Friday, January 8, 2010

China does not deserve the benefit of doubt

This blog has consistently argued that China's mercantilist weak renminbi policy is fast becoming one of the biggest negative stimuluses on the world economy, especially on other developing economies, and therefore needs to be aggressively challenged on multi-lateral forums.

Speaking at the AEA annual summit, Dani Rodrik (via Chris Blattman) though appears to give the benefit of doubt to China and argues that China’s currency and trade policy that has driven its astonishing growth and social stability has also been the single biggest poverty elimination machine in the world and should not be nipped off. He sees this policy as a classic second-best approach, one which has "done more to reduce world poverty than any action in the history of humankind", and therefore "letting that machine run for a few more years may be the greatest kindness of strangers in human history as well".

I agree with Prof Rodrik if the negative consequences of China's mercantilism was confined primarily to the "strangers" in developed economies who, as Chris Blattman rightly points out, themselves ran up huge export surpluses and pursued same policies at similar stages of their development. Unfortunately, in the real world, the brunt of Chinese beggar-thy-neighbour policies are borne by other more impoverished developing countries. China's heavily subsidized (through both direct subsidies and weak currency) manufactures are driving them out of export markets and sucking their jobs.

It may be possible to justify the fairness of policies pursued by one poor country trying to lift millions of its people out of poverty at the cost of some economic hardship to the richer nations. But the same cannot be said when that country's policies come in the way of efforts of some of the most impoverished countries to give a better lives to their poorest.

No comments: