Mundell defends China's policy
NOBEL PRIZE-WINNER: The award-winning economist yesterday blasted the US and EU's position on floating the Chinese yuan, saying the issue was being politicized
By Joyce Huang
STAFF REPORTER
Saturday, Sep 20, 2003,Page 10
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A visiting Nobel laureate in economics yesterday said that the US is using China as a "scapegoat" for its domestic current account deficits, which stand at US$3 trillion and are expected to grow by US$500 billion each year for the next several years.
"[The deficit] has nothing to do with China, which happens to be the one which is on the frontline of getting US markets," said 1999 Nobel laureate Robert Mundell yesterday during a speech organized by the Taiwan Institute of Economic Research (‘äãS‰@) in Taipei.
He said that it is absurd and political for the US, Europe and Japan to blame China in chorus for exerting pressure on US manufacturers, causing unemployment and exporting deflation to the world, as it is a poor country with an annual per capita income of US$1,000.
Many US trade groups, in particular, argued that the yuan is grossly undervalued by between some 15 percent to 40 percent, but which Mundell attributed to the stepped-up competitiveness of Chinese exports to world markets. In spite of increasing international pressure, China appears to be standing firm and retaining its policy of maintaining the yuan at current levels amid any pros and cons.
"[The US deficit] has nothing to do with China."
Robert Mundell, economist
Following a heated debate on currency policy in China, some supporters, nevertheless, came to China's side including Joseph Stiglitz, the former chief economist and senior vice president of the World Bank, who argued any move to revalue the currency now was "misguided."
During a conference in Shang-hai earlier this week, Stiglitz said that floating the yuan would expose it to the global capital markets, whose volatility would "impose enormous costs on the Chinese economy."
Mundell couldn't agree more yesterday, saying any currency appreciation will be a "political suicide" to Chinese leadership. He further threw his support behind China's insistence in pegging the yuan close to 8.28 to the greenback.
"The bottom line is that any appreciation is not the right move for China ? And it's not in the interests of the US, Europe and Japan," Mundell added.
He said that any revaluation of the yuan is expected to exacerbate the nation's non-performing loans problem, shift its domestic deflationary pressures to inflationary pressures and may pose a negative impact on China-based foreign direct investments.
The appreciation of the yuan could also hurt other Asian countries, since it would sabotage the East Asian currency stability as well as the global economy, Mundell added.
In response to China's inaction, the US has threatened to impose a 20 percent tariff increase on Chinese imports if China doesn't allow its currency to float within six months.
But Mundell believes that the US is unlikely to put its threat into action. Even if the US imposes such tariff punishments, no harm will actually be done to Chinese exports, which will remain competitive in world markets, Mundell said.
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