Thursday, April 1, 2010

More China Sanity

The last two days have witnessed a dramatic shift in perspective on China - it seems that the voices of the sane have rapidly come out of the woodwork in order to put those recently-omnipresent insane voices back where they belong.  I'm quite sure that my months of ranting about Washington's flirtation with China Fever had nothing to do with this change, but still, it's nice to see.
  • Look Hu's Coming to Washington.  The biggest China news of the day today was the announcement that Chinese President Hu Jintao will be coming to DC for the big nuclear security summit in two weeks.  The New York Times' Vikas Bajaj explains succinctly why this is big news for the currency debate: "China experts said it was unlikely that China would have agreed to the visit unless there was at least an informal assurance by the Treasury Department that it would not be named a currency manipulator either on or around April 15 — the deadline for the Obama administration to submit one of its twice-a-year reports on foreign exchange to Congress."  I think that's exactly right and am looking forward to collecting on a few bets come April 15.  Almost as good, Bajaj also goes on to explain - rationally, I might add - that RMB appreciation appears part of China's near-term plan (let's hear it for quiet diplomacy! Woo hoo.), and then provides a rather even-handed look at all of the views (hawkish to dovish) out there on the currency issues.  Impressive.  Now, I wish I could say that this good news also means that Sens. Schumer and Specter, and their fellow China-bashers in Congress, will now proceed to disappear from the US-China spotlight, but let's get serious: their campaigns aren't over until November, so China could appreciate its currency 1000%, and these guys would still be out their "saving" their constituents from the scary China ghost of their own making.  Alas.
  • Another China journalist does his homework.  The NYT (above) isn't the only outfit printing reasonable stuff about China these days.  Reuters too has caught the currency sanity bug with this article, "U.S. currency push on China no slam dunk."  There, journalist Paul Eckert cites lots of good data and quotes from smart people to explain that "many trade economists and businessmen say that at best, a heavy-handed U.S. approach on currency will fail.  At worst, it could backfire, sparking a U.S.-China trade war. Instead, Washington should address the currency and other factors behind global financial imbalances in a multilateral setting."  Nice.  The article even implicitly debunks the recent "study" by everybody's favorite union-backed fake-stats-factory, the Economic Policy Institute. Indeed, my favorite line of the whole article comes from EPI honcho Robert Scott who, when confronted with the mountains of data-rich criticism of his work, responds with the nonsensical and conclusory defense that China's currency policy has just "got to have an impact on ultimate sales of goods in both countries and ultimately, on jobs."  Oh, well, ok then.  You're right, Dr. Scott.  Why didn't I think of that?  I guess I was just too caught up in silly things like "data" and "history" and "logic," and totally forgot about the "it's just gotta" angle.  My bad. (<--sarcasm).
  • Economists: hey, we're not all irrational, fact-ignoring loons.  Not content to let all the journalists hog all the sanity, the economists have also gotten in on the action.  Goldman Sachs' Jim O'Neill argues in the Financial Times that Congress' overheated rhetoric about China's economy and currency completely ignores the facts on the ground, particularly recent data about Chinese consumption and trade flows.  O'Neill even goes so far as to say that, according to their models (which he admits could be inaccurate because of market volatility) the RMB might not actually be undervalued.  Be sure to read the whole thing.  The data cited are compelling.  Yale economist Ray Fair (h/t Tyler Cowen) piles on with an intense new study (PDF) which foecasts that "The estimated effects [of RMB appreciation] on U.S. output and employment are modest." Now where have I heard that before?  Oh.  Yeah.
More to come, I'm sure.

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