Mundell on China

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

This is a report from the People's Daily.  The translation is a bit awkward.

HCKL

Robert A. Mundell, a prominent figure in world economic circle finally
made his appearance at the Danqing Pavilion of Zhuhai Holiday Resort
after reporters waited there for over an hour. Though decked out in
western-style suit he wore a necktie embellished with a lot of Chinese
ancient poems. When seated Mundell began to talk about the "World
Economic Development Declaration" (Zhuhai Declaration).

"The intention of the "Declaration" is wonderful. It features a sound
content of creativeness and the writing is succinct and terse. Its
significance lies in providing a platform for the developing countries
to conduct dialogue and air their opinions. Of course, the "Zhuhai
Declaration" needs to be continuously made up for improvement in
practice," he said with a great sincerity.

When answering the appreciation of the Renminbi, a question of concern
for many people, R. Mundell said that the US ever exerted a great
pressure on Japan for the appreciation of the Japanese yen, effecting a
great damage on the Japanese economy. Should the US try to force the
Chinese currency to appreciate it will bring unfavorable impact on the
development of the Chinese economy. However, the problem gradually took
a turn-round after President Hu Jintao met the US President Bush at
Bangkok. A certain person in charge of the Chinese financial organs
pointed out in a clear-cut way: the Renminbi (People¡¯s currency) should
not appreciate. It is as said that a world financial conference is
scheduled to be held in China next spring, at which the special topic
for discussion will be on the exchange rate of the People¡¯s currency.

Mundell stressed, if the People's currency is going to appreciate on a
big scale the first and foremost possible impact is to put back the
convertible time of the currency. And then it is possible to incur an
economic depression in Chinese rural areas because the prices of
agricultural produce will be relatively reduced. Aside from that, the
growth rate of the Chinese economy as a whole will be downed to below 5
percent. Besides, the unemployment rate will rise on a big scale no
matter whether in cities or in the countryside. The unhealthy bank loans
will be aggravated with the currency policy turned to wavering. Lastly,
due to some weakness of the people's currency in the international
revenue and expenditure the appreciation of the currency cannot last
long and will be possible to depreciate. As China's peripheral countries
take Renminbi for currency in circulation it will be sure to lose its
superiority should it is going to appreciate on a big scale.

He said, in the global economic depression during the recent years the
Chinese economy proves to be the only healthy economic body. The Chinese
import has been on a big increase while comparatively the imports of the
seven western countries are on a big decrease. It is due to China's
imports on a large scale that it has helped retard the economic
depression of the world. In regard with this significance, the Chinese
economy has given a wonderful performance in the global economy.

As to the question if the Chinese economy is overheated, R. Mundell
held, ever since the beginning of the year the Chinese economy has
confronted with the pressure demanding it to appreciate in which it
surely has something to do with China's favorable balance of trade. To
solve the problem the Chinese government has adopted some measures, for
instance to exert more strength in overseas procurements and release the
restrictions on the capital account and so on. He held that the policy
for credit expansion practiced for the moment by the Chinese government
will not only stimulate inflation but on the contrary make ease the
deflation. Moreover, the credit expansion will eventually bring about
the increase in importation and reduce the widening process in China's
favorable balance of trade, thereby making China's economy return to a
reasonable point of balance.

When answering reporter's question of how to revitalize the industrial
base in Northeast China Mundell said, Japan and the ROK may play a
relatively important role in it. Because geographically speaking Japan
and the ROK are close by and have a better knowledge of the area. The
Northeast China used to be an industrial base of great importance for
China and it will again see a development at a surprising speed so long
as the Chinese government will put into practice suitable measures.

Many Chinese are also concerned about the development tendency of the
Euro-dollars. R. Mundell, known as "Euro father" gave an introduction as
such: since the Euro-dollar came into the world in 1999 it has witnessed
rises and falls. Starting from being strong it fell into weakness yet
again became strong, the fluctuation within the two extremes reaching
around 40 percent. For European economy this is surely an unstable
factor. Nevertheless, the Euro-dollar, having seen years of vicissitudes
has now become a strong currency next only to the US-dollar in the world
today. In view of the present foreign exchange reserve in Europe the
Euro-dollar will maintain a relatively strong tendency in the years to come.

Article by reporters of the People's Daily & translated by PD Online
staff R. L. Han
http://english.peopledaily.com.cn/200311/08/eng20031108_127885.shtml