Rely on the market more and administrative measures less

Comment on Yiping Huang “Improving China’s art in dealing with external pressures”, 16/09/2010, http://www.eastasiaforum.org/2010/09/16/improving-chinas-art-in-dealing-with-external-pressures/comment-page-1/#comment-158342
While there is much more to be desired in the administration of the exchange rate in dealing with the so called international imbalance, the focus on the exchange rate, though having some merit, may have missed important points in the real issues of trade imbalance.

For example, it is often said trade subsidies like tax rebate for exports and import barriers, may be more important in terms of improving resources allocation and welfare.

Removing those market distorting factors and having a flexible and stable exchange rate linked to a basket of main currencies is likely to be a much better policy approach.

Further, it is beneficial to relax foreign currency management and allowing the Chinese and Chinese firms to hold and exchange foreign currencies inside China. That will also greatly reduce the superficial pressures for the yuan to appreciate.

Yes, all these mean to use the market more as opposed to administrative measures that are arbitrary and inefficient.