Comments for East Asia Forum

Comment on Analysing the debate over China’s exchange rate and the trade balance by Janelle R

Janelle R — Fri, 19 Mar 2010 22:12:37 +0000

While I am sympathetic to the author’s view that currency appreciation may not be sufficient to reduce the trade surplus, I kind of feel that he cheated: The so-called ‘macroeconomic analysis’ he introduced in the post looks to me as only a special case. Currency appreciation leading to the collapse of investment and imports only happens with special conditions.

Comment on A durable, serious and balanced US strategy for ASEAN by Lincoln Fung

Lincoln Fung — Fri, 19 Mar 2010 10:19:36 +0000

While it is understandable why the author has argued what in this article, the author may be assisted if considering why the US has taken that approach.

Is it that the US has got the priority wrong?

Or it has been based on cost benefit analysis?

It may be the case that you need to foregone something to maximise your objective.

Everyone will ask for attention, but the matter of fact is that not everyone will get the same attention.

Comment on Déjà vu in Japan’s agricultural policymaking by Alex Luta

Alex Luta — Fri, 19 Mar 2010 09:17:42 +0000

I think there is a small mathematical slip-up here: if the sides of a square increase by a given factor, its surface increases by the square of that factor. An are is an agricultural unit of measurement for a square surface of 10 meters by 10 meters. A hectare is 100 meters by 100 meters. This makes an are one hundredth of a hectare.

Comment on The Copenhagen Accord: Real progress through 2020 emission goals? by Lincoln Fung

Lincoln Fung — Fri, 19 Mar 2010 05:18:03 +0000

Any ad hoc approach and hope all important parties will accept that approach may be some wishful thinking.
If emissions are really having a negative effect on climate change, the best and most equitable approach is to correct that negative effect by explicitly “taxing” emissions wherever they occur and distribute that tax proceed to those who have a right to a good climate.
That does not need to arbitrarily define who should and who shouldn’t bear the costs or how much each should bear.
It is simply so puzzling why such a simple economic principle taught in economics is so easily forgotten or abandoned by virtually all bright economists around the world. Instead, they are inventing this scheme, that scheme, then they try to rationalise with this or that.
To me it is not too different from reinventing the wheel and is simply silly approaches, to put it mildly.

Comment on The real costs and benefits of investment treaties by Lincoln Fung

Lincoln Fung — Fri, 19 Mar 2010 00:41:03 +0000

I noticed Jonathan Bonnitcha’s main conclusion and some of its implicit implications, although not entirely by any means.

I also noticed the qualifications, or the likes of seems likely or unlikely he used in deriving his conclusion.

Having considered the qualifications and conclusion, I am left very much bewildered to say the least: what can the readers get out of Jonathan Bonnitcha’s article?

More specifically, does his conclusion seem likely, if I can borrow his tactics but not trying to be too slippery myself, to be sufficiently reliable?

Comment on Hu Angang and China’s climate change policy by Lincoln Fung

Lincoln Fung — Thu, 18 Mar 2010 04:17:23 +0000

I have known Angang for a long time and he always command my respect.

He is a very versatile, productive and highly respected Chinese economist.

Having said that, I am not sure whether it is the representation of this article or his work itself, I am puzzled by what is shown in this article.

There is no way to know what HDI means and how it is calculated for each country and how the boundaries of different divisions are determined from this article. As a result, it is difficult to evaluate and comment on whether the proposal is fair or not, one of the two principles attributed to that proposal.

But it is probably possible to comment a little bit on the other principle that is efficiency.

I am not sure that said principle is met by such a proposal, given that it does not appear to be based on or equivalent to a market approach to equalise the marginal costs of emissions reduction, in a country, a region, or the whole world. At least the article even did not make it clear what is meant by efficiency, let alone how to realise that principle.

It would be more helpful if enough information is provided to enable and assist the readers to form a view.

From this article, we only read that “Hu Angang proposes an emission reduction scheme that is applicable internationally as well as domestically to China based on the principles of fairness and efficiency. He challenges the traditional dichotomy of developed countries versus developing countries in climate change debate with four new divisions based on the Human Development Index, HDI. He argues that major emitters including the United States and China should bear the brunt of responsibility for emission reduction.”

But why should China be together with the US to bear the brunt of responsibility for emission reduction, given that on per capita basis, there are many countries that emit much higher emissions?

What is that rationale and is that sound?

Without enough details one is left only to wonder.

Comment on A stable yuan/dollar exchange rate forever? by Lincoln Fung

Lincoln Fung — Wed, 17 Mar 2010 02:41:20 +0000

At last we begin to hear some voices on some of the advantages of stable exchange rates.

