Comments on Yang Yao “China’s current account surplus and inflation”, 27/03/2011, http://www.eastasiaforum.org/2011/03/27/china-current-account-surplus-and-inflation/
While Prof. Yao argues the following:
"As a result, external demand for China’s exports will be strong. While there was a trade deficit in February, this was transitory, likely caused by the spring festival holidays, and China will continue to accumulate large reserves of foreign exchanges this year.
China is moving back toward what happened between 2004 and 2008 where inflationary pressures were high due to large trade surpluses. It is predictable that the Chinese authorities will now deploy a combination of tools to stabilise domestic prices."
While everything is possible, whether China's current account will keep being surplus or will turn to deficit is an open question and there is no certainty for it to be in surplus in the not so distant future, given that so many people have been arguing the so called Lewis turning point in terms of China's rural labour surplus.
It is important to get that judgement right before rush to policy prescriptions.
Having said that, however, it would be prudent to temporarily lift certain import duties effectively by reimburse consumers for buying those goods, before a potential permanent lift.
Another point is that should the US recovery is sustained at a reasonable pace the prevailing international pressure on trade imbalance is more likely to subside substantially. That will have policy implications for both surplus and deficit countries.
In terms of Wong's comments, yes China should have considerable room to consider some direct measures to increase its imports from the US. The question is that China may like to increase more imports of high tech products that the US is not willing to export them.
The US has a policy dilemma in its hands, to contain China's rapid technological advance and limitary spending on the one hand, and to export more to China on the other.
Showing posts with label inflation. Show all posts
Showing posts with label inflation. Show all posts
2011-03-28
2010-11-18
Marginal stagflation in China
I was asked the following question: 有人说中国将进入高通胀，低增长时代，老百姓要吃苦几年了，您怎么看？
The following is my reply:
I am at work and have to use English.
I think it is possible, given the amount of money in the system and the slow recovery of the west economies.
China will have to adjust its economic structure to use both trade and domestic demand as the combined source of growth for the future, say the next decade or so, then to move to rely mostly on domestic demand as the main source.
In such a period of transformation, growth may not be as fast as that in the past which had the world demand as the key source of growth until China can manage the growth of its domestic demand. It requires a fine balance of the relationship between capital and labour on the one hand, and the economic structure to meet the domestic demand.
But, China should encourage its citizens and firms to look at overseas to acquire assets as a tool to manage its domestic demand to release its demand pressure and to increase their wealth, which will make the management of the economy easier than otherwise.
There are many overseas assets market depressed and they represent opportunities. But it needs well managed as well.
To answer your second point, it will depend. The government should encourage labour are paid appropriately. Instead of appreciating the RMB to balance external trade that may damage employment, it should look at the export price side as a result of better paid labour. If labour wages increase, then it should not be too bad as long as inflation is under reasonable control.
But in terms of exchange rate regime, I think it is better to peg to a basket of key currencies, including $US, euro, Yen and others, based on trade relations.
There is a question of what to do with the $US assets.
PS: Yiping Huang has a post on marginal stagflation in China:
http://www.eastasiaforum.org/2010/11/12/is-china-entering-a-period-of-marginal-stagflation/
I am at work and have to use English.
I think it is possible, given the amount of money in the system and the slow recovery of the west economies.
China will have to adjust its economic structure to use both trade and domestic demand as the combined source of growth for the future, say the next decade or so, then to move to rely mostly on domestic demand as the main source.
In such a period of transformation, growth may not be as fast as that in the past which had the world demand as the key source of growth until China can manage the growth of its domestic demand. It requires a fine balance of the relationship between capital and labour on the one hand, and the economic structure to meet the domestic demand.
But, China should encourage its citizens and firms to look at overseas to acquire assets as a tool to manage its domestic demand to release its demand pressure and to increase their wealth, which will make the management of the economy easier than otherwise.
There are many overseas assets market depressed and they represent opportunities. But it needs well managed as well.
To answer your second point, it will depend. The government should encourage labour are paid appropriately. Instead of appreciating the RMB to balance external trade that may damage employment, it should look at the export price side as a result of better paid labour. If labour wages increase, then it should not be too bad as long as inflation is under reasonable control.
But in terms of exchange rate regime, I think it is better to peg to a basket of key currencies, including $US, euro, Yen and others, based on trade relations.
There is a question of what to do with the $US assets.
