contraction in the role of real estate in its economic activity. Property prices relative to household income are still... https://www.scmp.com/comment/opinion/article/3206254/painful-it-china-must-rid-its-economy-ever-rising-property-market?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3206254/painful-it-china-must-rid-its-economy-ever-rising-property-market?utm_source=rss_feed Thu, 12 Jan 2023 00:15:09 +0000 China was once blessed, and now is cursed, with an extraordinarily high investment share of GDP. According to the World Bank, investment comprises around 25 per cent of global GDP, ranging from the high teens and low 20s for more mature economies to the high 20s and low 30s for developing economies during their high-growth stages. China is different. For decades it has invested an amount equal to 40-50 per cent of its annual GDP. This is an astonishingly high level, but whether it is a good... https://www.scmp.com/comment/opinion/article/3194792/china-must-sacrifice-gdp-growth-rebalance-its-economy?utm_source=rss_feed https://www.scmp.com/comment/opinion/article/3194792/china-must-sacrifice-gdp-growth-rebalance-its-economy?utm_source=rss_feed Thu, 06 Oct 2022 08:30:08 +0000 Should the world give up the dollar? It is ironic that it is considered pro-American to want the dollar to maintain its role as the world's dominant reserve currency and anti-American to call for a change. In fact, the present system may mean slower economic growth and higher debt for the United States - and faster growth for countries that take advantage of the reserve system to generate export-led growth. In a debate on Chinese television two years ago, a Chinese professor from a famous... https://www.scmp.com/article/738792/dollar-reserve-system-better-east-asian-exporters-us?utm_source=rss_feed https://www.scmp.com/article/738792/dollar-reserve-system-better-east-asian-exporters-us?utm_source=rss_feed Sun, 20 Feb 2011 16:00:00 +0000 This year, Beijing will face the task of keeping gross domestic product growth rates high - probably about 9 per cent - while trying to reduce the economy's dependence on increasing investment. This will not be easy. To see why, consider the engines of economic growth. China, like nearly every other country, relies on three sources of economic growth - domestic household consumption, the trade surplus and domestic investment. Of the three, household consumption constitutes a lower share of GDP... https://www.scmp.com/article/735960/decisions-taken-2011-will-set-chinas-growth-path-next-few-years?utm_source=rss_feed https://www.scmp.com/article/735960/decisions-taken-2011-will-set-chinas-growth-path-next-few-years?utm_source=rss_feed Sun, 16 Jan 2011 16:00:00 +0000 Europe is facing not just the risk of financial instability, but also that of rising political instability. Financial crises create tensions within economic classes that quickly become political tensions. As far back as 1922 John Maynard Keynes made the point that the choice between inflating debt away and deflating wages came down to the agonising outcome of a struggle among interest groups. Over the next few years many countries in Europe are going to face similar struggles among interest... https://www.scmp.com/article/733286/financial-solutions-point-political-confrontations?utm_source=rss_feed https://www.scmp.com/article/733286/financial-solutions-point-political-confrontations?utm_source=rss_feed Sun, 12 Dec 2010 16:00:00 +0000 Six months ago Domingo Cavallo, the all-powerful Minister of Economy for Argentina from 1991 to 1996, had a warning for Greece. 'Don't even think of abandoning the euro,' he said, 'because that will provoke a financial catastrophe in Greece and various other countries in Europe.' Best known for his 1991 Convertibility Law, which forced Argentina to abandon the austral, its hyperinflationary currency, and replace it with a strong peso pegged to the US dollar, Cavallo was reappointed Minster of... https://www.scmp.com/article/731968/europe-can-learn-argentinas-woes?utm_source=rss_feed https://www.scmp.com/article/731968/europe-can-learn-argentinas-woes?utm_source=rss_feed Sun, 28 Nov 2010 16:00:00 +0000 In 1990, Japan was 17 per cent of the global economy and two-thirds the size of the United States. With two decades behind it of nearly 10 per cent annual growth rates, it accounted for a larger share of global growth than any other country. Japan was expected