America's fear of China:

Another great report from the Economist below.

In parallel I would recommend James Kynge's book: China Shakes the World, which has some interesting anecdotes on how China stumbled upon the its road to success "by accident" in the past 25 years, in which Kynge understated Deng's role in the reform. Deng's wisdom is precisely what Kynge did not see, that the success is not by plan, but by a carefully crafted incentive system. The fact that all the local officials were so much incentived to get rich is because of one simple KPI (key performance metric) set by Deng, GDP growth. like TSR (total shareholders' return) in the corporate world, China used its own KPI (mainly GDP growth) to promote its bureaucrats. And it worked, so far.

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America's fear of China

May 17th 2007From The Economist print edition

China is a far-from-cuddly beast; but bashing it is a bad idea

IF THE guest list determined a meeting's value, the Strategic Economic Dialogue between China and America on May 22nd would be a roaring success. Almost half the Chinese cabinet is trooping to Washington, DC, for the second of the twice-yearly discussions, conceived by Hank Paulson, America's treasury secretary, between the world's largest economy and its fastest-growing one. The process was designed, in large part, as an antidote to the latest case of Asiaphobia among America's politicians. It is not working.
The itch to get tough with Beijing is urgent in Congress. Brandishing China's growing bilateral trade surplus as proof, congressmen from both parties have denounced the country as a currency manipulator, an illegal export-subsidiser, a violator of rights to intellectual property and all-round trade scoff-law. China-bashers have introduced a dozen bills in the new Congress. Some are bound to languish, but others may be passed—though there would then be further hurdles to jump, not least the president's power of veto (George Bush has other conflicts on his mind). The most threatening include proposals that would declare China's cheap currency an illegal subsidy and allow American firms to seek compensatory tariffs.

Politics in Beijing is less open, but the circumstances are similarly unhelpful. Because they have no electoral legitimacy, China's Communist leaders need to deliver the economic goods even more than most congressmen do. Worried about unemployment, the Chinese are loth to let their currency, the yuan, appreciate much faster than at today's snail's pace. And as with all dictatorships, there is the need to seem tough. With the five-yearly Communist Party congress only months away, China's president, Hu Jintao, cannot be seen to be bowing to American pressure on the yuan or anything else.

