In keeping with ShaMao's longstanding commitment to not comment about anything that he knows nothing about, and due to the marvelous expanses of time that unemployment and an absent wife (visiting family overseas) allow, Shamao has decided to read the entire (381 page) annual report just issued by the US-China Economic and Security Review Commission. In past years, I have read just the Executive Summary. You can find it here if you happen to be interested:
Here are a few excerpts from Chapter 1:
Regarding China’s economy, the Commission notes a disturbing trend away from the evolution toward a full market system and instead sees steps backward to greater government control. China continues to employ a wide range of subsidies to favored companies and industries within China and to control the value of its currency and provide massive loans from state-owned banks to industries producing over capacity
Considerable skepticism exists in regard to China’s statistical reporting. China compiles its gross domestic product growth figures even faster than the United States despite having more than four times the population, far fewer computers, and less sophisticated sampling methodology.
China’s exchange rate regime appears to have created a policy dilemma for the Chinese government. An undervalued RMB subsidizes China’s exports, but it also compels China to keep buying up U.S. dollars. Chinese officials have expressed concern that the growing U.S. debt will eventually spark inflation in the UnitedStates and a depreciation of the dollar, which would reduce the value of China’s holdings of U.S. securities. But if China stopped purchasing U.S. dollars, it would seriously impact the RMB’s peg to the dollar. As Michael Pettis, professor at Peking University’s Guanghua School of Management, writes, as long as China remains dependent on boosting the value of the dollar to support its own export-driven growth, it ‘‘will have to recycle the surplus into the dollar pool that ultimately funds the U.S. fiscal deficit.’’ 32 There is an irreconcilable conflict between China’s words and actions: Despite high-level criticism of the growing U.S. debt, China continues to buy Treasury bonds and to buy up dollars flowing into the Chinese economy.