to easily become the world's largest economy within two decades. Imagine that at the time you had been smart (and foolhardy) enough to predict that for the next two decades Japan's annual growth rate would collapse to below 1 per cent and... https://www.scmp.com/article/730551/japans-20-year-rebalancing-tells-us-chinas-slowdown-will-be-bearable?utm_source=rss_feed https://www.scmp.com/article/730551/japans-20-year-rebalancing-tells-us-chinas-slowdown-will-be-bearable?utm_source=rss_feed Sun, 14 Nov 2010 16:00:00 +0000 Many Chinese respond worriedly to calls to raise the yuan by looking back at the Plaza Accord of September 1985, after which the value of the yen rose more than 60 per cent, from 240 to the US dollar to less than 150, within two years. After five years of strong growth and surging stock and real estate markets, in 1990 Japan was forced into a painful 20-year adjustment. For many Chinese, there was a causal connection between the two events. The post-1985 rise in the yen, they believe, caused... https://www.scmp.com/article/727868/japans-past-has-lessons-beijing?utm_source=rss_feed https://www.scmp.com/article/727868/japans-past-has-lessons-beijing?utm_source=rss_feed Sun, 17 Oct 2010 16:00:00 +0000 Since the US House of Representatives on Wednesday passed a bill to press China to let its currency rise faster, it is clear that the world is tilting inexorably towards more trade conflict. But excessive focus on currencies and tariffs is likely to make a bad situation worse. There are many ways for China to rebalance, and they all involve the same process of transferring income from producers to households. Raising the value of the yuan, for example, increases the real value of household... https://www.scmp.com/article/726537/trade-conflicts-will-rise-amid-pressure-yuan?utm_source=rss_feed https://www.scmp.com/article/726537/trade-conflicts-will-rise-amid-pressure-yuan?utm_source=rss_feed Sun, 03 Oct 2010 16:00:00 +0000 Over the next few years, the debate about whether or not to remain in the euro will rage in countries like Greece, Italy, Spain, Ireland and Portugal. Opponents will argue that each country must ditch the euro and regain monetary sovereignty or it will be condemned to rising unemployment and stagnation. Proponents will counter by insisting that retaining the euro is the only way to protect domestic and monetary fiscal credibility. By leaving the euro and devaluing their national currencies, they... https://www.scmp.com/article/725244/history-shows-currency-devaluation-may-not-be-calamity?utm_source=rss_feed https://www.scmp.com/article/725244/history-shows-currency-devaluation-may-not-be-calamity?utm_source=rss_feed Sun, 19 Sep 2010 16:00:00 +0000 What is happening to car sales on the mainland? Amid the excited press commentary about China overtaking Japan as the world's second-largest economy, there was some worrying news. Mainland car sales might contract by as much as 20 per cent in the second half of this year. Why does this matter? Because after growing 48 per cent in the first half of 2010, and 45 per cent last year, the sharp contraction will intensify the debate over mainland consumption growth. In order to rebalance, the... https://www.scmp.com/article/721738/sharp-drop-mainland-car-sales-would-reveal-big-flaw-its-economic-strategy?utm_source=rss_feed https://www.scmp.com/article/721738/sharp-drop-mainland-car-sales-would-reveal-big-flaw-its-economic-strategy?utm_source=rss_feed Sun, 08 Aug 2010 16:00:00 +0000 Many in the United States are concerned about whether the People's Bank of China and other foreign entities will continue buying enough US Treasury bonds to help Washington fund its deficit. But strangely enough, the real problem is exactly the opposite - the US will suffer from far too much foreign money coming into the country, which will push up its trade deficit while making it altogether too easy for the US Treasury to finance its bond issuance. To see why, we simply need to remember that... https://www.scmp.com/article/719462/capital-import-export-balance-poses-challenge?utm_source=rss_feed https://www.scmp.com/article/719462/capital-import-export-balance-poses-challenge?utm_source=rss_feed Sun, 11 Jul 2010 16:00:00 +0000 The Greek crisis, and the speed with which the consequent fear has spread to other European countries - notably Portugal, Spain and, most worrying of all, Italy - seems for many analysts to