Economy faces tricky balancing act in 2010
- Source: Global Times
- [21:27 December 29 2009]
- Comments
GT: Will China face more trade conflicts in 2010?
Ding: There is going to be a great deal of trade friction. Exports won't improve markedly, but will not greatly worsen either, since there is still large external demand for Chinese products.
China's manufacturing costs are rising, thus we have to transfer low value-added processing and manufacturing industries overseas. Although US President Barack Obama said the US should rebuild its industries, I don't think the US can reach this goal within a decade. Moreover, it's not easy for developing countries to be new world factories, since they don't have a cheap labor force the size of China's.
There is no panacea for trade friction, and various negotiations, both multilateral negotiations and through the WTO, are necessary.
Van Kerckhove: I think the problems will continue, which is also the result of the crisis. China is complaining about a lot of protectionism from foreign countries. There are more trade barriers, but on both sides. If you look at the trade between Europe and China, the trade imbalance is huge.
China accuses Europe of not wanting to export high tech products, but that is untrue. Europe wants to export high tech to China, but China is reluctant to pay a fair price.
GT: What are the prospects for the US economy next year, and how does this relate to China?
Ding: Appreciation of the US dollar and the Fed raising interest rates are possible, and there might be a technical rebound in the value of the dollar next year. But it won't reverse the long-term downturn of the dollar. In the long term, the dollar is bound to be devalued, since it's the only way for the US to repay its debts.
However, a technical rebound of dollar will not leave China at risk of the withdrawal of international capital. China has no lack of domestic capital or foreign exchange reserves. I hope international capital withdraws, so that China can develop its own capital market. In the fields where public investment has brought in good returns, government should issue bonds to benefit private investments.
The current bank rate is very low, and private sector cannot find benign investment channels. As a result, a flood of private capital has come into the real estate and stock markets.
The government should guide private capital to the industries that the country really needs to develop, making private investment more rational.
For example, the government could issue bonds in railway construction and new energy industries. With attractive bond interest rates, the government could use more private capital to develop social security and livelihood projects.
Van Kerckhove: The US economy is still weak and will not improve so quickly. It will affect China. The outlook of the dollar is difficult to predict.
I think the US government can't really increase the interest rate because that would endanger economic recovery. It's in the same tricky situation as Japan. The US still needs to continue the stimulus plan, resulting in more debt, and this leaves China worried with all its US dollar reserves. The two countries' economic futures are still tightly bound together.
