Spring-time for state captialists

As the World Bank point­ed out in it’s Decem­ber (2008) Chi­na Quar­ter­ly:

Despite export vol­ume weak­ness, China’s cur­rent account sur­plus is like­ly to increase fur­ther in 2009 due to the low­er raw com­mod­i­ty prices. Even as import vol­umes are like­ly to out­pace export vol­umes sig­nif­i­cant­ly, the large improve­ment in the terms of trade due to low­er pri­ma­ry com­mod­i­ty prices is set to boost the cur­rent account sur­plus to almost US$ 430 bil­lion, or 9 per­cent of GDP, in 2009”

As the world plunges into the trough of the worst reces­sion post-WWII, China’s record exter­nal reserves will rise, even as it joins the oth­er Mem­bers of the G-7 in stim­u­lus spend­ing of about $US585bn over the next two years.

China’s Exter­nal Bal­ances
2005200620072008*2009*
Curr acct bal­ance (US$ bln)161250372386427
As share of GDP (%)7.19.511.39.38.9
Cap­i­tal account bal­ance47-39013070
Growth in reserves 207247462517502
For­eign exch. reserves (US$ bln)8191066152820452547
Source: World Bank. *=pro­jec­tions

Appreciation in the Renminbi real and nominal exchange rates (World Bank + BIS)

Of course the Chi­nese exchange rate is appre­ci­at­ing under tight con­trol (it has risen about 25 points since 2005), which goes some way to rais­ing imports and con­tribut­ing to glob­al refla­tion (but not far enough to shift long-term growth pat­terns away from cap­i­tal accu­mu­la­tion to con­sump­tion).

The Ren­min­bi appre­ci­a­tion, how­ev­er, has the impact of mak­ing the min­er­als shop­ping spree more afford­able (in Rmb. terms)!

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