be unprecedented. It is hard, they say, to know how the crisis will eventually end. But in fact there is a lot of historical precedent that allows us to make some reasonable guesses about the course of the crisis. There are at least four things we can learn from history. First, and most obviously, we... https://www.scmp.com/article/718314/debt-forgiveness-only-way-end-greek-crisis?utm_source=rss_feed https://www.scmp.com/article/718314/debt-forgiveness-only-way-end-greek-crisis?utm_source=rss_feed Sun, 27 Jun 2010 16:00:00 +0000 Why haven't we seen more inflation in China? According to the standard economic model, any country experiencing very rapid productivity growth in the tradable goods sector will see a rise in the real value of its exchange rate. This can occur in two ways. Either the nominal exchange rate will rise or, if it doesn't, the resulting current account inflows will cause monetary expansion, which will cause domestic prices to rise. This is just another name for inflation. A country that runs large... https://www.scmp.com/article/717059/households-pay-low-inflation-and-cheap-yuan?utm_source=rss_feed https://www.scmp.com/article/717059/households-pay-low-inflation-and-cheap-yuan?utm_source=rss_feed Sun, 13 Jun 2010 16:00:00 +0000 With the Shanghai stock market down more than 20 per cent this year, it is tempting to read the fall in stock prices as an indication that Chinese investors believe the economy is poised to slow dramatically. But analysts should be cautious in how they interpret the recent gyrations in Chinese stocks. We are used to thinking about markets as machines that discount expected cash-flow, and that stock price levels generally represent the market's best estimate of future growth prospects. This,... https://www.scmp.com/article/715760/speculative-china-forays-call-caution?utm_source=rss_feed https://www.scmp.com/article/715760/speculative-china-forays-call-caution?utm_source=rss_feed Sun, 30 May 2010 16:00:00 +0000 I recently called a Spanish friend who has toyed with the idea of entering politics. If he ever wanted to do so, I told him, now was the time. There are two issues that will move to the centre of the political debate within a few years, and if he were to stake out radical positions now, his prestige and visibility would soar. First is Germany's role in the crisis. Over the next few years there will be a crescendo of blame directed at Germany as having caused the European crisis. Critics... https://www.scmp.com/article/713911/southern-europes-way-out-crisis-may-require-ceding-sovereignty-brussels?utm_source=rss_feed https://www.scmp.com/article/713911/southern-europes-way-out-crisis-may-require-ceding-sovereignty-brussels?utm_source=rss_feed Sun, 09 May 2010 16:00:00 +0000 Everything seems suddenly to have become rosier in US-China relations. Three weeks ago Treasury Secretary Tim Geithner, on his way back home from a trip to India, made a seemingly unscheduled visit with VicePremier Wang Qishan. Days before, the US Treasury decided to postpone a report that might name China as a currency manipulator. Meanwhile, that same week, President Hu Jintao said he would attend the nuclear security conference in Washington in mid-April after a reportedly friendly... https://www.scmp.com/article/712532/us-china-ties-warmer-not-long?utm_source=rss_feed https://www.scmp.com/article/712532/us-china-ties-warmer-not-long?utm_source=rss_feed Sun, 25 Apr 2010 16:00:00 +0000 Many believe that if China revalues the yuan, with US$2.5 trillion in reserves, it will lose US$25 billion for every 1 per cent appreciation of the currency. One rather excitable English economist at a Shanghai university even claimed that this loss would represent an equivalent profit to the US government. These views are wrong - the latter almost comically so. In fact, it is difficult to say if China as a whole will benefit or suffer from an appreciation, but it is more likely it will gain... https://www.scmp.com/article/709975/why-china-gains-yuan-revaluation?utm_source=rss_feed https://www.scmp.com/article/709975/why-china-gains-yuan-revaluation?utm_source=rss_feed Sun, 28 Mar 2010 16:00:00 +0000 Japan has undergone exactly the kind of rebalancing after 1990 that many expect from China today. This does not mean China will have as difficult a process as Japan did, but it is worth looking at Japan's history to understand the different ways in which rebalancing