Tuesday, December 14, 2004
Brad on China
Brad DeLong thinks out aloud about the politico-economic arithmetic of China. I reproduce Brad's post in full.
China's current GDP (at current exchange rates): $1,690 billion
China's foreign exchange reserves (stock): $540 billion
China's foreign exchange reserves (change in 2004): +$130 billion
Thinking that the long-run value of the renminbi is two-thirds of its present value leads to the conclusion that at the moment China is spending about $40 billion a year--2.5% of GDP--on its currency-support program. This sum is not recognized in China's budget or on its balance sheet. But it is very real.
Is this a big number--one that deranges China's internal political economy and cannot be sustained for very long? Or is it a small number--a cheap way to buy some insurance against shocks that would otherwise produce large-scale urban unemployment? I cannot decide.
China's current GDP (at current exchange rates): $1,690 billion
China's foreign exchange reserves (stock): $540 billion
China's foreign exchange reserves (change in 2004): +$130 billion
Thinking that the long-run value of the renminbi is two-thirds of its present value leads to the conclusion that at the moment China is spending about $40 billion a year--2.5% of GDP--on its currency-support program. This sum is not recognized in China's budget or on its balance sheet. But it is very real.
Is this a big number--one that deranges China's internal political economy and cannot be sustained for very long? Or is it a small number--a cheap way to buy some insurance against shocks that would otherwise produce large-scale urban unemployment? I cannot decide.
