China's Exchange Rate Policy, Its Current Account Surplus and the Global Imbalances*


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     At the James Meade Centenary Meeting at the Bank of England on the 12th July 2007 I presented a paper entitled ‘Exchange Rate Policies and the Global Imbalances’. The present article, completed in March 2009, is a substantially revised and expanded version of this 2007 paper. For excellent and comprehensive overviews of Chinese issues I have found particularly useful Riedel et al. (2007), Siebert (2007), Yu (2007) and Woo (2008). I am indebted to Jim Riedel for an understanding of Chinese macroeconomic processes and to Prema-chandra Athukorala and David Vines for valuable comments on a draft of this article.


This article is stimulated by current criticisms of Chinese exchange rate policy. The concern is really about China's current account surplus. The article discusses the factors that determine the surplus, and the reasons why the surplus increased sharply from 2005. The international implications of China's surplus and growth are discussed, and how it has affected the world real interest rate, and through that the US current account deficit. The surplus has had various international relative price effects, which have produced both gainers and losers. Finally, the surplus played only a small part in determining the world credit crisis.