can occur. For Japan in the 1980s and China today, high investment rates and even higher savings rates meant economic growth was heavily dependent on investment and net exports, and not nearly dependent enough on domestic... https://www.scmp.com/article/708611/look-japanese-experience-costly-lesson-rebalancing?utm_source=rss_feed https://www.scmp.com/article/708611/look-japanese-experience-costly-lesson-rebalancing?utm_source=rss_feed Sun, 14 Mar 2010 16:00:00 +0000 In the past two months, the news about wage pressure has been relentless. China's largest exporting provinces have raised minimum wages. Hong Kong capitalists are desperately worried about labour shortages in mainland factories. Newspapers warn of a scramble for workers in China's eastern provinces. Everyone seems to be concerned about rising labour costs. There are real reasons to be concerned. If an important cause of rising wages is the impact of China's massive stimulus programme on pulling... https://www.scmp.com/article/707257/high-cost-rebalancing-necessary-evil?utm_source=rss_feed https://www.scmp.com/article/707257/high-cost-rebalancing-necessary-evil?utm_source=rss_feed Sun, 28 Feb 2010 16:00:00 +0000 Central bank reserves probably generate more confused and mistaken thinking than any other topic in economics. A case in point is the recent controversy between hedge fund manager Jim Chanos and New York Times columnist Thomas Friedman, in which Friedman proposed, yet again, a common misconception over the meaning of China's huge accumulation of foreign reserves. Chanos, a successful hedge fund manager who has made his reputation - and fortune - by identifying and shorting seriously overvalued... https://www.scmp.com/article/705089/china-debate-needs-historical-perspective?utm_source=rss_feed https://www.scmp.com/article/705089/china-debate-needs-historical-perspective?utm_source=rss_feed Sun, 31 Jan 2010 16:00:00 +0000 Last week, Japanese Finance Minister Naoto Kan pointedly told reporters that if any of the delegates at the Group of Seven meeting next month in Iqaluit, Canada, brought up the issue of the undervaluation of the yuan, he would 'listen carefully and express opinions if necessary'. Only a week earlier, he had backed off his call for a weaker yen, but his opinions about relative currency valuations were quite clear. Ironically, it was not so long ago that Japan had argued stubbornly against... https://www.scmp.com/article/703962/trade-pessimists-may-well-be-right?utm_source=rss_feed https://www.scmp.com/article/703962/trade-pessimists-may-well-be-right?utm_source=rss_feed Sun, 17 Jan 2010 16:00:00 +0000 The world must understand how difficult the process of rebalancing will be for China, and it should try to accommodate it. Five years ago, Chinese consumption was equal to about 40 per cent of the country's gross domestic product. Analysts unanimously agreed that this level left China overly vulnerable to external demand. As a comparison, the share of consumption in most wealthy economies is 60 to 70 per cent of GDP. Even in other high-saving Asian countries, who are themselves overly reliant... https://www.scmp.com/article/700504/difficulties-over-raising-consumption-pace?utm_source=rss_feed https://www.scmp.com/article/700504/difficulties-over-raising-consumption-pace?utm_source=rss_feed Sun, 06 Dec 2009 16:00:00 +0000 This summer, US economists Barry Eichengreen and Douglas Irwin published a very interesting paper on the roots of protectionism in the Depression. The authors argue that in the 1930s the likelihood of countries resorting to trade protection, most importantly the raising of tariff barriers, was strongly correlated with their inability to adjust via the exchange rate mechanism. During the 1920s and shortly after the onset of the financial crisis beginning in 1929, several countries either... https://www.scmp.com/article/699126/why-countries-resort-trade-protectionism?utm_source=rss_feed https://www.scmp.com/article/699126/why-countries-resort-trade-protectionism?utm_source=rss_feed Sun, 22 Nov 2009 16:00:00 +0000 In the euphoria over the surge in China's investment-driven growth announced last week, many forget that there is a real economic cost to excessive infrastructure investment. After all, if China has fewer good roads, bridges, airports, and high-speed railways than rich countries do, how can the mainland suffer from too much infrastructure investment? It