{"id":425,"date":"2012-05-02T12:37:38","date_gmt":"2012-05-02T11:37:38","guid":{"rendered":"http:\/\/blogg.lnu.se\/china-research\/?p=425"},"modified":"2012-05-02T13:05:43","modified_gmt":"2012-05-02T12:05:43","slug":"understanding-the-chinese-economy-%e2%80%93-not-that-easy-3","status":"publish","type":"post","link":"https:\/\/blogg.lnu.se\/china-research\/?p=425","title":{"rendered":"Understanding the Chinese economy \u2013 not that easy!"},"content":{"rendered":"<p>More and more economists deal with China. This a good thing since China nowadays is the second largest economy in the world (in PPP terms). This position urges for increased knowledge about the Chinese economy.<\/p>\n<p>And there is much more to learn &#8211; particularly with regards to the way economic policy and the economy works. One of the biggest mistakes that Western analysts usually makes is the transition of analysis and its interpretation from the Western model to Chinese applications. China works differently &#8211; and will continue to do so.<\/p>\n<p>One of these moments came recently when I got really surprised by Western songs of joy after the official announcement that China had enlarged the quota for qualified foreign institutional stock investors from $30 billion to 80 billion.<\/p>\n<p><em>First, <\/em>this increased amount is not that large. But it was also interpreted as symbolically important. Really? Not necessarily.<\/p>\n<p><em>Second, <\/em>Western analysts also interpreted the above-mentioned step as an indication that a more sizeable and visible opening of the capital account balance is on its way. In my opinion, this is a premature interpretation. According to all experience from Chinese deregulation policy, steps are taken cautiously and very gradually. In a forthcoming paper, I am going to show that there are many reasons for the Chinese to conduct a cautious course on deregulations of financial cross-border movements.<\/p>\n<p><em>Third. <\/em>It seems to be the case that also domestic Chinese financial markets are increasingly hit by contagion from immature Western conclusions and\/or by overreactions on their own in Shanghai and Shenzen. Anyway, Chinese stock markets are starting to be a topic for behavioral economists, too.<\/p>\n<p>Another example of not understanding the Chinese economy quite well was recently given by U.S. secretary Timothy Geithner when he praised China for having widened the band for currency fluctuations. Sure, faster appreciation periods of the RMB may become possible (what the U.S. administration wants). But this is only one side of the coin. It could also happen that China in the nearer future could use the option of a weaker RMB &#8211; either just on a daily basis or a little bit more as a kind of support to Chinese exports if the global economy was to face even more growth troubles.<\/p>\n<p>It cannot be ruled out that China\u2019s slight changes in the exchange rate policy may even have negative consequences for the U.S. in the longer rum. This would happen if China really was heading for a more market-driven exchange rate by steadily enlarging the fluctuation bands, as frequently stated in the past years by Chinese officials. At the end of the day, this could also mean that the Chinese currency &#8211; at least temporarily &#8211; can become a case for depreciations vis-\u00e0-vis the dollar, and other currencies as well. Free(er) cross-capital movements open the door for speculation much wider than deeply regulated capital inflows and outflows. (The advantages of liberalized international capital flows have been discussed in previous articles and blogs of mine).<\/p>\n<p>In other words: Chinese appreciations of the RMB (renminbi) do not need to be an ever-lasting story. The more market in the Chinese economy and on Chinese financial markets, the higher the sensitivity for ups and downs of the RMB, at least when looking a little bit longer into the future.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/image.lnu.se\/image.ashx?id=117818&amp;w=110\" alt=\"\" width=\"110\" height=\"136\" \/><\/p>\n<p><strong><em>Hubert Fromlet<\/em><\/strong><em><br \/>\n<\/em>Professor of International Economics<br \/>\n<a href=\"..\/editorial-board\/\">Editorial board<\/a><\/p>\n<p><a href=\"https:\/\/blogg.lnu.se\/china-research\">Back to Start Page<\/a><em><br \/>\n<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>More and more economists deal with China. This a good thing since China nowadays is the second largest economy in the world (in PPP terms). This position urges for increased knowledge about the Chinese economy. And there is much more to learn &#8211; particularly with regards to the way economic policy and the economy works. [&hellip;]<\/p>\n","protected":false},"author":174,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13398],"tags":[],"class_list":["post-425","post","type-post","status-publish","format-standard","hentry","category-china-2"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\r\n<title>Understanding the Chinese economy \u2013 not that easy! - China Research<\/title>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/blogg.lnu.se\/china-research\/?p=425\" \/>\r\n<meta property=\"og:locale\" content=\"en_US\" \/>\r\n<meta property=\"og:type\" content=\"article\" \/>\r\n<meta property=\"og:title\" content=\"Understanding the Chinese economy \u2013 not that easy! - China Research\" \/>\r\n<meta property=\"og:description\" content=\"More and more economists deal with China. This a good thing since China nowadays is the second largest economy in the world (in PPP terms). This position urges for increased knowledge about the Chinese economy. And there is much more to learn &#8211; particularly with regards to the way economic policy and the economy works. 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