Carnegie Endowment for International Peace
Understanding that the renminbi became undervalued because of expansionary monetary policy in the United States in 2003 helps explain why Chinese economists and political leaders have a differerent interpretation of the currency issue than Americans.
Beijing's efforts to control inflation and prevent overheating have been largely successful. With growth likely moderating to 7–8 percent in the years ahead, officials are now turning their attention to domestic rebalancing.
The central bank of China has cautiously begun to tighten monetary policy in response to a massive residential property bubble, demonstrating Beijing’s belief that it has both the policy tools and the political will to control the bubble and avoid a burst.
Following its spectacular recovery from the financial crisis, China is now confronting a serious housing bubble, labor unrest, and potential debt problems. Though China’s economic prospects remain strong, a slowdown would have important international implications.
The debate over China's currency propagates dangerous myths about both the Chinese economy and the potential benefits of a more expensive renminbi for the United States.
The risk of economic overheating in China now outweighs that of an economic downturn, and government leaders should be able to withdraw stimulus while maintaining strong growth for the several few years.
The dispute between the United States and China over the value of China's renminbi distracts both countries from more important reforms. Policy makers should prioritize maintaining a collaborative relationship over staging another fruitless debate.
China's economic recovery is solidifying. Though risks—particularly in the real estate sector—are multiplying, they remain manageable, and an exit strategy is emerging.
China’s recovery is broadening and is expected to hold strong through 2010, but an unclear strategy for tightening monetary policy and domestic asset bubbles could pose significant risks to longer-term growth.