PS: Yiping Huang has a post on marginal stagflation in China:
http://www.eastasiaforum.org/2010/11/12/is-china-entering-a-period-of-marginal-stagflation/
2010-02-15
IMF should be completely reformed or dissolved
Comments on Michael Stutchbury “IMF's inflation call recipe for rate hike”, 15/02/2010, http://www.theaustralian.com.au/news/opinion/imfs-inflation-call-recipe-for-rate-hike/story-e6frg6zo-1225830282996
Yes, it does look like the IMF is now working as an advocate for the US to inflate its way out of its punishing public debt, at the expense of those US T bond holders.
The IMF's formula for 4% inflation target, if it is true, proves it’s out of touch with economic reality and its panic state in the wake of its own failures as a public international finance organisation in charge of international macroeconomic policies, especially in the wake of the current financial and economic crises.
Countries have different economic situations and require different macroeconomic policies. A one size-fit-all approach advocated by the IMF will be disastrous.
The IMF should be completely reformed, or dissolved.
Australia has done well to weather the world crises and is the only developed economies that avoided a recession due to the legacy of its previously sound macroeconomic management including inflation target at 2-3%.
Why didn’t the IMF study the Australian experience?
Yes, it does look like the IMF is now working as an advocate for the US to inflate its way out of its punishing public debt, at the expense of those US T bond holders.
The IMF's formula for 4% inflation target, if it is true, proves it’s out of touch with economic reality and its panic state in the wake of its own failures as a public international finance organisation in charge of international macroeconomic policies, especially in the wake of the current financial and economic crises.
Countries have different economic situations and require different macroeconomic policies. A one size-fit-all approach advocated by the IMF will be disastrous.
The IMF should be completely reformed, or dissolved.
Australia has done well to weather the world crises and is the only developed economies that avoided a recession due to the legacy of its previously sound macroeconomic management including inflation target at 2-3%.
Why didn’t the IMF study the Australian experience?
2009-09-02
RBA needs caution to raise interest rate at this stage
Comments on Michael Stutchbury “Stevens signals panic has gone”, 2/09/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/stevens_signals_panic_has_gone/
Yes the Stevens and the RBA are likely to be on the right cause in terms of the next interest move – going up as opposed to down. The world economy is improving and the threat of a financial meltdown is gone further and further away by the day. There is little reason to suggest that the interest rate will need to go down any further.
However, given the fragile of the world economy though improving, and the relatively moderate commodity prices compared to their peaks a year or two ago, and the over-capacity in some countries that are important to Australia’s imports like China, inflation in Australia is unlikely to be a serious threat for the near to media terms, although the housing market should be watched very closely for bubbles forming. The economy is unlikely to be over heated soon.
As a result, interest rate can still be held at its current level, until other conditions both outside and inside Australia change and inflationary pressure is forming. Some of the government’s fiscal stimulus may just lift the economy to a reasonable growth state without being too excessively expansionary. Further, some of the stimulus is going to come off the boil soon, like first home’s grants scheme.
I would personally advise the RBA against raising the interest rate too early and too soon. A balance should be struck between guard against inflation and promotion of growth. In the current circumstances and at this stage, a caution on the latter is likely to be the better choice for the RBA.
Yes the Stevens and the RBA are likely to be on the right cause in terms of the next interest move – going up as opposed to down. The world economy is improving and the threat of a financial meltdown is gone further and further away by the day. There is little reason to suggest that the interest rate will need to go down any further.
However, given the fragile of the world economy though improving, and the relatively moderate commodity prices compared to their peaks a year or two ago, and the over-capacity in some countries that are important to Australia’s imports like China, inflation in Australia is unlikely to be a serious threat for the near to media terms, although the housing market should be watched very closely for bubbles forming. The economy is unlikely to be over heated soon.
As a result, interest rate can still be held at its current level, until other conditions both outside and inside Australia change and inflationary pressure is forming. Some of the government’s fiscal stimulus may just lift the economy to a reasonable growth state without being too excessively expansionary. Further, some of the stimulus is going to come off the boil soon, like first home’s grants scheme.
I would personally advise the RBA against raising the interest rate too early and too soon. A balance should be struck between guard against inflation and promotion of growth. In the current circumstances and at this stage, a caution on the latter is likely to be the better choice for the RBA.
