Author: Max Corden, University of Melbourne

In this changing global order, China’s monetary policy has been the target of persistent criticism. Accepted wisdom conjectured that, if the RMB were allowed to float, it would appreciate substantially more, and this would reduce China’s high current account surplus as well as the US deficit. The RMB was fixed to the US dollar in 1997, and then later unleashed in 2005. Until 2005 China was criticised for fixing the value of the RMB to the US dollar. After that it was criticised for not allowing the RMB to appreciate enough. But the real objection was clearly directed towards the large current account surplus.

What does this mean for the world generally, and East Asia in particular? Read more…

Author: Stephen Howes

The three main propositions around which the current global climate change negotiations are structured were agreed at the Bali Conference in December 2007. The first is that developed countries should commit to binding emission reduction targets. The second is that developing countries should adopt policies and measures to reduce emissions below what they would otherwise have been. The third is that developed countries should support developing ones, principally by the supply of finance, to reduce emissions and adapt to climate change.

This is a different framework to that of the Kyoto Protocol, which placed obligations only on developed countries. Under the Bali Roadmap, everyone acts, but different metrics are used to measure obligations in developed and developing countries – targets for developed countries, policies for developing countries.

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Author: Peter Drysdale

An important international consequence of the Stern Hu affair has been to shine a more intense spotlight on the political system and the way in which it interacts with the market and the judicial system in China. This week’s lead from Dr Cheng Li, of the Brookings Institution, examines the political contest between two major coalitions (or factions) within the Chinese Communist Party and the prospects for political change in China. He argues that political tensions are on the rise and China’s political system does not seem capable of finding sound, safe and sustainable ways to handle these challenges. These tensions have their origins in a number of important factors, but three stand out. One is the uncertainty of sustaining economic growth in the face of the challenge of adjustment in the global financial crisis. Another is the sensitivity to the sharp rise in external economic dependence, on energy and resources, crystallised in the brouhaha around the political anxieties that the hike in iron ore and other commodity prices have generated. A third, of course, is the elevation of ethnic tensions, most recently in Urumqi. Despite, perhaps because of, these pressures, there is no sign of a multi-party (or a more transparent and representative) political system emerging in the near future. The Chinese Communist Party will continue to have strict control over the army, media, legal and judicial system. Although there are these continuities, several important factors are now influencing change in the conduct of Chinese politics.

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Author: Cheng Li, Brookings Institution

China has been the fastest growing major economy for the last two decades and will most likely be the first to recover from the global financial crisis. China’s political future is less clear. The political system has increasingly proven inadequate to dealing with the complicated and sometimes contradictory needs of the Chinese economy and society.

Political tensions caused by many factors are all on the rise and China’s political system does not seem capable of finding sound, safe and sustainable ways to handle these challenges. Given the pressures, what can we expect from the upcoming new generation of leadership?

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Author: Jinjun Xue

There is a potential for environmental issues to act as a constraint on economic growth. In this chapter a growth model displaying the characteristics of an Environmental Kuznets Curve (EKC) is used to analyse China’s potential of achieving low carbon economic growth.

The EKC is derived from historical empirical observations across countries. It is observed that environmental degradation associated with economic growth increases most rapidly at low levels of per capita income. As income grows, the additional degradation due to economic gain slows until it eventually peaks. As per capita income continues to grow, degradation eventually diminishes.

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Author: Hugh White, ANU

When the Berlin Wall fell it seemed to many that the end of the Cold War marked not just the end of a particular geostrategic episode, but the end of geostrategy as such. Now geostrategy is back. We are again exploring how the international order — the set of understandings and expectations that shape relationships between states — is formed by the perceptions and realties of power, and especially how changes in relative power affect the workings of the international order. Moreover, after a period during the Cold War in which geostrategic calculations were based more on military than on economic factors, we are rediscovering the centrality of economic power as the key driver of geostrategic relationships.

There is a simple reason for this: we are living through and period of remarkable economic transformation, which is driving shifts in relative economic weight of a scale and speed that we have not seen for many decades, if ever. And China is the key.

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