Japanese lessons

Thankfully, an all-out trade war remains unlikely. Congressional leaders seem inclined to act within the rules of the World Trade Organisation (WTO), which limit the scope and scale of any barriers that America can unilaterally impose. And some friction is to be expected in a trading relationship worth well over $300 billion a year. But although today's tensions are not cause for panic, they are a costly and unnecessary distraction—and potentially worse than that.
One worrying parallel is the Japanophobia of the 1980s and early 1990s. Back then, Japan's rising bilateral trade surplus and its mounting foreign-exchange reserves were seen as “proof” of its manipulated currency and mercantilist attitude. America's paranoia deepened as its jobless rate climbed—especially when the Japanese started buying landmarks like the Rockefeller Centre. In fact, Japan's bubble economy ended up bursting; but not before an outbreak of foolish protectionism. The economic tension even undermined support in both countries for America's security alliance with Japan.
The case against China is even weaker than the one against Japan was. Its economy is far more open. Though much poorer than Japan was then, China is already America's fastest-growing export market. And in contrast to the 1980s, the WTO now exists as an umpire for trade disputes. But logic, alas, may count for less than political grievance. America's low unemployment rate looks set to rise in the wake of the housing bust. To American voters, the Chinese are likely to become more prominent rivals, whether it be displacing America at the top of some economic league tables, winning Olympic medals or buying big American firms (the Chinese are rightly keen to diversify from treasury bonds). Most worrying, though, are the strategic risks. Japan was an ally in Asia: China is potentially a military competitor. Trade tensions could make it easier to see China as a rival and harder to enlist it as a partner.
Running such geopolitical risks would be understandable if China's policies posed a true threat to America's economic health. But they do not. China's intellectual-property violations cost American firms far less than many would have you believe: pirated DVDs may sell for peanuts in the markets of Shanghai, but if Hollywood tried to sell the genuine articles at full price, it would quickly discover that most Chinese could not afford them. Similarly, a stronger yuan would do little to dent America's trade deficit (see article).
So much to lose, so little to gain
The bilateral trade imbalance, the target of so many American politicians' anger, is an economic red herring. Its rise reflects changing supply patterns in Asia: America now imports more stuff that has passed through China—and correspondingly fewer goods from South Korea and Taiwan. China's overall surplus and America's overall deficit have less to do with the value of the yuan than with Chinese saving and American profligacy. True, a stronger, more flexible yuan makes sense for China, because it would help shift spending towards imports and would give Beijing's policymakers greater control over interest rates, making it easier to prevent the economy from overheating. But the effect on America would be small.
Rather than picking fights over the currency, Congress should step back and ask why Americans are so upset with China in the first place. The answer is that China is a scapegoat for broader economic anxieties to do with stagnant wages, rising income-inequality and dwindling health and pension benefits. These insecurities, which also lie behind the bad idea of introducing labour standards in trade agreements (see article), are much better tackled head on—at home.
Comprehensive health-care reform to create a system where all Americans have access to portable health insurance would do a lot to reduce workers' anxiety and equip them for an economy that these days demands frequent job shifts. Reform of the payroll tax, a regressive levy that hits the less affluent hardest, would be a good way to shift resources to needier Americans. By contrast, raising barriers to cheap Chinese imports would disproportionately hit the wallets of poor and middle-income American consumers—the very people the Democrats in particular claim to be protecting.
By scaling back its China-bashing, Congress could avoid such blunders. It would also leave more room to engage Chinese officials on subjects that actually matter. Top of the trade agenda ought to be the successful conclusion of the Doha round of global talks. No country has more at stake in a vibrant WTO than China, yet Beijing has been scandalously unwilling to help push for a Doha deal.
But the greatest prizes of Sino-American diplomacy are nothing to do with trade. Avoiding war and conflict, naturally, comes top of the list, whether by co-operation over North Korean and Iranian nukes or by building the trust that minimises the odds of a clash in the Taiwan Strait. Then there is China's expansion into Africa, particularly its cosy relations with genocidal Sudan. Global warming, too, ought to be centre-stage. China is building a new coal-fired power plant every week and is set to surpass America as the biggest source of greenhouse gases within a year. If the world is to contain its carbon emissions, America must not only clean up its own act but also help China to green its economic growth.
Mr Paulson wants the strategic dialogue to address some of these broader issues. Congress should stop distracting him.

Everything you need to know about the RMB valuation

The Economist has an excellent review on the RMB valuation.

• Why the exchange rate is a fussy issue



• Why the accusation from US politicians are logically flawed



• Why a (mild) appreciation may not necessarily lead to disaster in China



• Why China should appreciate RMB for its own benefit

Enjoy.

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Lost in translation

May 17th 2007 BEIJING AND HONG KONG
From The Economist print edition

If China sharply revalued the yuan, as American politicians are demanding, it could actually hurt the United States and help China
Stephen Jeffrey
CHINA is being cast as the villain once again. By holding its exchange rate artificially low, it is stealing jobs and causing the United States to run a huge trade deficit. Beijing must therefore be forced to revalue the yuan. These are the arguments behind an increasingly protectionist mood in Washington. Yet they are largely flawed. A stronger Chinese currency would not much reduce America's trade deficit. Indeed, the irony is that China, not America, has more to gain from setting the yuan free. Without a more flexible exchange rate, there is a growing risk that China's sizzling economy will boil over.
America's anger at China is clearly growing. In February it filed a complaint to the World Trade Organisation (WTO) against Chinese export subsidies. In late March the Department of Commerce announced tariffs of 10-20% on glossy paper imported from China, to offset the impact of alleged government subsidies. This reversed a 23-year-old policy of not imposing countervailing duties on a non-market economy. Then in early April the Bush administration filed two more complaints: one on Chinese pirating of DVDs and CDs, and the other over restrictions on the sale of foreign films and music in China.