It is still very small, though.

Comment on A boost for US—Australian defence cooperation by Lincoln Fung

Lincoln Fung — Tue, 16 Mar 2010 04:49:33 +0000

Two points.

Firstly, don’t the restrictions on trade by the US have anything to do with its trade deficits?

Secondly, the article says “The treaty is a significant recognition of the close relationship between the United States and Australia. The ratification of the treaty will facilitate exports of all but the most sensitive United States defence articles and services. Australia will gain simpler and easier access to United States defence equipment and battlefield technology, and it will facilitate technical collaboration and discussion between Australia and the United States.” “Within the Asian region, the treaty would provide Australia with unparalleled access to United States defence articles and services, and unrivalled access to opportunities for defence and technological
collaboration. ”

While it is obviously good for Australia in one sense, where does that leave for or lead to Asutralia’s place in Asia where it wishes to be a part of, presumably?

Comment on Krugman’s Chinese renminbi fallacy by Lincoln Fung

Lincoln Fung — Tue, 16 Mar 2010 02:18:31 +0000

I think this article has generated useful and interesting debates. Some of those are related to conventional wisdoms of economic theories.
For example, the point made by some about China’s exchange rate regime is implicitly based on the assumption that a flexible exchange rate regime is superior or better, so China should move to that or restore that mechanism.
The implicit problem with some of conventional economic theories that most people accept or use as truth nothing but the whole truth can be very inappropriate and indeed very dangerous at times. Further, it is often ignored by many people that the whole context of a particular regime is operating.
Undoubtedly, many if not most economists would probably assume that the flexible regime is better. What about Japan’s lost decade of the 1990s? Was Japan using a flexible or fixed exchange rate regime? Did it help Japan? Or from another viewpoint, did it solve Japan’s trade surplus, or for that matter the US trade deficits? I assume they both had a flexible exchange rate regime when very large trade imbalances could still have occurred.
Another point, while a flexible exchange rate regime is said to allow the monetary authority to pursue a free monetary policy of its own. However, we have seen wild fluctuations in some exchange rates, say even the $US and the Euro, for example. Do those wild fluctuations in exchange rates not have a destructive effect on the economies or businesses? When people talk about the freedom of monetary policies, did they have an idea of the potential costs to businesses or the economies in mind? Have they done a cost and benefit analysis as such?
Further, many economists have been talking about allowing currency to appreciate and its effect to dampen inflation. I am not arguing they are wrong. But have they thought about how the Chinese monetary authority conducts its monetary policies and how that can deal with a fixed exchange rate regime and effective monetary policies?
Do many economists really have rational expectations, in the sense that they have a correct model of the real economies and how they work?
I have no answers to that, but sometimes it pays to be a little suspicious, or a bit diligent, and not be blind-sided and simple accepting what some people are saying, no matter how elegant they may be. After all, history has proved that many people can be wrong, and sometimes seriously wrong, in both their theories and their beliefs.
The fact that there are serious disagreements among the best minds and most bright and great economists on so many issues is proof that a particular economic theory or conventional economic wisdom is not necessarily always sacrosanct. It can be dangerous to use them mechanically.
To me, that acts as simple risk management.

Comment on Krugman’s Chinese renminbi fallacy by Yiping Huang

Yiping Huang — Tue, 16 Mar 2010 00:04:22 +0000

Thanks for your comments, everybody. I am at the airport and so will be very brief.

I want to make two quick comments other than saying thanks for sharing your insights.

First, I have to admit that citing the export share of GDP is not exactly a scientific approach, as Guy de Jonquieres pointed out. This, however, is a common measure for openness in trade and policy literature. While exports are not all value-added, its share of GDP does show the degree at which the economy is exposed to the outside world.

Second, I always admire Don Hanna’s calm analysis, even at crisis times. I take everything said on why China should appreciate the currency, which is the case I always make in China whenever possible. However, I think wars or trade wars happen often not as a result of calculation by rational people. I am sure Chinese officials are considering all options. But if the Treasury names China a currency manipulator and the Obama administration starts some sort of protectionism measures, I don’t think the Chinese officials have much of a choice. This is why I think Krugman’s comments are not helpful (though his suggestion that renminbi should appreciation is valid).

As we all know perfectly well, future developments will be dependent on politics as much as on economics. I am sure the officials at the PBOC and Treasury share some common analyses of the issue. But politics is simply beyond their control on both sides of the Pacific.

Enjoy debating!