Rising unemployment increases the pressure for misguided trade policies
Export subsidies, depreciating RMB - all of this might seem to make sense if you look at China as divorced from the global balance of payments system. These measures to boost exports are, after all, pretty standard ways of increasing production. But if you think of China's role within the global balance of payments, it seems to me that this is little more that a form of Smoot-Hawley-with-Chinese-characteristics. Global demand is slowing, just as it did in the 1930s, and China as the leading source of global overcapacity is trying to address its global demand problem by shifting the burden abroad.
Export subsidies, depreciating RMB - all of this might seem to make sense if you look at China as divorced from the global balance of payments system. These measures to boost exports are, after all, pretty standard ways of increasing production.
But if you think of China's role within the global balance of payments, it seems to me that this is little more that a form of Smoot-Hawley-with-Chinese-characteristics. Global demand is slowing, just as it did in the 1930s, and China as the leading source of global overcapacity is trying to address its global demand problem by shifting the burden abroad.
There are things I'd argue with in the piece, but it's very thought provoking.
h/t to naked capitalism
http://www.nakedcapitalism.com/2008/11/chinas-smoot-hawley.html
... All these measures serve to show the shift in the country's macro-control policy, according to Luo Yunyi, director the Institute of Investment Research under the National Development and Reform Commission (NDRC). The country had long clung to a prudent fiscal and tightened monetary policy to prevent the economy from overheating. "To expand domestic demand through increasing fiscal investment is a viable short-term tool to offset the negative influences caused by the current export decline and inactive consumption. But it is also badly needed in the long run given that the country has to think over how to make full use of its huge size of savings and to meet the conditions for its accelerated process of urbanization and industrialization," he said. ... Stimulus package to push long-term growth | China Daily - Opinion
... All these measures serve to show the shift in the country's macro-control policy, according to Luo Yunyi, director the Institute of Investment Research under the National Development and Reform Commission (NDRC). The country had long clung to a prudent fiscal and tightened monetary policy to prevent the economy from overheating.
"To expand domestic demand through increasing fiscal investment is a viable short-term tool to offset the negative influences caused by the current export decline and inactive consumption. But it is also badly needed in the long run given that the country has to think over how to make full use of its huge size of savings and to meet the conditions for its accelerated process of urbanization and industrialization," he said. ...
Stimulus package to push long-term growth | China Daily - Opinion
Affordable housing seems to be a pillar of this new package:
The government's efforts to use infrastructure construction to expand domestic demand and raise people's livelihoods, such as those to solve the housing problem for low-income residents and efforts to strengthen rural infrastructure construction, have not only been in accordance with the spirit embodied in the report delivered by President Hu Jintao to the 17th National Congress of the Communist Party of China (CPC) earlier in March. They will also map out an unequivocal direction for the national economic growth in the future. The country's economic advancement is mainly for the improvement of living conditions of ordinary people. To provide them with basic accommodation has long been on the government's top agenda. In the 4-trillion-yuan package, the top authorities have made crystal clear the plan to step up construction of low-priced and low-rental houses for middle and low-income residents and renovation of shanty towns and ramshackle houses in rural areas. Govt plan signals shift from growth-first policy | China Daily - Opinion
The government's efforts to use infrastructure construction to expand domestic demand and raise people's livelihoods, such as those to solve the housing problem for low-income residents and efforts to strengthen rural infrastructure construction, have not only been in accordance with the spirit embodied in the report delivered by President Hu Jintao to the 17th National Congress of the Communist Party of China (CPC) earlier in March.
They will also map out an unequivocal direction for the national economic growth in the future. The country's economic advancement is mainly for the improvement of living conditions of ordinary people.
To provide them with basic accommodation has long been on the government's top agenda. In the 4-trillion-yuan package, the top authorities have made crystal clear the plan to step up construction of low-priced and low-rental houses for middle and low-income residents and renovation of shanty towns and ramshackle houses in rural areas.
Govt plan signals shift from growth-first policy | China Daily - Opinion
... which is one of the key concerns expressed in this prominently featured opinion piece written by a Western economist on the same day:
China must be cautious in raising consumption | China Daily - Opinion There is an important lesson to be learned from the West here. It has been precisely the encouragement of Western consumers to stretch themselves to take on ever-larger mortgage commitments and higher housing costs relative to income, which necessitated the low (sometimes non-existent) savings ratios out of income and the reliance on credit for significant consumer spending decisions. Affordable housing, avoiding a excessive proportion of income committed to housing costs is the only sensible way to sustain rising general consumer spending without a credit explosion to finance it.
China must be cautious in raising consumption | China Daily - Opinion
There is an important lesson to be learned from the West here. It has been precisely the encouragement of Western consumers to stretch themselves to take on ever-larger mortgage commitments and higher housing costs relative to income, which necessitated the low (sometimes non-existent) savings ratios out of income and the reliance on credit for significant consumer spending decisions.
Affordable housing, avoiding a excessive proportion of income committed to housing costs is the only sensible way to sustain rising general consumer spending without a credit explosion to finance it.