2009-08-25
More than fune-tuning may be needed for China's economic policies
Comments on Yiping Huang “China needs to fine-tune policy now”, 24/08/2009, http://www.eastasiaforum.org/2009/08/24/china-needs-to-fine-tune-policy-now/
Inflationary concerns in China are more severe in China even than in the US, mainly due to equally loose monetary policies and strong fiscal stimulus, but quite different ways in both monetary and fiscal policy approaches or methods used.
Many people are concerned that asset bubbles in China are inflating, referring to both a rebounding equity market and a record breaking real property market. It appears that some of the huge increases in credits pumped to stimulate the real economy have gone to the asset markets. While it is not too much a concern at the moment of the stock market, given that is still half of its previous peak level, but the over-heated housing market is a real worry, given that the housing price to income ratio is much higher in China than in most countries and it increasing rapidly again.
Relatively speaking, China will have much more serious potential inflation pressure than the US, given the former's focus of its fiscal policy on fixed asset investments and the use of banking credits (by government direct control), both of which would be harder to withdraw.
Chairman Bernanke has outlined the US Fed’s tool kits available to withdraw from its current loose monetary position, it is unclear yet how China would do a similar job for its different monetary mechanism.
Yes, China appeared to have reduced the intensity of its loose monetary policy. But the key problem is how the monetary authority to reduce money supply after the huge and almost unprecedented increases in the first half of 2009. Also, as Huang pointed out, if the fiscal stimulus projects are longer term, then when the other parts of the economy picks up steam, how to maintain those projects without too much pressure on inflation.
I am not quite sure about the likely scenario of world commodity prices. The rebound of commodity prices or “soaring world commodity prices” as Huang put it, was largely not by the expectation of the recovery of the Western major economies – it was largely driven by what was happening in China and other developing economies to a small degree. Of course, the recovery of the major industrialised economies will add further pressure on commodity prices. There is no question about that.
I personally would not be too concerned with that "Many experts oppose macroeconomic policy adjustments", whether it is opposing government interventions in the first place, or withdrawing interventions when needed.
Inflationary concerns in China are more severe in China even than in the US, mainly due to equally loose monetary policies and strong fiscal stimulus, but quite different ways in both monetary and fiscal policy approaches or methods used.
Many people are concerned that asset bubbles in China are inflating, referring to both a rebounding equity market and a record breaking real property market. It appears that some of the huge increases in credits pumped to stimulate the real economy have gone to the asset markets. While it is not too much a concern at the moment of the stock market, given that is still half of its previous peak level, but the over-heated housing market is a real worry, given that the housing price to income ratio is much higher in China than in most countries and it increasing rapidly again.
Relatively speaking, China will have much more serious potential inflation pressure than the US, given the former's focus of its fiscal policy on fixed asset investments and the use of banking credits (by government direct control), both of which would be harder to withdraw.
Chairman Bernanke has outlined the US Fed’s tool kits available to withdraw from its current loose monetary position, it is unclear yet how China would do a similar job for its different monetary mechanism.
Yes, China appeared to have reduced the intensity of its loose monetary policy. But the key problem is how the monetary authority to reduce money supply after the huge and almost unprecedented increases in the first half of 2009. Also, as Huang pointed out, if the fiscal stimulus projects are longer term, then when the other parts of the economy picks up steam, how to maintain those projects without too much pressure on inflation.
I am not quite sure about the likely scenario of world commodity prices. The rebound of commodity prices or “soaring world commodity prices” as Huang put it, was largely not by the expectation of the recovery of the Western major economies – it was largely driven by what was happening in China and other developing economies to a small degree. Of course, the recovery of the major industrialised economies will add further pressure on commodity prices. There is no question about that.
I personally would not be too concerned with that "Many experts oppose macroeconomic policy adjustments", whether it is opposing government interventions in the first place, or withdrawing interventions when needed.
