Economist: US to blame for financial crisis, global imbalances

11:02, July 28, 2010      

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The United States has triggered the global financial crisis and should take the most responsibility for addressing world imbalances instead of pressing China to revaluate its currency, said He Weiwen, an economics professor with the University of International Business and Economics, during an interview with People's Daily.

He disagreed with the U.S. Treasury Department's report that the exchange rate of yuan is "undervalued" and the opinions of some Western activists that the real effective exchange rate of yuan is declining, which is based on data from the Bank for International Settlements (BIS).

China won't sacrifice its development facing outside pressure, he said.

Global imbalances are in fact the imbalances within the U.S.

It is irrational to blame China for the imbalances of world economy given that it is widely believed Wall Street greed and deregulation of the U.S. financial sector were the fundamental causes of the crisis, said He.

He added that the imbalances are within the United States, which witnessed a much higher current account deficit than any other country.

In 2009, the United States saw a significant decline in its current account deficit. Its trade deficit dropped by 315.3 billion U.S. dollars, of which the decrease of the deficit in fossil fuels accounted for about 63 percent.

The top reason for its trade deficit is energy imports, while oil prices stand as the cornerstone of the energy prices issue.

"Speculation in the futures market was the core problem with oil prices, and the United States can only solve most of its deficit problem by regulating financial speculation," He said.

"Therefore, the United States should take most responsibility for global economic imbalances rather than criticizing China."

Between 1997 and 2009, the United States' exports to China grew by 443.4 percent, over eight times higher than the growth of its exports to the rest of the world. During the same period, the growth of United States' imports from China was lower than its overall imports.

"It is obvious that the exchange rate of yuan is not undervalued compared with the currencies of the United States' other major trade partners," said He.

Stable yuan exchange rate shows China's responsibility

There have been some odd opinions that China and the United States should each take equal responsibility for the global financial crisis, claiming that China's trade surplus led to excessive liquidity in the United States.

Facing a tough situation in the coming mid-term elections, the Obama administration and the Democrats have to woo working class voters, so job creation is their top issue.

"However, at least 30 billion U.S. dollars are needed to create 2 million new jobs. By accusing China, they can avoid public criticism and win support," he said.

He argued that the U.S. wants to contain China, taking examples of Japan's lost decade after it signed the Plaza Accord.

"However, China will never sacrifice its development following containment from the outside," he said.

Currently, the foundation for global recovery is still weak, and China and other large economies should jointly keep the stability of major currencies and prevent financial speculation from rising again in order to create a basic environment for the stabilization and rebound of world economy and world trade.

"China has to keep the sustainable growth of its economy, to provide confidence and market for global trade," said He. "This reflects that China is a responsible country."

Author: Cui Peng, People's Daily, July 28, 2010
Translator: Qi Shuwen


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