During an economist dialogue event held on May 11, Paul Krugman, the 2008 Nobel Economics Prize winner claimed that China's huge trade surplus is the result of government intervention and the world cannot continue to accept such tremendous trade deficit caused by China. Long Yongtu, Secretary General of the Boao Forum for Asia, responded by saying that China should not be criticized for its huge trade surplus.
China blamed for trade surplus
Krugman argued that China's huge trade surplus is a result of government policies and the deficit would not run this high if regulatory intervention on renminbi exchange rates was to be reduced. China should make efforts to reduce its trade surplus as the world is not likely to continuously accept such tremendous trade deficit caused by China.
Long's response to the remarks was that one country should not be the target of international criticism just because it is running a relatively large amount of trade surplus. China's trade surplus is not the result of exchange rate manipulation or the adoption of mercantilist policies, but rather is due to its comparative advantage in international trade. To change this type of trade surplus through political pressure is against the law of market economy.
Long stressed that China has always been trying to reduce its trade surplus by boosting import and expanding domestic demand
Does China manipulate its exchange rate?
Paul Krugman stated that China's huge trade surplus is the result of the Chinese government's manipulation of its exchange rate. Krugman said that China set a fixed exchange rate for its currency, and keeps its currency valuation relatively weak by purchasing a great amount of foreign currency.
In response, Long stated that China should not be blamed for its large trade surplus, and that China does not manipulate its exchange rate as Krugman suggested. "China's current approach of restricting currency convertibility is actually a consequence of the US-dominated financial order, rather than the result of the Chinese government's manipulation."
"Because of the unfairness of the current global financial order, we have restricted currency convertibility. Should any country that does not choose to implement free currency convertibility be regarded as manipulating its exchange rate?"
Long also said that China's goal is to change the existing financial system which is dominated by the US dollar. Only after this system is changed will a freely convertible renminbi create a fair and free trade around the globe. China currently lives with this unfairness, but it would be extremely unjust for China to simultaneously receive blame for it.
Long believes that out of its need to guard against the exchange rate risk, China will probably not implement free renminbi convertibility within the next several years.
Is there a problem in China's foreign exchange policy?
Long said that the global financial system is a monetary system dominated by the US dollar, this has made international trade unfair. "That is the reason why China has to keep buying US treasury bonds even with the knowledge that buying them will yield negative gains. If China does not do so, China's loss will not be a mere 10 billion USD as stated by the People's Bank of China, but instead hundreds of billions of US dollars, even thousands of billions of US dollars."
In fact, the actual beneficiaries of international trade are import countries, rather than export countries. So, it is unfair for Chinese people to be blamed while they have suffered such a great loss.
By People's Daily Online
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