Although by themselves these actions are trivial, together they point to an increasing appetite for tougher action against China. The Bush administration is under increasing pressure, particularly from Congress.
Congressmen complain that the so-called China-US Strategic Economic Dialogue (a series of high-level talks between the two countries launched last year by Hank Paulson, the treasury secretary) has so far failed to produce results. The recent deterioration in trade relations does not bode well for the next meeting, which begins on May 22nd. Many commentators now reckon that Congress will inevitably pass some kind of China-bashing legislation later this year. A sharp economic slowdown in America as a result of the collapsing housing market would make this even more likely.
The biggest risk comes from measures linked to China's supposed exchange-rate misalignment. The infamous Schumer-Graham bill, which proposed a 27.5% tariff on all Chinese goods to offset the yuan's alleged undervaluation, was withdrawn last year. But the two senators behind it are working with others on a new WTO-compatible version that could soon appear. Although the new bill is unlikely to include across-the-board tariffs, it could have sharp teeth.
Meanwhile, the target of all this hostility looms ever larger: China's trade surplus with America increased to $233 billion last year, accounting for almost 30% of America's total deficit. China's total current-account surplus reached an estimated $250 billion, or 9% of GDP, up from only 1% in 2001. Worse still, in the first four months of 2007, its trade surplus jumped by 88% compared with the same period in 2006.
The making of myths
China officially abandoned its decade-long policy of pegging the yuan to the dollar in July 2005. Since then it has risen by only 8% against the greenback. Because the dollar itself has weakened, the yuan's trade-weighted exchange rate has barely budged. In real trade-weighted terms it is about 10% cheaper than at the dollar's peak in 2002. As a result, it is not just the usual protectionist suspects that demand action, but many mainstream American economists are now calling on China to revalue by 20% or more. Yet the standard arguments for a revaluation are based partly on a series of myths.
The first myth is that there is overwhelming evidence that the yuan is grossly undervalued. China's large bilateral trade surplus with America proves nothing. It largely reflects Asia's changing supply chain. Much of what America buys from China today once came from Japan, South Korea and Taiwan. China now imports components from these countries, assembles them and exports the finished goods to America. Knock out these and America's bilateral deficit with China shrinks by more than half. Even so, China's overall current-account surplus is also huge. The surge in its foreign-exchange reserves, to over $1.2 trillion, also suggests that the yuan is undervalued: without those massive purchases of dollars, the currency would have risen.
However, not all economists agree that the yuan needs to be sharply revalued. At one extreme is Morris Goldstein, of the Peterson Institute for International Economics, who argues that the yuan is undervalued by 40% or more against the dollar and should immediately be revalued by 10-15%. In the other corner many highly respected economists, including Robert Mundell, an economics Nobel prize-winner, and Ronald McKinnon, of Stanford University, strongly argue against a big appreciation of the yuan.
The devil to measure
Economists find it devilishly hard to define the “correct value” for a currency. On purchasing-power parity (PPP), the yuan is clearly undervalued against the dollar. Perhaps by as much as 50%. But PPP is not useful for determining the optimal exchange rate between two countries of such different levels of income. It is natural for average prices to be lower in poorer countries because wages are lower. As countries get richer and their productivity rises, their real exchange rates appreciate. And although the depreciation in the yuan's real trade-weighted value since 2002 looks perverse, this follows a real appreciation of 50% between 1994 and 2001 (see chart 1).
A study by two IMF economists, Steven Dunaway and Xiangming Li, found that estimates for the undervaluation of the yuan ranged from zero to nearly 50%, depending on which method was used. Another recent study, by Yin-Wong Cheung, Menzie Chinn and Eiji Fujii, concluded that using conventional statistical methods it is hard to prove that the yuan is much undervalued. Such uncertainty may partly explain why America's Treasury Department has so far ducked labelling China as a currency manipulator in its twice-yearly report to Congress. Another reason is that it is loth to give ammunition to the protectionist lobby.
Myth number two is that the sharp increase in China's trade surplus is due to an explosion in cheap exports. Until 2004 China's surplus was relatively modest, but it soared over the next two years (see chart 2). Jonathan Anderson, chief Asia economist at UBS, points out that export growth actually slowed between 2004 and 2006 (see chart 3). The main reason for the bigger trade surplus was a sharp slowdown in the annual real growth rate in imports, from more than 30% in early 2004 to less than 15% last year.
