Today, Robert Zoellick, repeating Beijing’s propaganda line on the global financial crisis, gave the Chinese a free pass on their mercantilist trade policies. “The best way China can help support the world economy at this time is through the efforts China has taken to strengthen its own growth and recovery,” the World Bank president said at a press conference in the Chinese capital.
I disagree. So far, China’s principal plan to strengthen its “growth and recovery”- actually to stop an alarming decline in its growth rate – has been to increase its exports. And its principal tactic for this purpose has been the lowering of the value of its currency to preserve price advantages for its exporters. It halted the appreciation of the renminbi in July. The plan, part of a package of export incentives, is evidently working. Last week, Beijing announced that November’s trade surplus is a monthly record. In the first week of this month, the People’s Bank of China, the country’s central bank, extended the export campaign by driving down the value of the currency almost one percent in one day in an apparent warning to the international community that it will continue to seek unilateral trade advantages.
Is Beijing’s plan sound? Perhaps the most fundamental cause of the global financial crisis is the existence of imbalances in the two most consequential economies today – China is running enormous trade surpluses and the United States is running gargantuan deficits. This imbalance is largely the result of Beijing’s exclusionary trade practices, some of them violations of its World Trade Organization promises (such as its discriminatory auto parts tariffs that were just ruled illegal).
Chinese officials can succeed in keeping out imports, but a victory in doing so will be Pyrrhic. The way back to global equilibrium – and therefore sustainable prosperity for the Chinese – is for China to permit imports so that global imbalances will be unwound as soon as possible. Beijing, however, has decided to keep its internal market to itself.
As long as it does so, global prosperity will remain elusive. And as long as the downturn continues, global consumers won’t be buying Chinese goods at the pace needed to sustain the Chinese economy, which is especially dependent on exports. About 38 percent of China’s economic output relates to products manufactured for sale to other nations.
Zoellick, instead of issuing bromides from Beijing, should start speaking clearly about China’s predicament. If he stopped handing out free passes to China at his press conferences, everyone – especially the Chinese – would be better off.