can. Infrastructure investment in China is different than that of rich countries because while high levels of infrastructure may cost as much to... https://www.scmp.com/article/696452/theres-cost-mainland-overinvestment?utm_source=rss_feed https://www.scmp.com/article/696452/theres-cost-mainland-overinvestment?utm_source=rss_feed Sun, 25 Oct 2009 16:00:00 +0000 Last week, European Central Bank president Jean-Claude Trichet warned against the further strength of the euro against the US dollar. At about the same time, Asian central banks, worried that the failure of the yuan to appreciate against the dollar would cause their economies to lose export competitiveness, intervened heavily in the markets to slow the appreciation of their currencies against the dollar. Meanwhile, China's press is fulminating against claims that the yuan must be revalued. An... https://www.scmp.com/article/695085/cant-we-all-just-depreciate-our-monies-together?utm_source=rss_feed https://www.scmp.com/article/695085/cant-we-all-just-depreciate-our-monies-together?utm_source=rss_feed Sun, 11 Oct 2009 16:00:00 +0000 The Group of 20 meeting in Pittsburgh has been an opportunity for world leaders to say reassuring things about global trade, but without serious policy co-ordination, there is little to prevent intensified conflict. There is still little agreement on the causes of the crisis and the responsibilities of different countries for the underlying imbalances. Without such agreement, we are likely to see more recrimination and blame rather than policy co-ordination. Since it is through international... https://www.scmp.com/article/693798/policy-co-ordination-can-head-trade-rows?utm_source=rss_feed https://www.scmp.com/article/693798/policy-co-ordination-can-head-trade-rows?utm_source=rss_feed Sun, 27 Sep 2009 16:00:00 +0000 On Friday, the National Bureau of Statistics released economic numbers for last month. Most analysts were pleased with the results, and the stock market surged on the news, but in fact the data has managed to confirm both the hopes of the optimists and the fears of the pessimists. Manufacturing output rose a higher than expected 12.3 per cent. Net new lending for the month was 410 billion yuan (HK$465.31 billion), less than half the average this year but more than the rumours of 300 billion yuan... https://www.scmp.com/article/692405/data-confirms-hopes-and-fears-about-economy?utm_source=rss_feed https://www.scmp.com/article/692405/data-confirms-hopes-and-fears-about-economy?utm_source=rss_feed Sun, 13 Sep 2009 16:00:00 +0000 We have heard good news recently about Beijing reversing recent policies and beginning to curb the creation of more overcapacity in China. Although there are risks associated with this policy change, the risks of not changing have become significantly greater. Probably the most difficult aspect of the crisis for policymakers has been that conflicting policy objectives require almost opposite policy choices. In other words, should China target the most rapid and efficient adjustment to a world... https://www.scmp.com/article/691030/curbing-overcapacity-painful-vital-task?utm_source=rss_feed https://www.scmp.com/article/691030/curbing-overcapacity-painful-vital-task?utm_source=rss_feed Sun, 30 Aug 2009 16:00:00 +0000 Three cheers for bubbles? In the past few years financial market bubbles have been seared into our consciousness. Clearly there is a lot of damage associated with bubbles. Huge amounts of capital are invested in assets but are subsequently lost, and this plays havoc with investor balance sheets while causing bankruptcies and rising unemployment. However, the history of asset price bubbles is not one of unmitigated bleakness. Nearly every stage of the industrial revolution in the past 200 years... https://www.scmp.com/article/689910/bubbly-conditions-may-be-reason-cheer?utm_source=rss_feed https://www.scmp.com/article/689910/bubbly-conditions-may-be-reason-cheer?utm_source=rss_feed Sun, 16 Aug 2009 16:00:00 +0000 Once again the world's commodity markets are swirling with rumours that the mainland is strategically stockpiling commodities. Beijing, experts say, is diversifying a portion of its huge accumulation of foreign currency reserves to build up enormous strategic reserves of copper and oil. For many people, this may make sense. Not only is the mainland hedging its future commodity needs by locking in today's low prices, they