The entire increase in China's trade surplus since 2004 has come from trade in heavy industrial materials and equipment. China used to import increasing amounts of steel, aluminium, chemicals and machinery, but import growth collapsed after 2004 when the government started to tighten policy, causing a sharp slowdown in construction, one of the biggest importers of machinery and materials. At the same time China continued to invest heavily in metals and equipment, creating substantial excess capacity, so import growth remained relatively weak last year. Mr Anderson argues that imports should recover as overcapacity is used up.
The third fallacy is that imports from China destroy jobs and harm the American economy. It is hard to see how China can be blamed for job losses when America's unemployment rate (4.5%) is close to its lowest for decades. Trade with China may affect the composition of jobs in America, but it has little impact on total employment. It is true that some workers are harmed by trade with China, just as there are some losers from all international trade. But the American economy overall is better off, so in theory there is ample room to compensate any losers.
Trade with China helps, not harms the average American. Thanks to imports from China, prices are lower and real incomes higher. Commentators often refer to the “cheap” yuan as being an unfair subsidy for Chinese exporters. But it is a moot question who exactly is subsidising whom. Not only do cheap imports subsidise American consumers, but China's large purchases of Treasury bonds also hold down American interest rates, thereby subsidising home buyers. Suppose that overnight the yuan rose by 30%, what would happen? American interest rates would rise as China needed to buy fewer Treasury securities and prices at Wal-Mart would increase. If consumer spending and imports then collapsed, this would certainly reduce America's trade deficit, but in a much more painful way than most Americans have in mind.
Wishful thinking
The biggest myth of all is that a revaluation of the yuan would greatly reduce America's trade deficit. The real cause of the deficit is that Americans spend too much and save too little. This means that the country has to import surplus savings from abroad by running a current-account deficit. If a stronger yuan did not cause Americans to save more, it would do little by itself to reduce the trade deficit.
Another reason why even a big rise in the yuan would do little to reduce America's deficit is that there is little overlap between American and Chinese production, so American goods cannot replace Chinese imports. Instead, other countries, such as Indonesia and Vietnam, would probably replace the Chinese. Shifting purchases to higher-cost producers amounts to imposing a tax on American consumers, says Stephen Roach, chief economist of Morgan Stanley.
Even where America and China do compete, as in electronics, the high import content of China's exports blunts the impact of exchange-rate movements on export prices, because a rise in the yuan reduces input costs. About half of China's exports consist of goods that have been assembled from imported components. And domestic wages and materials account for about 30% of the cost of those re-exports. Mr Anderson estimates that a 10% rise in the yuan would increase average export prices by only 3-5%.
If a yuan revaluation encouraged other Asian economies to follow suit, the impact on America's trade deficit would be larger, but still modest. If a 10% revaluation of the yuan were matched by all other Asian currencies, the dollar's trade-weighted index would fall by 4%. Yet, the 19% decline in the dollar's trade-weighted index since early 2002 has failed to trim the deficit.
None of this means that a yuan revaluation leaves America's trade deficit unchanged, simply that any change would probably be small. Nouriel Roubini, of Roubini Global Economics, finds evidence that China's trade balance is affected by movements in its exchange rate: the yuan has fallen sharply against the euro since 2002 as a result of the dollar's decline, and China's exports to Europe have consequently grown at a faster rate than its exports to America. A stronger yuan might therefore curb China's exports to America, but America's deficit would continue to loom large if imports from China were simply replaced by those from elsewhere.
Chinese whispers
Many of the arguments heard in America in favour of a big revaluation of the yuan are flawed or at least exaggerated. However, many of the arguments used in Beijing for why a revaluation would endanger China's economy are equally suspect. For instance, the common claim that a big jump would seriously harm China's growth and employment contradicts the argument (also favoured by Beijing) that an appreciation would have little effect on China's trade surplus with America.
