from Follow the Money

Yu Yongding tells us what he really thinks

November 3, 2005

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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China's new exchange rate regime is all stability, no flexibility. 

And Yu (part of China's monetary policy advisory committee) thinks that is a mistake: "I think we should allow a bigger band, greater fluctuation and more flexibility."   It tells Chinese companies to keep betting on the export market, rather than to start to adapt to world where the sources of Chinese growth will need to come from within China.

Yu has been on message until just recently (he was famously off message at Davos), but there is little doubt that he thinks China needs to allow a bit more RMB appreciation.  He is smart enough to know what a bigger band will generate in practice. 

Yu also thinks China saves too much (which means that the return on savings is low) and consumes too little.   David Li of Tsinghua is in a similar place.  See his powerpoint

Most people think the Governor of the People's Bank of China generally agrees with Yu and Li, even if he is rather more diplomatic.  The real question, though, is what does the rest of the Chinese government think ... 

In case you missed it, the Chinese current account surplus data for the first half of the year is out, and China's surplus came in at over 8% of GDP.  That works out to a current account surplus for the year of at least $140 billion, barring a big fall in China's trade surplus in the fourth quarter.    All those who still argue that China's global trade is balanced really need to take note.

Net out oil, and China ran a current account surplus of 11% or even 12% of its (measured) GDP in the first half of 2005.   That worries me - I think it worries Yu as well.    The World Bank is also calling for more movement in the renminbi.   Where is the IMF?

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