argue, but this is also an excellent way to protect itself from the risk... https://www.scmp.com/article/688679/stockpiling-disrupts-mainlands-natural-hedge?utm_source=rss_feed https://www.scmp.com/article/688679/stockpiling-disrupts-mainlands-natural-hedge?utm_source=rss_feed Sun, 02 Aug 2009 16:00:00 +0000 With a rise in US savings putting unbearable pressure on China's low consumption rate, leading to the risk of a collapse in China's ability to export its overcapacity, the question about why Chinese households save so much of their income has become more important than ever. Everyone seems to know the answer. Chinese households save, many insist, because the Confucian culture encourages saving for the future. Saving is deeply and culturally imbedded in the Chinese psyche. Others reply: it is... https://www.scmp.com/article/685924/policies-may-boost-savings-more-culture?utm_source=rss_feed https://www.scmp.com/article/685924/policies-may-boost-savings-more-culture?utm_source=rss_feed Sun, 05 Jul 2009 16:00:00 +0000 In terms of yuan and fen, it might not make much of a dent in China's struggle to grow its service industry and domestic consumption base, but one of the most interesting, if little-heralded, stories in China must be the very rapid growth over the past few years of a genuine alternative culture. The audience is still small, but it is growing fast. In many ways it resembles the tiny alternative scenes of New York and San Francisco in the early 1960s which, less than a decade later, had... https://www.scmp.com/article/684395/alternative-culture-promises-revolution?utm_source=rss_feed https://www.scmp.com/article/684395/alternative-culture-promises-revolution?utm_source=rss_feed Sun, 21 Jun 2009 16:00:00 +0000 Are the mainland markets predicting an economic rebound? What is the surge in the Shanghai and Shenzhen markets telling us? Are they reflecting a sustainable rebound in the Chinese economy and predicting that the worst of the global economic crisis is over? Almost certainly not. Unlike more sophisticated stock markets elsewhere, the mainland markets do not engage in predicting the future. With few exceptions, most investors implicitly follow one or more of three different investment... https://www.scmp.com/article/682960/mainland-markets-are-poor-prognosticators?utm_source=rss_feed https://www.scmp.com/article/682960/mainland-markets-are-poor-prognosticators?utm_source=rss_feed Sun, 07 Jun 2009 16:00:00 +0000 It is always best to be sceptical about newly fashionable economic predictions. During nearly every financial crisis of the 20th century, among the hottest topics of conversation has been the retreat of the US dollar as the world's reserve currency, and this time around has been no exception. But, as in the past, much of the talk is a little too breathless to be taken seriously. The recent currency swaps between the central banks of China and other developing countries, for example, have been... https://www.scmp.com/article/681335/dollars-retreat-reserve-currency-just-so-much-talk?utm_source=rss_feed https://www.scmp.com/article/681335/dollars-retreat-reserve-currency-just-so-much-talk?utm_source=rss_feed Sun, 24 May 2009 16:00:00 +0000 How much more loan growth? With banks around the world adding to the pain of the global economic crisis by contracting their loan books, China's 4.6 trillion yuan (HK$5.22 trillion) in new loans in the first quarter represents one of the most noticeable counter-cyclical banking feats in the world. Loans in the first three months of the year have risen by 15 per cent, which corresponds to almost 75 per cent growth on an annualised basis. With such high growth, it is no surprise that many... https://www.scmp.com/article/678215/out-control-loan-growth-could-be-costly?utm_source=rss_feed https://www.scmp.com/article/678215/out-control-loan-growth-could-be-costly?utm_source=rss_feed Sun, 26 Apr 2009 16:00:00 +0000 People's Bank of China governor Zhou Xiaochuan generated huge controversy when he argued two weeks ago for an international reserve currency to cure distortions in the global balance of payments. Although his reasons for worrying about excessive US dollar reliance might be correct, his proposal for an alternative currency based on special drawing rights (SDR) is problematic. The SDR is not a currency but an accounting unit based on an artificial currency 'basket' that, as of January 