Or take another popular line of defence: it is often asserted that China cannot afford a more flexible exchange rate until its dodgy banking system is reformed and strengthened. Eswar Prasad, an economist at Cornell University, says this argument has it completely backwards. The distortions caused by today's rigid exchange-rate regime may themselves be the biggest threat to Chinese financial stability. A sound banking system requires an independent monetary policy, which uses interest rates rather than blunt directives, to guide credit. And a country cannot control its monetary policy unless it accepts a more flexible exchange rate.
By tying the yuan closely to the dollar, China has been forced to hold its interest rates lower than is prudent: higher rates would attract more “hot money” from abroad, putting upward pressure on the currency. The real rate of interest paid on bank deposits is negative and lending rates are far too low for such a fast-growing economy. Cheap money results in excessive bank lending and poor investment decisions, which could lead to an increase in non-performing loans. Excessively low interest rates are also fuelling stockmarket and property bubbles.
News that China's real GDP surged by a breathtaking 11.1% in the year to the first quarter and that consumer-price inflation had risen to 3.3% in March (it eased to 3% in April), stoked fears that the economy is out of control. But concerns about overheating in the usual sense of excess demand are exaggerated. China's widening current-account surplus and its strong investment imply excess supply. Excluding food, the inflation rate is only 0.9%. Instead, the real concern is that excess liquidity, as a result of the surge in foreign-exchange reserves and low interest rates, is flooding into shares (see article). Households are withdrawing money from low-yielding bank accounts to bet on the stockmarket. China needs much higher interest rates to cool its asset markets. To regain control over its monetary policy China needs to let the yuan rise.
A revaluation could also help the government succeed in shifting the balance of growth away from investment and net exports towards consumption. A stronger exchange rate would boost consumers' purchasing power, allowing them to buy more foreign goods. Excess saving in China is as much to blame for global imbalances as inadequate saving in America.
Most of the increase in saving has come from Chinese companies, which are earning record profits. But household saving is also kept high by the poor public provision of health, education and pensions. Partly as a result, consumption accounts for an unusually low share of GDP.
The good news is that the mix of growth is starting to become more balanced: over the past year, investment has slowed while retail sales have quickened, rising by 15.5% in the year to April. In other words, consumer spending is now growing faster than GDP. Dragonomics, a Beijing-based research firm, estimates that consumption rose from 37% to 40% of China's nominal GDP growth in 2006 and is set to rise again this year.
The stronger growth in Chinese consumer spending has got much less attention in America than the sharp increase in the country's trade surplus. The contribution of net exports to China's growth has increased so far this year. However, the near doubling of its trade surplus in the first four months of the year was probably a one-off, because firms brought forward their shipments so as to avoid an expected reduction in export-tax rebates. Exporters are also thought to be overstating their export revenues in order to dodge capital controls and bring in foreign money to invest in Chinese assets. If so, the trade surplus should stabilise in coming months.
In the long run, stronger domestic consumption could trim China's trade surplus. The government can encourage this by spending more. Its spending on health care and education rose by an average of 50% last year and it is budgeted to rise by more than 60% this year—but from such low levels that it could take years to increase social spending by enough to encourage households to save a lot less. Meanwhile, a stronger yuan would help to rebalance the mix of China's growth.
Mirror image
This turns the whole debate about China's exchange-rate policy on its head. It is China that has the most to gain from allowing the yuan to rise. If the spat between America and China were to ignite protectionism or financial instability, it could endanger the whole world economy. All the more foolish, therefore, that economic relations are based on misperceptions on both sides. America needs to stop making China a scapegoat for the failures of American policy. Only if it gets its own economic house in order, by boosting domestic saving, will its “advice” to Beijing seem credible. Likewise, China has no right to criticise American policy when its own economy remains unbalanced.
America is right that China needs to revalue, but for the wrong reasons. And arguing that a revaluation helps America's economy makes it less likely that Beijing will act. Moreover, if George Bush foolishly slapped harsh trade sanctions on China, America's economy would be the biggest loser. Likewise, China is foolish to resist a more flexible exchange rate partly because it does not want to be seen as caving in to America's demands, when it is in its own interest. If the world's two leading engines of growth remain at loggerheads, everyone will pay the price.

