The big picture is easy. China’s economy has grown phenomenally quickly through the decades – and has drawn other countries with them. Now it’s not as good.
But when we go behind this picture, everything becomes more blurry. It is not easy to measure how much a billion Chinese people produce and consume. Many suspect moreover authorities to manipulate the numbers.
It is therefore a rather trifling change in the exchange rate of the Chinese currency getting so much attention. Here there is finally something concrete to grasp.
The Chinese currency has been much more stable than the currency in most countries. The corollary is that the price drop Monday was the largest in any single day in twenty years.
And maybe it’s just the beginning.
The global currency war
The world has the recent years experienced a currency war. First USA and UK as Japan and finally the European Central Bank has printed money to bring down interest rates – and the exchange rate.
In a light ailing world economy, it is tempting to try to make its goods cheaper at the expense of other countries. They can also determine how the jobs – and unemployment – ports.
Stephen Roach, a renowned China expert who previously worked in Asia for the US investment bank Morgan Stanley says: We may face new skirmishes in a global currency war that range ever further.
I think a slightly different question is even more important: we may be facing an indirect admission of it is inferior to the Chinese economy than what the official figures show. If it is true – what is in this case the consequences for the world economy?
The new choice
The fall Monday came after the Chinese government announced a new currency system that allows for currency changing more than ever before, in line with changes in supply and demand.
Roughly will now head of the Chinese currency float much like most other currencies, such as dollars and Norwegian kroner. The exception is that the daily fluctuations will be limited to about two percent. But over time it is not a strong brake.
The government has admittedly still something up his sleeve: They can still even buy and sell currencies to influence exchange rate against other countries’ currencies. Monday and Tuesday, there were no signs that the Chinese authorities have tried to counteract the fall in recent days.
Thus begins the speculation: Why would the Chinese authorities now have a weaker exchange rate? This gets extra attention for it violates the main pattern in recent years – namely, a slow, rising exchange rate.
Speculation continued Wednesday in spite of messages in the Wall Street Journal that the central bank had been built in the market to curb price fluctuations . The Chinese are known to go forward step by step.
The textbook does not explain everything
The logical textbook answer to the price drop is that China wants to stimulate exports. Yet it is a little odd. China has for many years had large surpluses in international trade – and have been concerned that the country can not continue to invest in exports as the driving motor of the economy.
The aim has rather been a more balanced development, where the domestic demand and particularly private consumption allowed to increase faster than before.
Therefore growing suspicion: The Chinese get it quite simply not to. Economic growth – and the ability to create new jobs – fails when China is trying to change its own economy.
Therefore growing suspicion: Economic growth – and the ability to create new jobs – fails when China is trying to change his own finances.
Perhaps looking leaders nothing to do but to fall back on their old model of growth: an economy driven by exports and high investment. Particularly higher exports – which requires lower exchange rate.
Lower exchange rate can also compensate a bit for that China has experienced high wage growth weakens firms in competition with foreign goods.
In sum It squeaks in the Chinese economy.
When the numbers are too stable to be true
The official figures show that the annual growth rate in China has fallen from over 10 percent to about seven percent . Still high, but relatively speaking, it is a big change.
And maybe it is worse. Figures for the development of the Chinese economy is remarkably stable. Fluctuations in growth rates from quarter to quarter – which in a country like the United States is significant – we almost did not.
There’s something that smells, thinks many. Perhaps Chinese growth figures more an expression of what Chinese leaders want to see – a slightly lower but more balanced growth – than what actually happens.
A small example: Changes in a country’s imports may say something about the temperature of the economy. Some commentators headed therefore when US exports to China have increased by less than four percent over the last 12 months at around 11 percent a year through a long time.
China is also Norway’s friend
Such figures also says something about the ripple effects of weaker growth in the Chinese economy.
Another example – which is Norway closer: The halving of oil prices over the past year and a sharp fall in other commodity prices would not be possible to explain if Chinese economy had continued to grow as strongly as before.
Such figures also says something about the ripple effects of weaker growth in the Chinese economy.
It is this that is the real concern. Not that the exchange rate changes litte bit, but that Chinese leaders find it necessary to take new measures because the economic growth fails.
The world’s growth engine no. 1 is in shambles, and the world wonder how strong the repercussions are .
Published:
No comments:
Post a Comment