Stanley's blog

Martin Wolf, China, renminbi/RMB, protectionism

Martin Wolf, in todays’ Financial Times considers unfair Premier Wen Jiabao’s statement last week at the end of the China-EU summit, that:

Some countries on the one hand want the renmimbi to appreciate, but on the other hand engage in brazen protectionism against China. This is unfair. Their measures are a restriction on China’s development.”

He offers four reasons:

1. The Chinese have so far suffered from an astonishingly low level of protectionism, having regard to the depth of the recession.
2. The policy of keeping the exchange rate down is equivalent to an export subsidy and tariff – in other words, protectionism.
3. With accumulated foreign currency reserves of $2 273bn by September, China has kept its exchange rate down to a degree unmatched historically.
4. China has distorted its own economy and the the rest of the world. Its real exchange rate is no higher than in early 1998 and has appreciated by 12% over the past seven months, even though it has the world’s fastest growing economy and largest current account surplus.

If a protectionist movement grows, it will be politically difficult to stop it, particularly as China does not have public or media sympathy in its main export markets. Beijing’s new assertiveness does not help.

If the deficit countries slashed import spending, a depression would result: if they sustained domestic demand with massive fiscal deficits, another financial crisis would result.

Either way, we would all suffer, including China. I do not get the feeling from Chinese government statements that there any feeling that we are all in the same boat.

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