2009-07-26
Money supply, inflation and growth - more complex relationship
This is comments on 李俊 "依靠通胀保八是一场灾难", 18/07/2009, http://www.pinggu.org/bbs/thread-498677-1-1.html
讲的似有道理，但无非是似是而非。
保八不一定要靠通胀。有通胀的危险，但不是必然的。
其中论理也缺乏逻辑。比如说，“把货币放出来，这些货币就直接冲击到资产价格，于是GDP统计数字也就上去”，是不正确的。
GDP统计是指新生产的，而且是不变价格，不是你说的那样。
发放货币在一定条件下是可以刺激经济的，尤其是经济不景气的时候。
发放货币可能带来的潜在问题是可以解决的。所以没有必要危言耸听。
现在货币多了，将来需要是可以减少。
还是要：搞懂理论，把握实际，搞清统计，解决问题， 为好。
讲的似有道理，但无非是似是而非。
保八不一定要靠通胀。有通胀的危险，但不是必然的。
其中论理也缺乏逻辑。比如说，“把货币放出来，这些货币就直接冲击到资产价格，于是GDP统计数字也就上去”，是不正确的。
GDP统计是指新生产的，而且是不变价格，不是你说的那样。
发放货币在一定条件下是可以刺激经济的，尤其是经济不景气的时候。
发放货币可能带来的潜在问题是可以解决的。所以没有必要危言耸听。
现在货币多了，将来需要是可以减少。
还是要：搞懂理论，把握实际，搞清统计，解决问题， 为好。
2009-07-25
Inflation and money supply - more complex
Comments on 李俊 "通胀已经归来", 24/07/2009, http://www.pinggu.org/bbs/thread-503449-1-1.html
此文虽然讲出了一些潜在问题，但还免不了逻辑上的问题。
引用弗里德曼的话，也对也不对。
货币有不同的计算口径，哪一种是在这种情况下最适用的？
大人物的话可以用来吓人，但不一定都是对的, 或是不分情况的乱用。
还是多做以下分析为好。
此文虽然讲出了一些潜在问题，但还免不了逻辑上的问题。
引用弗里德曼的话，也对也不对。
货币有不同的计算口径，哪一种是在这种情况下最适用的？
大人物的话可以用来吓人，但不一定都是对的, 或是不分情况的乱用。
还是多做以下分析为好。
2009-07-22
Rupert Murdoch on economic forecast
This my comments on （参加就奖）中国是否即将面临高通胀？【辩论帖】, 22/07/2009, http://www.pinggu.org/bbs/thread-483033-1-1.html. The context is:
在2009年7月至2010年6月，这1年期间我国CPI会达到多少高度？是否会出现恶性通胀？（10%及以上）因此对各方面的影响？（小企业、房价、官方利率等）希望大家以事实和数据为依据，理性探讨辩论通胀的可能性。
正方立场：在1年之内，我国的CPI预计会达到6%以上。反方立场：在1年之内，我国的CPI最高不会超过6%（6%是极限）。
Is it scientific to say one way or another, or to support or against the argument?
News Corporation Chairman, Mr Rupert Murdoch said not long ago: "Economists just make the weatherman looks better."
Inflation, as economic growth, is endogenous and affected by so many variables, including government policies and responses by other market agents. They are difficult to forecast, because they can change as other things including policies change.
To say one way or another is not meaningful and is not different to betting. It does not make any sense, although so many people are interested in doing it. There is no science in it.
在2009年7月至2010年6月，这1年期间我国CPI会达到多少高度？是否会出现恶性通胀？（10%及以上）因此对各方面的影响？（小企业、房价、官方利率等）希望大家以事实和数据为依据，理性探讨辩论通胀的可能性。
正方立场：在1年之内，我国的CPI预计会达到6%以上。反方立场：在1年之内，我国的CPI最高不会超过6%（6%是极限）。
Is it scientific to say one way or another, or to support or against the argument?
News Corporation Chairman, Mr Rupert Murdoch said not long ago: "Economists just make the weatherman looks better."
Inflation, as economic growth, is endogenous and affected by so many variables, including government policies and responses by other market agents. They are difficult to forecast, because they can change as other things including policies change.
To say one way or another is not meaningful and is not different to betting. It does not make any sense, although so many people are interested in doing it. There is no science in it.
2009-04-24
Money supply and price level - the role of speed and its change
The first part is orignial comments on the article China’s economy: now the bad news, on http://www.eastasiaforum.org/ April 23rd, 2009, by Yiping Huang, Peking University and Australian National University. It should appear in association with the article on that website after moderation. See below.
Yiping's article attempts to demonstrate that 8% growth of the Chinese economy this year, though seeming a bit on the optimistic side to many, is more likely achievable than not. If it does as hoped, it will be good for the recovery of the global economy in general and a blessing to the Australian economy in particular given China is Australia's top trading partner and has underpinned the mining boom of the more recent years.
