April 11, 2012
After last month touting the fact that China’s trade surplus had plunged, the NYT reports that in March:
“Exports surged last month, helping to produce an unexpected trade surplus of $5.35 billion in March, according to government data released Tuesday.”
This one is getting really painful. If we do some deep investigative reporting and look at a chart accompanying the article we notice a sharp dip in exports every February which is followed by a big jump in March. Now we might think that China’s exports lose competitiveness in February and then regain them in March or alternatively we might think this has to do with the vacations around the Chinese New Year that cause most factories across the country to be closed for several days. I vote for the latter explanation, but hey, I’m no China expert.
It’s also worth taking issue with another assertion in the piece. At one points it cites Eswar Prasad, a former IMF official, telling readers:
“The I.M.F., the United States and other Western nations in recent years have periodically accused China of deliberately keeping its currency, the renminbi, weak as a way to stimulate exports.
“But shrinkage in China’s current-account surplus, notwithstanding the modest trade surplus in March, is making it harder for the I.M.F. and others to press for China to allow further appreciation of the renminbi.”
Actually, in standard trade theory, fast-growing developing countries are expected to run current account deficits. The logic is that capital can be better used in developing countries where it is relatively scarce than in comparatively slow-growing wealthy countries. This means that as long as China has any surplus on its current account there is a strong argument in standard economic theory that its currency is under-valued.
Also, this piece badly misrepresents the problem of inflation with China. Insofar as inflation is a growing problem for the government, as the article claims, this would be an argument for re-valuing the renminbi. A higher-valued renminbi would directly reduce inflation by making the goods that China imports less costly. So this would fit well with the logic that for both its own good and the good of its trading partners, China should increase the value of its currency.
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