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The runaway Chinese export machine

By
Colin Barr
Colin Barr
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By
Colin Barr
Colin Barr
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October 25, 2010, 2:47 PM ET
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The renminbi must rise, or the red hot China trade machine is going to overheat.

So warns the Council on Foreign Relations, which lays out the argument for a stronger Chinese currency in a blog post Monday that accompanies the nifty graphic to the right.



Adjusting internally: fun for everyone

That chart shows Chinese export growth has gone parabolic since the global economy started recovering last spring. It hit 40% in the year ended in March, according to data presented by the Council’s Center for Geoeconomic Studies.

That pace is “unsustainable,” the Council writes in a view attributed to NYU economist Nouriel Roubini.

Meanwhile the renminbi-dollar exchange rate has been flat after a sharp decline tied to the meltdown-spurred worldwide flight to safety, and growth in Chinese consumer spending has cooled after briefly rising in tandem with the renminbi earlier this decade.

Were the Chinese to let the renminbi appreciate against the dollar, it could eventually turn those trends around and put its economy on a better footing, goes the argument.

There is a bit of this happening already, to be sure. Responding to building pressure from unhappy trade partners, China this summer said it would allow the renminbi to trade in a wider band.

Though the trading gains have been slower to materialize than many critics would like, Treasury Secretary Tim Geithner acknowledged the shift this month in his latest decision not to brand China a currency manipulator – a designation that would open the way to trade sanctions.

By letting the renminbi rise against the dollar, the Chinese would channel funds toward consumer spending and away from the politically powerful export sector. Such a shift is long overdue and could help ease some of the imbalances that have left the world economy balanced on the head of a pin, Geithner contends.

But a rising U.S. trade deficit and growing outrage over persistent unemployment say the shift isn’t happening fast enough to keep everyone happy. And as this weekend’s international economic meetings remind us, devising a good-sounding plan and actually carrying it out are two very different things.

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By Colin Barr
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