The RMB surplus "problem" and "exchange rate problem"

Honestly, it is not really a problem if you have too much money. But it is if you have too much cash at hand and do not know how to more efficiently deploy it, and it is a problem if it becomes an excuse for other to hurt you.

Stephen Cheung proposed his solution to China's currency "problems". I will paraphrase a couple points here.

1) "There is never pressue because your currently is too strong." -- the pressure to rise and the pressure to fall do not work in symmetric manner.
My analogy will be if your boat is too light, there is no danger of it sinking. Because gravity works to your favor. When RMB is "too strong", all PBOC needs to do is too increase supply.

2) Increasing supply leads to increase in the risk of inflation. But it is so only if it stays in the domestic market. However, if the circulation is outside of China (like the greenback circulation outside the USA), it does not affect the supply level in China and there will not be pressure on inflation

3) To let RMB flow out of China the government needs to lift capital control (both ways to allow free flow) and foreign government (and people) will want RMB as one of the currencies for foreign reserve

4) However, the current strength and hence demand (and interests) of RMB in international market may not be sustainable. If the money flows back into China there will be inflation (and you cannot restrict flowing back, as no one would want to buy RMB in the first place if so).

5) To stabilise inflation China can use the commodity basket as the anchor. The commodity will then define the value of RMB and hence hold inflation to that of commodity prices.


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张五常:人民币及其它——覆茅于轼
作者：张五常　　来源：东亚经济评论 　　发表日期: 2007-5-6

