Jumat, 14 Maret 2014

Huānyíng guānglín

China exports far more than it imports. Everybody knows that.  Oversimplified , the difference between goods and services exports and goods and services imports is called the Current Account balance. It can be a surplus or a deficit. China has seen a surplus for a long time. India has seen a deficit for a long time.

China's current account surplus reached a high of 10% of GDP in 2007. Under normal circumstances if such a chronic situation existed, the currency would rise making imports cheaper and exports costlier leading to an equilibrium. But China was controlling exchange rates, which led to massive imbalances in the world economy.  The US led the chorus terming China a currency manipulator. In any case, such huge imbalances affected the global economy in all sorts of ways.

What to do about the problem ?

Well, the problem has started to be solved by itself, in a way few would have anticipated . China's current account surplus has fallen to 2% of GDP.  What on earth has happened ?

China's surplus in goods continues to be vast. It continues to export merrily way above what it imports. What has depressed the surplus, however is that it now runs a huge deficit in services. Put together, the net surplus is now low enough not to be a burning issue.

How has a huge deficit in services been built up - at $122 bn, it is the largest deficit in the world (after all everything in China comes in gigantic proportions). Just one component contributed to  $ 80 bn of this $ 122 bn. Tourism with a capital T.

In 2007, China faced a surplus in tourism as well - more people visited China than Chinese visiting the world. In 2013, that has completely turned topsy turvy. Millions of Wangs and Lis are packing their bags and touring overseas. They exchange their yuan for dollars to spend. They are, in effect "importing a tourist experience". Hence this massive deficit !

The "solution" to trade imbalances that threatened the world is simple. Here's a neat solution for the US, which could be copied by virtually every country. Abolish the need for visas for Chinese to visit your country. Welcome them with open arms. Put up Chinese name boards, direction signs, everywhere. Train everybody in the tourism industry to speak Chinese. Open a million Chinese restaurants. Serve chicken feet for breakfast. Set up gambling resorts purely for foreigners if you don't want to corrupt the locals (the Chinese love to gamble; that's why Macau is many times bigger than Las Vegas now). Open  MSNBC Chinese and FOX Chinese (Yuk) ! Get P. Diddy to rap in Chinese. Get Ryanair and Southwest Airlines to fly to mainland China. Etc Etc Etc. Actually, the US government needs to do nothing - all this will happen anyway.

It will solve many problems. The trade imbalances will disappear. A huge spending boost will come to the US. Every teen star from Justin Bieber to Selena Gomez will add 100 million more fans. If American style democracy is indeed good for the world (a highly debatable hypothesis, but we shall let that pass), then exposing millions of Chinese to "freedom" (NSA notwithstanding), can only be to the good. Preet Bharara can turn to suing Chinese for violating sacred American laws by spitting.  A win win, if there ever was one. Or Wang Wang, if you prefer !

By the way, if you are wondering what the title of this post is, it is simply "Welcome" .


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