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'Theory of China Exporting Deflation' not Conforms to Fact
2004-10-27

Currently, as the world economy is in depression, the economies of various countries are generally sustaining different degrees of deflationary pressure, this is especially true of the United States, Japan and other developed countries. Against this background, the sustained and rapid growth of China's economy has all the more attracted people's attention. Thus, the "theory of China exporting deflation" has quietly emerged and begun to spread.

In October this year, Stephen Roach, chief economist with Morgan Stanley, an international authoritative consulting organization, published the report entitled "The Factor of China", asserting that China is shifting its own deflation to the whole globe through the export of commodities.

The main arguments of this theory are: While China's economy is experiencing a rapid growth this year, the country has seen the emergence of deflation and serious insufficient domestic consumption, but on the strength of the advantage of its commodity price, it is exporting its surplus commodities to foreign markets; China's cheap commodities have weakened the importing countries' production capacity of the same kinds of products, and the exchange rates of the Renminbi to the US dollar and other foreign currencies have made the price of China's export commodities even lower, thus bringing about larger pressure on the currencies of other countries, vicious cycles and so on. He drew therefrom the conclusion: "China is one of the sources of current world deflation."

In less than two months after the emergence of the "theory of China exporting deflation", Roach recently again published an essay with the implication of correction entitled "Stopping Attack on China" after his visit to China, his moral courage is admirable.

Roach appealed in his essay: At a time when the world needs a more stable China than ever before, unwarranted charges against China are without reason; censure of China should be stopped at all costs! Roach pointed out that the proportion of China's exported products to US gross national product (GNP) is very small and does not constitute threat to American and world economies.

He held that the Americans' low savings deposit rate, trade deficit and the decline of consumption index are due to the sluggishness of the US economy. Conversely, cheap Chinese commodities benefit American consumers and spur the American commercial circles and industries to sharpen their competitiveness.

Roach's "revised report" deems it unnecessary for the revaluation of the Renminbi, the deflation of the United States and Japan has their respective causes, "describing China as the source of global deflation is trying to find a scapegoat for absolving oneself.

With regard to the discussion on the "theory of China exporting deflation", the view of Alan Greenspan, chairman of the Federal Reserve Board, seems to be more convincing. In his talks made recently at the New York Economic Club, he pointed out that China's economic growth would not lead to global deflation. He said he often heard the saying about China causing the deflation of other countries, frankly speaking, this is exaggeration.

In the meantime, the uproar and spread of the "theory of China exporting deflation" have been refuted by related business people and news media. According to them, Roach's saying about China's economy being the locomotive of global deflation is groundless, and has even inappropriately overstated some facts. Many economists have pointed out that in a sense, China actually is the victim of global deflation.

Although China's economy has brought about a sustained and rapid growth, in terms of trade scale, China's trade scale accounts for only 4 percent of the global total, ranking it sixth in the world. Compared with developed countries, China is still a developing country, asserting that China is the source of global deflation can hardly make one justify oneself. In order to lift the Asian economy out of its predicament and speed up recovery, China has been trying hard in recent years to stimulate consumption, expand domestic demands and has thus given great impetus to the general growth of the Asian economy, making important contributions to regional and world economies.

On the other hand, China's maintenance of the stability and a reasonable exchange rate of the Renminbi in order to guard against financial risk not only conforms to China's national condition, but also facilitates the stability of regional and world economies.

In the process of economic globalization, it is vitally important to enhance the competitive capacity of one's own economy and products, unilaterally demanding that China adjust the exchange rate of its currency, and even spreading the "China threat theory" and the "theory of China exporting deflation" not only does not help matters, but also will cover up the real cause of one's inability for economic recovery.

Through the "China threat theory", the "theory of China exporting deflation" and other arguments, one can see certain people's complicated psyche about the rise of China's economy, these theories and arguments also reflect the rapid development of China's economy and its growing influence on the international market, the international community are bound to concern about and study the future development trend of China's economy.

No matter how the external world treat and discuss China's development and its influence, China will continue to unswervingly follow is own road and deepen its reciprocal economic cooperation with neighboring countries and various other nations around the world, so as to attain the goal of common development.

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