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Melbourne, Victoria, Australia, 2007/04/05 - With China’s economy growing at breakneck speed, this pattern of behavior – previously inevitable under certain circumstances – is unsustainable in the long-run, and the country now faces the task of turning its macroeconomic policies around. NYSE: JWa, JWb
It has been said that China’s trade and FDI policy can be likened to the poor borrowing money from the rich with high interest rate and lending this money back to the same group – but at a low interest rate.
A study published in the Australian Economic Review – a journal by Wiley-Blackwell, titled “Global Imbalances in China” – addresses this very issue. Author Professor Yu Yongding, Director-General at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, examines the issue of twin surpluses – discussing why running a current and capital account surplus simultaneously is not an ideal situation for China.
With China’s economy growing at breakneck speed, this pattern of behavior – previously inevitable under certain circumstances – is unsustainable in the long-run, and the country now faces the task of turning its macroeconomic policies around. The need to make fundamental changes to its development strategy has never been more vital.
The coexistence of the twin surpluses – a result of market distortions – has been an ongoing issue in China for decades. While being the 128th poorest country in the world, China currently holds rank as the world’s third largest capital exporting country, and is also the third largest FDI recipient country in the world today.
Professor Yu said, “In order to correct China’s internal and external imbalances, structural adjustments – including amendments to the exchange rate policy – must be carried out.”
“Because of the increase in the size of the Chinese economy, this issue has evolved to become part of the overall discussion on global imbalances – including the exchange rate policy and FDI policy.”
It is internationally acknowledged that the current state of global imbalance is unsustainable, especially in the interests of Asian countries; and must be corrected.
The Chinese government has already adopted a comprehensive program aimed at achieving a more balanced and sustainable growth pattern to correct this global imbalance – with its success hinging on the it’s ability to balance the short-run necessity for high growth with it’s long-run need for structural adjustment.
To achieve an orderly correction, more international consultation and coordination between governments is needed – the key task facing fiscal administrators worldwide.
This study is published in Australian Economic Review. Media wishing to receive a PDF copy of the article referenced should contact Alina Boey, Public Relations Asia at 613-8359 1046. Professor Yu Yongding is the Director-General at the Institute of World Economics and Politics, Chinese Academy of Social Sciences. He is also a former member of the Monetary Policy Committee of the People’s Bank of China.
About Australian Economic Review
An applied economics journal with a strong policy orientation, The Australian Economic Review publishes high quality articles applying economic analysis to a wide range of macroeconomic and microeconomic topics relevant to both economic and social policy issues. Produced by the Melbourne Institute of Applied Economic and Social Research, it is the leading journal of its kind in Australia and the Asia-Pacific region. Whilst of special interest to Australian academics, students, policy makers, and others interested in the Australian economy, the journal also considers matters of international interest.
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