MORGAN STANLEY Asia chairman Stephen Roach has said Paul Krugman’s call to push China to allow a stronger yuan is “very bad” advice and that increased Chinese spending is a better way of reducing trade imbalances.
“We should take out the baseball bat on Paul Krugman – I mean I think that the advice is completely wrong,” Mr Roach said in a Bloomberg Television interview in Beijing when asked about Mr Krugman’s request, which was characterised as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising US savings, Mr Roach said.
“I’m a little surprised at Steve for saying that,” said Mr Krugman, the Princeton University professor and Nobel laureate in economics, in a telephone interview when asked to respond to Mr Roach. “What I said is actually based on pretty careful economic analysis. We have a world economy which is depressed by China artificially keeping its currency undervalued.”
The debate between the two economists echoes verbal clashes between the nations, with Chinese leaders repeatedly saying that their yuan policy is not the cause of the US trade gap.
US lawmakers have urged the Obama administration to step up pressure on China for keeping its exchange rate unchanged, a stance criticised as providing an unfair advantage. Chinese premier Wen Jiabao’s government has kept the yuan at 6.83 per dollar since mid-2008 to shield exporters from the global recession and a contraction in world trade. It allowed the currency to appreciate 21 per cent in the three years before that.
The country has accumulated a record $2.4 trillion (€1.77 trillion) of reserves, and $889 billion of US government debt, partly a consequence of its exchange-rate policy.
Global economic growth would be about 1.5 percentage points higher if China stopped restraining the yuan and running trade surpluses, Mr Krugman said in Washington last week.
He also said the US may need to become more aggressive in its talks with China, perhaps by treating the exchange rate as a countervailing duty or other export subsidy. – (Bloomberg)
