Author: Yiping Huang, Peking University

China’s economic developments in 2011 closely resembled those of 2008: over-heating at the beginning of the year; moderating due to policy tightening around mid-year; and decelerating as a result of external recession before year’s end.

But 2012 will probably not be a replay of 2009, as neither a hard landing nor a sharp rebound look likely this year. Read more…

Author: Yiping Huang, Peking University and ANU

The current international economic system is defined by three key features.

First, the United States is a dominant leader in designing and enforcing the international economic rules.

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Author: Yiping Huang, Peking University and the ANU

A year ago, I made five predictions for the Chinese economy in 2010 in an article prepared for this Forum: 1) the renminbi will probably begin to appreciate against the dollar; 2) job market pressures may rise again even as the economy recovers; 3) housing prices would probably begin to weaken; 4) structural imbalances were likely to deteriorate further; and 5) the government would likely introduce another stimulus package.

Now that the year 2010 has retreated into the rear vision mirror, we can confirm that predictions (1), (3) and (4) actually occurred, but prediction (2) didn’t materialize. Read more…

Author: Yiping Huang, Peking University and ANU

On 21 November, Sunday, China’s State Council issued a new policy document (the Sixteen Articles)  aimed at stabilising prices. It is encouraging the policy authorities are starting to take price increases seriously.

But reading the document is like entering a time machine, and being transported right back to the 1980s. If the policy document were issued in the 1980s, then there would probably have been one article specifically capping the prices by the government. Read more…

Author: Yiping Huang, Peking University and ANU

One of the policy issues at the top of the agenda at the recently concluded G20 summit was global rebalancing.  Achieving strong, balanced and sustained growth was identified by the G20 leaders as a key policy objective.

While G20 officials agreed to allow greater roles for market forces in exchange rate formulation, they also emphasised the need for structural reforms in order to resolve global imbalances. Read more…

Author: Yiping Huang, Peking University and ANU

Today, the National Statistics Bureau released October’s batch of economic data. Almost all indicators for economic activity, including fixed asset investment, industrial production and even retail sales, slowed in October (as measured by year-on-year growth rates). The whole country’s attention, however, was firmly fixed on inflation data. CPI was up by 4.4 per cent year-on-year in October, compared with 3.6 per cent in September and the consensus forecast of 4.0 per cent.

This was the highest level reached in 25 months. Food prices, in particular, increased by more than 10 per cent. Read more…

Author: Yiping Huang, Peking University and ANU

On September 29, the US House of Representatives passed the bill to punish China for its undervalued currency. For the bill to become actual policy, it requires endorsement by the Senate and approval by the president. So, with mid-term elections due for the House and the Senate on November 2, the currency tension between China and the US might ease somewhat temporarily.

Treasury Secretary Tim Geithner indicated during a Ways and Means Committee hearing before the House of Representatives that he would use the upcoming G20 Summit in Seoul to pressure China to accelerate pace of renminbi appreciation. There are some obvious benefits of using a multilateral framework such as G20 Summit for resolving a currency dispute. Read more…

Author: Yiping Huang, Peking University and ANU

On October 19, PBOC announced a series of rate hikes. Although economists have been arguing for monetary tightening for months, this move was a surprise to many in the market.

This policy adjustment tells us several things: (1) monetary policymakers see greater inflation risks than the headline CPI inflation data; (2) the government is probably trying to avoid the Japan mistake: loosening domestic monetary policy in order to reduce pressure for currency appreciation; (3) therefore currency appreciation is likely to continue, if not accelerate; and (4) the authorities might adopt certain measures to control the capital account temporarily in order to discourage ‘hot money’ inflows. Read more…

Author: Yiping Huang, Peking University and ANU

Weaker data on consumption, income, employment, as well as forward-looking indicators in the US and the deceleration of GDP and production in China have triggered renewed fears about a double dip recession. In fact, the recent slowing of economic activity is the natural result of changes in policy and the economic environment. The slowing of economic activity is likely to be temporary. But beyond the very near term the world economy, especially the US and China, will transition to a new state of slower growth and higher inflation.

Three factors contributed to the recent slowing of economic activity. Read more…

Author: Yiping Huang, ANU and Peking University

The US Congress is increasingly agitated by China’s exchange rate policy as US politicians blame the undervalued renminbi for their own economic problems. For now, however, the Chinese government is content with trying its best to avoid a sharp currency adjustment that could significantly damage China’s export sector.

Fortunately, risks of a trade war still look manageable. Both the US and Chinese governments appear to favour multilateral frameworks for resolving the renminbi dispute. This should help reduce the risk of direct confrontation between the US and China. After all, economic imbalances are a global issue. A critical question, however, is what specific policy approach the G20 might adopt for dealing with such problems.

Read more…

Author: Yiping Huang, Peking University and ANU

After September 9, the renminbi suddenly accelerated its pace of appreciation against the US dollar. By September 15, it had appreciated more than 1 per cent. This represented a major departure from fluctuation within a narrow band after June 19, when the People’s Bank of China (PBOC) announced an increase in exchange rate flexibility. This change should be commended since it should help to manage external pressures, at least on the margin. Yet the timing of the change is suspiciously close to the scheduled hearing at the US Congress and other related events, and that will probably strengthen the impression that China moved on the currency because of the external pressure. This will not help China’s future dealings with international partners on renminbi exchange rate policy issues.

When President Hu Jintao visited the US in April this year, he made two important points on exchange rate policy reform: China would push forward the reform steadily regardless; and China would not change its policies under foreign pressure. Initially this caused some confusion in the international market. But the message, I thought, was subtle and clear: China is determined to reform, but noises in foreign countries are not helpful.  Read more…

Author: Yiping Huang, Peking University and ANU

China’s overseas direct investment (ODI) has been growing rapidly over the past years. The total amount of ODI reached US$48 billion in 2009, meaning that China is ranked sixth globally in terms of ODI. In 2009, Chinese invested in about 180 countries. According to the goverment, China’s ODI may reach $100 billion in 2013, with total ODI stocks reaching $500 billion.

While the rapid rise of China’s ODI is consistent with its growing significance in the global economy, the scale of investment is still a unique phenomenon when compared to ordinary international experience. Read more…

Authors: Yiping Huang and Bijun Wang, Peking University

Despite its extraordinary growth performance during the past decades, China’s structural risks have also increased significantly.  Premier Wen and other senior leaders have repeatedly emphasised that the existing growth pattern is unstable, unbalanced and unsustainable.

One of the most widely identified imbalance problems is the rising share of investment in GDP, which increases the risk of excess capacity and low returns. Read more…

Author: Yiping Huang, Peking University

International anxiety over China’s currency exchange rate policy appears to be gathering momentum again, given that the yuan has risen only slightly since June 19 when the People’s Bank of China (PBOC) made it more flexible.

For my part, I think that although the recent global economic uncertainty warrants some caution, it is vital that the yuan rises more steadily over time in order to address economic imbalances and international reactions. Read more…

Author: Yiping Huang, Peking University and ANU

Policymakers have been contemplating the options for exiting from expansionary monetary policy since late 2009. It now looks that time is ripe for the People’s Bank of China (PBOC) to tighten monetary policy. Ideally, adjustments to both interest and exchange rates should take place simultaneously.

Economic data for the third quarter and March released by China’s National Bureau of Statistics (NBS) last week was largely in line with market expectations. Despite the ongoing debate among economists about overheating, current trends of accelerating growth and price increases are clear. Real GDP growth was 11.9 per cent during the first quarter, more than 1 percentage point higher than the growth rate in the fourth quarter of last year and nearly double the 6.1 per cent growth during the first quarter last year. Read more…