1,... https://www.scmp.com/article/676624/trade-determines-reserve-currency-status?utm_source=rss_feed https://www.scmp.com/article/676624/trade-determines-reserve-currency-status?utm_source=rss_feed Sun, 12 Apr 2009 16:00:00 +0000 The 1933 London Conference, where representatives from 66 countries worked for several months but failed to resolve the global crisis, was widely believed to have been torpedoed by Franklin Delano Roosevelt's mid-conference announcement that the United States would not commit to maintaining the dollar's gold value. In his magisterial Golden Fetters: The Gold Standard and the Depression 1919-39, Barry Eichengreen disputes this claim, arguing the talks never had a chance of... https://www.scmp.com/article/675126/protectionism-and-discord-bode-ill-g20?utm_source=rss_feed https://www.scmp.com/article/675126/protectionism-and-discord-bode-ill-g20?utm_source=rss_feed Sun, 29 Mar 2009 16:00:00 +0000 As the world reels from a financial crisis whose origins lie in bad United States banking practices and monetary policy, it may seem counterintuitive to argue that it is the US that will play the most important role in determining the outcome of the crisis and the impact it will have on the rest of the world, and especially on Asia. Unfortunately, however, the US does not seem to be taking the leadership role necessary to help create the institutional framework that will govern trade and... https://www.scmp.com/article/673428/us-needs-display-leadership-not-panic?utm_source=rss_feed https://www.scmp.com/article/673428/us-needs-display-leadership-not-panic?utm_source=rss_feed Sun, 15 Mar 2009 16:00:00 +0000 Will China save the rest of the world from crisis? The question has to be asked the other way around. Recent trade numbers give a worrying signal of what may come next. After declining by 2.8 per cent year on year in December, the mainland's exports plummeted 17.5 per cent in January. These numbers are not as bad as those reported by some other Asian countries. In December, for example, Taiwan's exports fell by 42 per cent, South Korea's by 17 per cent and Japan's by 35 per cent. But it is... https://www.scmp.com/article/671691/world-must-help-china-make-critical-adjustment?utm_source=rss_feed https://www.scmp.com/article/671691/world-must-help-china-make-critical-adjustment?utm_source=rss_feed Sun, 01 Mar 2009 16:00:00 +0000 As the recognition grows around the world of the eerie similarities between China last year and the United States in 1929, it is worth considering why the Depression in the US was so severe in order to understand some of the risks the mainland might face. Economists speak of three factors that compounded the difficulties facing the US economy: 1. Throughout the 1920s, the US created significant industrial overcapacity, which it was able to export. However, just when the 1929 crash caused US... https://www.scmp.com/article/668616/can-china-avoid-us-pre-depression-errors?utm_source=rss_feed https://www.scmp.com/article/668616/can-china-avoid-us-pre-depression-errors?utm_source=rss_feed Sun, 01 Feb 2009 16:00:00 +0000 A headline in the People's Daily last week blasted outgoing United States Secretary of the Treasury Henry Paulson for playing the blame game. According to the article, Mr Paulson had claimed that a failure to address the rise of emerging markets and the resulting trade-related imbalances was partly to blame for the global financial crisis. This follows Federal Reserve chairman Ben Bernanke's long-standing argument about the Asian savings glut, which was also lambasted in the article. As the... https://www.scmp.com/article/666658/blame-game-will-not-make-crisis-easier-resolve?utm_source=rss_feed https://www.scmp.com/article/666658/blame-game-will-not-make-crisis-easier-resolve?utm_source=rss_feed Sun, 11 Jan 2009 16:00:00 +0000 It was only a few months ago that newspapers around the world, including this one, were covering the intense debate over the cause of rising inflation on the mainland. For some, including me, the underlying cause of the acceleration in inflation was monetary. Inflation, we argued, was the all-too-expected reaction to explosive money creation caused by the country's currency regime, in which the central bank purchased a torrent of in-flowing dollars in order to maintain the value of the... https://www.scmp.com/article/663829/declining-inflation-worrying-sign?utm_source=rss_feed