东亚经济评论　http://www.e-economic.com

茅于轼真君子也。年纪比我长，但算是同辈。我们这辈子经历过二战及之后的血泪历程的人，多多少少对国家民族有赤子之心。这方面，茅兄比我强得多了。这些年他拿着短小的本钱协助农民的教育与自力更生，令人感动。我自己只是拿着笔杆爬格子，这里那里大声疾呼，比起他亲自落手落脚，渺小得很。说赤子之心跳得比较快，比较激动，是医学之外的哲理，何况到了日暮黄昏，来日无多，这样的人免不了有点不耐烦，有点脾气了。这方面，我搞不清楚茅兄与我孰高孰低。几年前听到他在机场喝咖啡，因收费奇高，大发牢骚。当时我想，价高大可不喝，有什么牢骚可发呢？殊不知两星期前，在深圳机场，等机喝咖啡，每杯最相宜的四十，四个人坐下来，两位要喝，两位不喝，女侍应说，不喝的，只坐下，也要每位收费四十，吓得两位急急脚离开。可幸侍应提点，否则埋单收足，官司可能打到北京去。最近读到茅兄在某访问中，提到我，其中有两点与我对国家经济的看法不同。其一是间接的，没有提到我，但可能在那访问中，有人提到我只看经济效益，反对最低工资，也反对福利经济。茅兄说社会的公平与正义也重要，不可或缺。虽然公平与正义不容易鉴定为何物，我的心与茅兄的心绝对是在正确的位置。人类天生下来就不公平，所以处理这项社会问题很复杂。我的立场有五点。一、天生有缺陷的或后天遇大不幸的，我们要帮助，最好让私人或私营慈善机构处理。二、政府要放开每个人自力更生的机会，也要维护这种机会的平等。三、虽说天生下来本领不平等，但从收入那方面看，差别不是那么大，本领有别或勤奋不同而导致的收入不同我们要接受。四、机会相等但际遇不同，导致的收入不同我们也要接受，因为我们难以分辨本领与际遇所引起的收入不同。五、权势过人，或关系超凡，可以导致很大的收入差距。这后者我反对，因为违反了自力更生机会平等这个原则。是的，因为权势、关系等而导致的收入差距，是今天中国的一个大问题。反对财富不均，或反对贫富悬殊的劳苦大众，主要是见到或听到某些人靠权势及关系而大发其达。他们问：你凭什么本领比我赚那么多的钱？于是眼红，于是投诉，不平则鸣。这方面我不仅理解，而且无从反对。大家知道，因为权势及关系而导致的贫富悬殊，是中国经济改革中无可避免的。今天这改革大致成功了，还要再大走几步，是清除这类不「公平」的时候。问题是要怎样处理才对。答案当然是要清除那些因为权势及关系而说得上是腐败的机会及行为。是艰巨的工程，北京不可能不知道要做，但「关系」这回事，虽然我不懂，也可以想象不易处理。我懂的——这里要向茅兄提出——是以修改收入不均的办法会有适得其反的效果。增加累进税率吗？难不倒有权有势的人——这一点，四十多年前戴维德早就提出了，支持这论点的证据有的是。推出最低工资、福利经济等项目吗？也适得其反，因为这些不鼓励收入低下的力争上游，贫富悬殊驱之不去也。转谈人民币，茅于轼的观点与我的不同，直接地提到我。有两点，相关的。其一，茅兄认为币值上升是发展起来的国家必会出现的情况，不让人民币升值是守不住的。其二，如果中国开放金融（包括取消汇管），人民币一定升值。这两点是传统的谬误，让我澄清吧。一、欧洲经济发展得最顺利的二百年，用本位制，币值是稳定而没有上升的。日圆当年大幅上升，一则起于美国压力，二则有本土富有人士支持，其效果是发展得非常可观的经济，兵败如山倒，不景长达二十多年，到今天还翻不了身。当年我是第一个推断了日本的不幸。前年史坦福一位大教授以整本书分析日本的惨痛经验，他支持中国，极力反对人民币升值，是基于他对日本的研究了。二、蒙代尔也极力反对人民币升值，是基于二千年前罗马帝国与上述欧洲发展的经验，认为稳定币值是经济运作的一个重点。佛利民与蒙代尔之争，起于佛老认为，脱离了本位制后，一个大国不容易下一个固定的锚──佛老于是支持fiat money制。我起初站在佛老那边，但后来多番思考……的货币制度，知道一个大国的货币可以下一个固定的锚。英国的货币大师C. Goodhart也是下锚的拥护者，一九八三年香港考虑联系汇率时，我跟他研讨过。今天，大家的意见有出入之处，不是应不应该下锚，而是这个锚要怎样下才对。我考虑以一篮子物品为锚，起自一九八三，佛老当时认为成本太高，但后来朱老政策的经验，使我意识到以一个指数为锚可以稳守。一九九七我说人民币是强币，二○○二说人民币是天下最强，二○○三年初说美国一定会施压──这些走在历史前头的话是有记载的。二○○三起我再考虑，在朱老的货币制度下转用一篮子物品为锚，反复考虑无数次，认为不可能错，是最好的货币制度。以一篮子物品的价值指数为货币之锚，政府是不需要提供物品的，成本甚低也。在这制度下，央行不要手痒，学人家搞什么货币政策。回头说fiat money，用的是以目标（targets）为锚，以币量或利率调控经济的政策不能不用。精明如格林斯潘，在任二十年利息率轮上轮落轮了八次，与朱老的制度相比，输了几条街。三、说过了，币值的下降压力与上升压力是不对称的。一种货币的币值要下降，处理不容易：外汇储备可能不足，减少币量不是举手之劳，不知要减多少才对，就算成功，减少币量的效果可能要等长时日才见到。但币值有上升压力，要之不升易过借火。目前央行压制人民币上升的办法，是约束需求。这是大错。他们要倒转过来，增加供应。大量把人民币放出，是简单的事，要人民币「弱」到哪里都可以。困难是通胀的问题。解决的办法有两个要点。其一是开放金融，取消汇管，让人民币大量流出国外。数之不尽的亚洲国家、市民要持人民币，政府也要人民币作储备。把人民币放出去中国可以赚很多钱，这是劳苦大众的努力促成人民币强劲的回报了。不明白为什么央行不这样做。会有通胀吗？如果人民币在外地使用，或被外地的政府用作储备，中国本土是不会引起通胀的。人民币在外地代替了其它货币的一部分，央行赚大钱，也协助了外地的经济稳定性。其二，如果放了出去的人民币大量回流，中国会有通胀。采用我建议的以一篮子物品为锚，可大显神通矣。坚守这个锚，不会有通胀，何况这个锚的物价指数可以调整，向上向下调整都可以。万无一失，因为央行有那么多的外汇储备（简直水浸），有需要时可把人民币买回来。天下间不可能有一个国家不希望有今天中国的币值上升压力！因为压力是上升的，处理容易，央行不要让地下（其实是地上）钱庄做独市生意了。开放金融，解除汇管，上海会在三年后超越香港！这类宏观推断我历来准确。

Shameful Distortion -- rules vs authority

This article got me ROFLMAO. I think Mr Karlgaard's title should be switched with his next title "Shameful Distortion". How a prejudiced pair of eyes got fixated on some outlying examples and reached certain ridiculous conclusions.