A point in the article touches the likely trend of price levels. The author argued that the key macroeconomic problem, deflation, is likely to exacerbate, contrary to many economists concerns about a potential inflation problem as a result of recent dramatic expansion of monetary base. It argues that the pessimistic view of the inflation issue would be right if the normal money supply mechanism works as usual, but it isn’t at the moment – though the quantity of money base increased, the speed of its circulation declined. So a different equation is at work now. He also argues that the rising output gap will have a downward pressure on price.
This, however, raises an important issue in managing the price level in the coming months and perhaps a couple of years. While the slowing in the speed of money circulation now may work may relieve the authority from worrying about inflation for now, the pressure is likely to be greater if and when the speed of circulation picks up and returns to its normal course sometime in the future. The difficult to predict the precise timing and its exact course will increase the pressure for the authority to do a finer job in fine-tuning monetary policy, especially given the unprecedented nature of the scale of global including China’s monetary expansion. A truly difficult and real test, but perhaps not necessarily impossible to overcome. Let’s hope so.
24/04/2009
These part(s) has been added on later on.
The speed in which money circulates in an economy is one of the factors that affect the price level. Some other important factors include: the money base, the relationships between the money base and other money supply measures, reserve capital requirement and more recently accounting methods. The recent depressional financial crisis, though likely to differ in magnitudes to other earlier financial crisis, had its course in a sudden and dramatic reduction in credit flows, most likely to be associated with a change in risk premiums and a desire to increase own capital by financial institutions and reduce credit exposures. If and when such behaviours occur, the money supply in terms of the base money normally has not changed, but there are likely to be credit crunching, causing difficulties for both businesses and consumers to access finance and/or refinance. This slows demand and reduces output, businesses are closing down and laying off employees. The economy slows down or even may decline.It is noted that a financial crisis can be caused by a variety of reasons, as history has shown. Changes in some markets like housing, equity, national reserves etc can do some damage. A sudden realisation of real risks and or an increase in perceived risks can cause panic. Speculations may cause or facilitate a change in some market conditions.
Yiping's article attempts to demonstrate that 8% growth of the Chinese economy this year, though seeming a bit on the optimistic side to many, is more likely achievable than not. If it does as hoped, it will be good for the recovery of the global economy in general and a blessing to the Australian economy in particular given China is Australia's top trading partner and has underpinned the mining boom of the more recent years.
A point in the article touches the likely trend of price levels. The author argued that the key macroeconomic problem, deflation, is likely to exacerbate, contrary to many economists concerns about a potential inflation problem as a result of recent dramatic expansion of monetary base. It argues that the pessimistic view of the inflation issue would be right if the normal money supply mechanism works as usual, but it isn’t at the moment – though the quantity of money base increased, the speed of its circulation declined. So a different equation is at work now. He also argues that the rising output gap will have a downward pressure on price.
This, however, raises an important issue in managing the price level in the coming months and perhaps a couple of years. While the slowing in the speed of money circulation now may work may relieve the authority from worrying about inflation for now, the pressure is likely to be greater if and when the speed of circulation picks up and returns to its normal course sometime in the future. The difficult to predict the precise timing and its exact course will increase the pressure for the authority to do a finer job in fine-tuning monetary policy, especially given the unprecedented nature of the scale of global including China’s monetary expansion. A truly difficult and real test, but perhaps not necessarily impossible to overcome. Let’s hope so.
24/04/2009
These part(s) has been added on later on.
The speed in which money circulates in an economy is one of the factors that affect the price level. Some other important factors include: the money base, the relationships between the money base and other money supply measures, reserve capital requirement and more recently accounting methods. The recent depressional financial crisis, though likely to differ in magnitudes to other earlier financial crisis, had its course in a sudden and dramatic reduction in credit flows, most likely to be associated with a change in risk premiums and a desire to increase own capital by financial institutions and reduce credit exposures. If and when such behaviours occur, the money supply in terms of the base money normally has not changed, but there are likely to be credit crunching, causing difficulties for both businesses and consumers to access finance and/or refinance. This slows demand and reduces output, businesses are closing down and laying off employees. The economy slows down or even may decline.It is noted that a financial crisis can be caused by a variety of reasons, as history has shown. Changes in some markets like housing, equity, national reserves etc can do some damage. A sudden realisation of real risks and or an increase in perceived risks can cause panic. Speculations may cause or facilitate a change in some market conditions.
Subscribe to:
Posts (Atom)
Posts
