Global rebalancing and the trade surplus
September’s coverage focuses on global imbalances and China’s external surplus—appropriately so, given that the EU Trade Commissioner was just in Beijing pressing China to resolve a trade surplus the EU sees as “unsustainable”. “Global Rebalancing” was also a theme of this year’s Tsinghua PBCSF Chief Economists Forum on 19 September, which supplies many of this edition’s entries.
A number of the authors appear to make concessions on China’s role in fuelling global imbalances. Yu Yongding admits that some export tax rebates have been excessive, Yao Yang notes the pressure that China’s scale and technology exert on other countries, while Lu Feng (卢锋, not 路风) comes closest to Brussels’s core diagnosis. He argues that the renminbi’s real depreciation is pushing the surplus higher, that this reflects weak domestic demand, and that China should “put itself into the picture” by proactively rebalancing.
Pushback comes from Tsinghua PBCSF’s Ju Jiandong, who attributes the surplus to natural specialisation between Chinese manufacturing and US finance, and from Justin Yifu Lin, who says that weak global growth since 2008 is the bigger problem, and that China’s 18% of world demand cannot offset the other 82%.
Currency appreciation and international circulation
Currency is the other major topic in September’s selection. Some authors link currency appreciation to the external imbalance, while others keep the two deliberately separate. Shi Kang, also of Tsinghua PBCSF, and Ju Jiandong argue that appreciation cannot be relied on to shrink the surplus, and Ju adds that it would hurt China’s competitiveness.
Others argue for renminbi appreciation on domestic grounds. Shi Kang, while dismissing appreciation as a surplus fix, argues that it would support capital markets, property and industrial upgrading.
Xia Chun of Zhigu Trends says a stronger renminbi would raise household purchasing power—his conversational piece is notable for its highly unusual argument that Chinese consumers should be “individuals before members of the nation” and for dismissing the “sob story” about the Plaza Accord.
Other authors—Zhu Min and Lian Ping—discuss currency and a “strong” RMB, not in the sense of its value, but in terms of its international circulation. Shi Kang and Ju Jiandong separately propose issuing renminbi-denominated government bonds abroad. Ju made his case at the Tsinghua PBCSF roundtable itself, where the idea met with resistance.
Who pays? The central government
The same roundtable featured widespread support for central borrowing, although the speakers differ on what the money is for. Lin and Yu favour investment and infrastructure, Li Xunlei favours consumption, while Yao doubts long-term investment can solve short-term problems. Still, the question posed in August’s digest—“who pays for the new economy?”—receives an answer: the central government.
But People’s Bank of China Governor Pan Gongsheng disagrees. In a Qiushi article, Pan argues that slower growth in financial aggregates will help keep macro leverage “basically stable”, seeming to dampen hopes of a central government with an appetite for expanding credit. He adds that credit beyond the real economy’s needs would leave funds idling—exactly the caution Yu Yongding criticises in the roundtable when he says that “we worry too much about debt”.
Households and the state
Returning to the roundtable debate on what exactly the centre should be paying for, several authors advocate a transfer of wealth to households. Zhang Xiaojing of the National Institution for Finance & Development echoes the roundtable in arguing that Beijing, not localities, should fund “investing in people”. She also argues that rebalancing requires moving part of the public sector’s wealth—held by government and SOEs—to households. Zhang’s “asset policy” would include interest subsidies on mortgages (something similar was indeed announced ten days later).
Zhou Tianyong of the China Society of Economic Reform similarly argues that income should reach households through employment, requiring small and micro firms, rather than an expanding state sector.
Artificial intelligence
AI features prominently—in dedicated articles and as a thread running through some of those already mentioned.
On trade, two authors find that AI accounts for much of China’s strong headline growth, in both imports and exports. Zhao Wei of Shenwan Hongyuan finds that the 26.6% year-on-year rise in China’s January–August imports reflects the AI revolution and oil and gold prices, not stronger domestic consumption, while JD Group’s Shen Jianguang attributes the export boom to AI but finds that it is largely a price effect, which concentrates gains among a few capital-intensive tech firms.
On currency, Changjiang Securities’ Wu Ge argues that AI lifts Chinese exports, which now drive renminbi appreciation, while US tech firms’ bond issuance keeps Treasury yields high. CICC’s Miao Yanliang argues that AI efficiency gains in China’s mostly non-tradable services sectors will pass through as lower prices and may therefore lower the ceiling on real appreciation.
A recurrent recommendation, related to the question of household wealth, is to share AI’s gains more widely. Zhang Xiaojing would ring-fence gains from state stakes in AI firms for those affected by AI. Jiang Xiaojuan, a former deputy secretary-general of the State Council who argues that marketisation in China is incomplete, would tax job-displacing robots and AI and convert part of technology’s capital dividends into assets held by all citizens.
Overall, the point of agreement among many of the economists surveyed here is that China’s growth is not reaching households. However, the signal that counts most—Pan Gongsheng’s article in Qiushi—suggests the central bank is more focused on credit discipline than on financing a larger transfer.
— Jacob Mardell
In Brief
Lu Feng on China entering “a new stage of external surplus imbalance” driven by weak domestic demand rather than exchange-rate manipulation.
Ju Jiandong on China’s surplus as a product of natural specialisation between Chinese manufacturing and US finance, and on issuing RMB10 trillion of government bonds abroad.
Justin Yifu Lin on prolonged weak global growth as a bigger problem than global imbalances, with investment as the main remedy.
RMB Appreciation & Internationalisation:
Wu Ge on export-driven renminbi appreciation easing external constraints on China’s interest-rate policy.
Xia Chun on renminbi appreciation being better for China’s economy than depreciation, and on the mistaken “sob story” about the Plaza Accord.
Shi Kang on the window for a strong RMB, and on borrowing abroad to refinance local governments and fund welfare.
Miao Yanliang on AI efficiency gains in non-tradable services lowering the ceiling on real renminbi appreciation.
Zhu Min on the dollar going “from hegemony to myth” and on China needing a strong, internationally used currency.
Lian Ping & Liu Tao on building an “energy-renminbi system” and on a 15–20% “strategic appreciation”.
Yu Yongding, Justin Yifu Lin, Li Xunlei & Yao Yang on the urgent need for the central government to take over local government debt.
Luo Zhiheng on “equity finance” as a poor substitute for land finance, and on the limits of selling local state assets.
Liu Shangxi on how the “shared risk pot” socialises losses through public finances and prevents markets from clearing risks.
Pan Gongsheng on slower credit growth as a “new normal” that helps keep macro leverage “basically stable”.
Zhang Xiaojing on an “asset policy” transferring some public wealth to households.
Zhang Yu on revenue constraints on “investing in people”, and on tax instruments for adjusting wealth.
Jiang Xiaojuan on “inclusive reform”, more universal social security and taxing job-displacing robots and AI.
Zhou Tianyong on small, medium and micro enterprises, rather than SOEs, as the route to “common prosperity”.
Dong Yu on applying the “K-shaped” lens to China being the same as measuring it with a “Western ruler”.
Zhao Wei on the AI revolution and oil and gold prices, rather than stronger domestic consumption, driving China’s import growth.
Shen Jianguang on the AI export boom being largely a price effect, with gains concentrated in a few capital-intensive tech firms.