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July 24, 2006
More On China And The Yuan
... both [Roubini and Altig] talk about China's overheating as a fact and they both cite Chinese growth statistics as though they are wholly accurate.
More importantly, however, is that both economists ignore the political and social imperative for continued growth in China. I am of the view that the Chinese government wants growth. I am of the view that the Chinese government needs growth. I am of the view that the Chinese government's comments about wanting to slow down the economy are mainly for foreign consumption...
And is China's economy really "overheating," anyway? I have certainly seen a lot of talk about inflation fears, but I have yet to see any numbers indicating much of it already...
I am not going to predict whether China will or will not allow the Yuan to appreciate further, but I will say that in analyzing this question, one must do more than just look at the economics; domestic politics must be considered and domestic politics say there will be no appreciation.
Good observations all, though I would point out that if it is difficult to trust Chinese growth statistics, it must be equally difficult to trust the inflation numbers. And the Chinese government does seem to take the overheating issue seriously. As Claus points out on his blog today, China has, for example, just announced plans to trim export subsidies "as part of measures aimed at rebalancing and restraining economic growth and its swelling trade and current account surpluses. "
However, the point that the exact truth regarding economic circumstances in China remains murky is well taken, and it is one of the reasons I believe that estimating the future of the yuan is even trickier than the usual shadow-chasing business that is exchange rate forecasting.
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