https://www.scmp.com/article/663829/declining-inflation-worrying-sign?utm_source=rss_feed Sun, 14 Dec 2008 16:00:00 +0000 A growing number of United States policy advisers are arguing that as the government borrows and spends money to make up for lower spending by the nation's households, only China, with its huge hoard of central bank reserves, can supply the US Treasury with the new funding it needs. But the Chinese government, they say, has an alternate use for its resources. It must pay for its own domestic spending to fight off a sharp economic slowdown at home. The US, they conclude, must convince China,... https://www.scmp.com/article/662097/china-must-help-itself-us-sake?utm_source=rss_feed https://www.scmp.com/article/662097/china-must-help-itself-us-sake?utm_source=rss_feed Sun, 30 Nov 2008 16:00:00 +0000 The world is experiencing a sharp contraction in demand, led by the United States, a country whose soaring household consumption of the past 10 years was matched by a sharp reduction in its household savings rate. As long as Americans could draw down savings to increase consumption, Asian countries, intent on stockpiling foreign currency reserves by increasing domestic production faster than domestic consumption, had a ready market for their growing capacity. But with the collapse in US real... https://www.scmp.com/article/660467/beggar-thy-neighbour-policy-rears-ugly-head?utm_source=rss_feed https://www.scmp.com/article/660467/beggar-thy-neighbour-policy-rears-ugly-head?utm_source=rss_feed Sun, 16 Nov 2008 16:00:00 +0000 As New York and London continue to reel from the global financial crisis, pundits everywhere are confidently predicting a sharp decline in the relative financial importance of these two cities. Newer financial centres in the emerging world, they claim, especially newer Asian financial centres, will rise to wrest away their financial dominance. But history suggests that in fact the contrary will happen. In most ways there is nothing especially unique about the current financial crisis. It is just... https://www.scmp.com/article/658703/financial-capitals-unlikely-lose-their-clout?utm_source=rss_feed https://www.scmp.com/article/658703/financial-capitals-unlikely-lose-their-clout?utm_source=rss_feed Sun, 02 Nov 2008 16:00:00 +0000 Can China save the world? The past few weeks have seen an onslaught of proposals about the mainland's possible role in either overcoming or exploiting the global financial crisis. An article published last week in a London newspaper, for example, suggested Beijing use US$500 billion of its US$2 trillion foreign currency reserves to lend to the United States Treasury as part of the bank bailout, but with conditions that would serve mainland interests. A rather militant mainland editorial... https://www.scmp.com/article/656948/china-cannot-be-worlds-white-knight?utm_source=rss_feed https://www.scmp.com/article/656948/china-cannot-be-worlds-white-knight?utm_source=rss_feed Sun, 19 Oct 2008 16:00:00 +0000 'Some say the world will end in fire,' said American poet Robert Frost, 'Some say in ice.' As bad outcomes go, ending in fire was the more likely disaster, he thought. However if the world were going to end, the alternative would also more than suffice. Either way is bad enough. Throughout history we have seen long periods of excess monetary expansion end either in the fire of inflation or in the ice of deflation. Either outcome reflects the need for the underlying economy to reflect monetary... https://www.scmp.com/article/653509/death-fire-or-ice-death-nevertheless?utm_source=rss_feed https://www.scmp.com/article/653509/death-fire-or-ice-death-nevertheless?utm_source=rss_feed Sun, 21 Sep 2008 16:00:00 +0000 Early this week, perhaps prompted by a research note issued by JP Morgan, the stock market surged on rumours of a fiscal stimulus package from the central government. According to the rumours, the government plans to spend as much as 400 billion yuan (HK$456 billion) to forestall an economic slowdown. The feverish speculation that followed included proposals on how China's almost US$2 trillion of foreign exchange reserves might be used for these purposes. Among the proposals were suggestions... https://www.scmp.com/article/650044/foreign-exchange-reserves-cannot-be-viewed-wealth?utm_source=rss_feed https://www.scmp.com/article/650044/foreign-exchange-reserves-cannot-be-viewed-wealth?utm_source=rss_feed Fri, 22 Aug 2008 16:00:00 +0000