A heated debate broke out yesterday over the effect of the
renminbi's value on the Sino-US trade imbalance.
Renowned Chinese economist Justin Yifu Lin and leading US trade
expert Nicholas Lardy argued over whether the currency's value
should be increased to help reduce China's exports to the US.
Lardy, a senior fellow of the Washington-based Institute for
International Economics, said "the US dollar has been overvalued
and China's currency has been undervalued for a long time."
Addressing a seminar in Beijing, he said he didn't think the
renminbi's value was the most important factor influencing trade
between the two nations, however he still urged China to appreciate
the currency.
He also claimed the US export licence system which China has
bitterly complained about is not a major factor in the
imbalance.
But his claims were rejected by economics professor Lin.
Lin, who is based at Peking University's China Centre for
Economic Research, said an appreciation of the renminbi would not
necessarily benefit the US economy.
Many of the goods exported by China, he pointed out, are no
longer produced in the US, and if the US turns to other countries
for them it will risk paying higher prices.
Lin said the current deficit was caused by the different
configurations of industries in China and the US, with the former
producing low-tech products and the latter high-tech products and
services.
Appreciating the renminbi may not dampen Chinese exports, warned
Lin.
Some Chinese supplies are not easily replaced by supplies from
elsewhere, he argued, and if the demand remains the American
deficit could even expand.
Lardy did accept that the trade imbalance was caused by China
being the final point in the Asian supply chain, with a large
proportion of exports to the US not actually produced by China.
For example, 60-70 percent of the value of China's manufacturing
products is imported first and then exported after assembly. While
for electronic appliances, the ratio is as high as 90 percent, he
said.
But Lardy defended the US export licence system, saying: "It's
very common to hear from Chinese officials that the export licence
system is a cause of the bilateral trade imbalance, and I don't
think this is a likely significant factor."
He quoted figures demonstrating that the US Government has
approved, on average, 80 percent of applications for technology
exports to China, and the value of the products and technologies
that have failed to earn government approval account for only a
small portion of exports.
In 2005, he said, the value of unapproved technologies was about
US$12 million, or 0.3 percent of the bilateral trade.
But Lin insisted that Lardy underestimated the negative
significance of US export regulations on China, which he saw as a
trade barrier.
Despite the relatively small number of applications that were
actually turned down, the system may have had a wider impact on
potential export applicants, Lin pointed out.
"If the US treated China as equally as its partners Japan, South
Korea and others, I think US exports to China would soar," said
Lin.
His words follow a promise from US Undersecretary of Commerce
for Industry and Security David H. McCormick in late May, that the
US would "update" its export policies to China, and look for ways
to reduce the administrative burden on civilian trade.
Yesterday's seminar was arranged by the China Development
Research Foundation, an organization affiliated to the central
government.
Lardy is in the country talking about the ideas in his latest
book, "China: the Balance Sheet," recently published by the
US-based Centre for Strategic and International Studies and
Institute for International Economics.
He will continue his tour at the weekend when he takes part in a
Sino-US economic forum in Tianjin.
(China Daily June 23, 2006)