Suchergebnisse

As the world's second largest economy, largest trading nation, and the largest foreign holder of United States (US) government bonds, the People's Republic of China (PRC) needs a currency with international status that can match its economic status in the global economy. However, sequencing is important. Before the internationalization of the yuan can make meaningful progress, necessary conditions, such as the existence of deep and liquid financial markets, a flexible exchange rate and interest rates responsive to market conditions must be created. The process of yuan internationalization essentially is a process of capital account liberalization. Due to the unprecedented and complex global financial crisis and the PRC's huge imbalances, capital account liberalization has to be pursued in a cautious way. As a result, the internationalization of the yuan is bound to be a long-drawn process. The PRC's road map for the internationalization of the yuan is flawed with many missing links and wishful thinking. Yuan internationalization guided by the current road map may be proven counterproductive.

As a result of opening and reform, China has maintained an
annual average growth rate of 9.8 percent for nearly three decades.
China's growth is based on high savings and high investment. Its export
promotion policy has also played a very important role in promoting
economic growth. However, as a result of China's growth pattern
characterised by investmentdriven and export promotion, the Chinese
economy also has been suffering from serious structural imbalances. Its
high and ever-rising investment rate has created overheat and
overcapacity in tandem. Its high dependency on external market makes its
economy vulnerable to external shocks. The global financial crisis has
hit the economy seriously and exposed the structural weakness of the
economy. The dramatic fall of external demand led to dramatic slowdown
of the economy. The Chinese government responded to the slowdown of the
economy swiftly and forcefully. A four trillion Renmibi stimulus package
and expansionary monetary policy have successfully stabilised the
economy. However, the stimulate policy has worsened structural problems.
China's structure problems include high external dependency, high
investment rate, deterioration of environment, widening income gap
between different social group and between rural and urban areas,
insufficiency in the provision of social goods and so on. Due to its
strong fiscal position, there should be no problem with China to achieve
a growth rate of 8 percent. At the same time, the Chinese government
should be able to tackle its structural problems successfully so as to
ensure the sustainability of China's economic growth. JEL
classification: G01, E44, E65 Keywords: Growth, Global Financial Crisis,
Stimulus Package, Structural Adjustment

The relatively successful management of cross-border capital flows has enabled the People's Republic of China (PRC) to achieve an extremely high average growth rate of more than 10 percent while keeping inflation under control. The management of cross-border capital flows is an indispensable element of macroeconomic stability. In order to cool down the overheating economy, the PRC government will continue to implement a tight monetary policy. In the face of possible further cuts in US interest rates, the PRC's monetary tightening is becoming increasingly difficult. Hence, the PRC must maintain capital controls whenever possible, and improve its management of cross-border capital flows, to enable the People's Bank of China (PBOC) to implement an independent monetary policy to sustain the economy's growth into the next decade.

Over the past ten years since the Asian financial cisis, the Chinese economy has been performing extremely well. While emphasising the extremely positive growth performance China has had so far, this article also identifies key threats to the country's economic stability in the future. Among the sources of vulnerability are: a still somewhat fragile financial system, in particular banks, despite recent reforms in the system and improvements in some of its key indicators; the excessive liquidity in the economy, which is a major factor behind bubbles and inflation, and a new challenge facing Chinese economic authorities. The article also discusses how China may prevent a crisis from happening, highlighting the role capital controls can play in crisis prevention, and draws lessons on this from the Asian crisis. (IDS Bull/GIGA)