Mr Karlgaard's conclusion for China is:

• "it seems to me that 99.99% of Chinese wake up each day with a core belief: Anything not expressly permitted is not permitted at all."

Well, all I have heard of is exactly the opposite. And that is the major weakness of the Chinese tradition we seek to change. Among these are related issues that actually formed part of our debate in the Chinese blogsphere here in HK.

(edited to add: if Chinese people had been behaving as Mr Karlgaard has alleged, China would have been developed in parallel to Japan for the past 150 years)

Unfortunately, Mr Karlgaard confused observing rule with observing authority. What he has observed was blind obedience to authority (i.e. one's superior) and lack of empowerment, not blind obedience to rules and laws.

For your entertainment below:
---

China's Mental Default

Rich Karlgaard

On a recent trip to China (to host a FORBES cruise for Investors), it didn't take long to catch a whiff of the fact that all is not perfect in the Middle Kingdom. During the bus ride from Beijing airport to the Shangri-La Hotel, the tour guide kept mentioning housing prices. These were soaring, "unlike in the days of Mao," she kept telling us, "when the government provided for housing." The guide linked the dead dictator's name with free housing a half-dozen times. There it was: Mao nostalgia.

She also fed us bad chop suey regarding the U.S. dollar. "The street vendors don't take dollars anymore," she said. "You must change dollars to yuan." This turned out to be laughably untrue. Tiananmen Square was crammed with vendors who gladly took U.S. dollars. They pushed, elbowed and practically knocked down your children to get to your U.S. dollars. I bought two Mao watches for $15. Each ceased working about an hour after the purchase, just like Mao's economy.

Now, I don't doubt for a minute that China's spectacular 9%-to-10% economic growth rate will continue for many more years. You can bet on it. The Chinese economy is like a huge rubber band: At one end is the economy that can turn out Apple (nasdaq: AAPL - news - people ) iPods to perfection; at the other end are all those sad, sunburned fellows with bad teeth and Mao hats--refugees from rural China--who stand by the roadside with shovels. You see scores to hundreds of them at every construction site. They stand around smoking cigarettes and occasionally haul a load of dirt from here to there. Prison work gangs are more productive. Which is why the Apple iPod economy will snap the shovel economy forward. This is guaranteed.

What's not a slam dunk are changes in the average Chinese person's attitude. For every Chinese entrepreneur like Alibaba's Jack Ma (check him out on Wikipedia), there must be 10,000 who fear sticking out, bucking authority or going off-script. You see this everywhere. One afternoon at the Shangri-La, my wife, kids and I decided to abort a long elevator wait and take the stairs. Up we trudged to the 13th floor--they have 13th floors in China--but on the 12th we were met by a startled hotel employee. He nearly passed a brick seeing us on the stairway. He shouted for us to walk back down.

"Just one more floor," we begged. "Down! Down!" he shouted.

Another anecdote among several: One night the hotel left a complimentary bottle of wine in our room. We took it to dinner in a hotel restaurant. This confused the waitstaff no end. Four or five of them consulted frantically. Finally, their leader stepped forward to say that bringing the bottle of wine was "not permitted!"

"But it's a gift from the hotel," we protested.

"Not permitted," repeated the waiter. He wasn't angry. He wanted to do the right thing, but he was afraid. You could see it in his eyes.

Perhaps my Western eyes see this unfairly, but it seems to me that 99.99% of Chinese wake up each day with a core belief: Anything not expressly permitted is not permitted at all.
But that's most of life: Not permitted! Ask yourself: How far can China really go if "not permitted" is the default mental mindset of the country's vast majority?

Maybe this won't be a key question during the next 10 years. China has so much catching up to do it can easily grow 10% a year for another decade. Crunch time, I think, will come in the 10- to 20-year time frame. Unless attitudes change, that's when the "not permitted" mental default will begin to slow China's incredible march forward.

Shameful Distortion

I usually like USA TODAY .....