Renowned economist: China stimulated world economy

14:04, July 28, 2010      

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Albert Keidel, a famous economist specializing in China, began a recent interview by saying that China had "nothing to do with the global economic recession." Keidel is a non-resident senior fellow at the Atlantic Council and a professor at the Public Policy Research Institute of Georgetown University. He was formerly the vice-director of the East-Asia Office of the U.S. Department of the Treasury and the chief economist of the World Bank representative office in China.

He said that China implemented effective economic stimulus policies to increase market demand, especially export demand. Compared to when the economic crisis broke out, China's trade surplus has shrunk remarkably. Keidel said, "China has stimulated the world economy."

In Keidel's opinion, China stimulated the world economy in many ways. First, China has reformed the exchange rate formation mechanism since 2005. Based on market supply and demand, China adopted the floating exchange rate system to regulate and manage the exchange rate. Since the summer of 2008, China stabilized its RMB exchange rate against the U.S. dollar, making great contribution to the stability of international markets.

If China were to revalue the RMB against the U.S. dollar, there would be an immediate panic in the global market. Second, China's economic stimulus plan accounted for a great proportion of its GDP. Unlike the United States and other European countries that focused on helping financial institutions, China invested its capital in programs that created job opportunities. Third, China took unusual financial measures to ensure the financing of import and export trade.

In the second half of 2008 and all throughout 2009, many other districts and regions in the world faced great difficulty in trade financing; however, China's foreign trade was only slightly affected. Fourth, China also took advantage of the Group 20 and other mechanisms to help reduce the risk of a world trade war provoked by this economic crisis. Fifth, China pointed out the real reason of this crisis. It was the U.S. dollar's leading position in the world financial market and its excessive credit expansion that led to the Great Recession. The U.S. dollar's position should be included in the reform of the international financial system.

Many Western economists blamed China's trade surplus for the world's economic imbalance. Keidel disagreed with them. He said that China's trade surplus was not large compared to U.S. trade deficit. In the first half year of 2010, China's trade surplus equaled 20 percent of the U.S trade deficit. According to his estimation, the German trade surplus of the same time amounted to 30 percent of the U.S. trade deficit. What's more important, China's trade surplus decreased greatly compared to that of the first half of 2009. Therefore, when taking world trends into consideration, China's trade surplus was not "huge." China’s trade surplus was appropriate for a developing country.

Keidel said that China's ability to increase imports by using foreign exchange reserves has made great progress. This ability, including measures on reducing non-tariff barriers, would help the recovery of the world economy.

"In other words, China's accumulation of foreign exchange reserves should not be interpreted as an irresponsible move during the economic crisis, but just the opposite."

By People's Daily Online


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