Economists counter misconceptions about mainland China

Published by rudy Date posted on June 7, 2010

BEIJING: China’s strong economic recovery is drawing much interest from economists, policymakers and media around the world as developed countries struggle to overcome the global downturn. Yet, common misunderstandings about China are increasing as more people unfamiliar with the country air their views. Inaccurate criticism of China’s exchange rate policy, investment environment and global warming negotiations has only increased the misconceptions about the country.

Economists interviewed by government-run Xinhua news agency said that more openness and candid discussions with time would clear up the misunderstandings and give outsiders a clearer picture of how contemporary China works.

Arthur Kroeber, managing director of GaveKal-Dragonomics, an economic research firm in Beijing, published an article in the Washington Post in April, in which he discussed five commonly misunderstood issues, including the yuan exchange rate and China’s massive investment in resources in Africa.

The report described China’s economic rise as “one of the biggest stories of this generation.” The dramatic growth from poverty to the top exporter in just three decades had resulted in “myths and misperceptions about the challenges and opportunities that China posed to the rest of the world,” it said.

Yuan, investments, environment

Arguments concerning China’s exchange rate policy have been intense. The Chinese government is accused of deliberately undervaluing its currency to give its exporters an advantage. The result is a huge trade gap between China and the US, so the argument goes.

China has repeatedly fought the accusation, and called for the US to lift restrictions on various high-tech products to China, saying this would balance the trade.

The issue is not a straightforward one. The appreciation of the yuan will not solve America’s woes.

“I don’t think the yuan is the real reason for China’s trade surplus as China’s March trade deficit shows the issue is independent from the exchange rate,” said Loechel Horst, professor at the China Europe International Business School, while talking on a Xinhua talk show.

China has a large volume of exports because its low labor and capital cost made the products cheaper and thus competitive, he added.

“Because of its own comparative advantage, Germany is also a large exporting nation in spite of a strong euro,” he said, adding that the accusation was mainly driven by domestic and political pressure on the US government.

Cheng Enfu, chairman of the World Association of Political Economy—also on the talk show—shared the view, adding that criticism of China’s exchange rate was to distract people from focusing on Wall Street as the cause of the financial problems in the US.

He said that China should allow the yuan to appreciate a bit, which would help improve the quality of the economy and promote economic restructuring and adjust the export mode. However, the government would not be forced to do so by foreigners.

China’s investment environment also has faced undue criticism that has escalated since Google’s exit from China’s mainland market citing cyber attacks.

Some foreign companies said China’s discrimination toward foreign investments was rising, its regulation environment worsening and business operations becoming more difficult.

Loechel said that there “are some limits, for example, on the amount of stakes that financial institutions are allowed to buy, or that foreign banks have to wait long times to open branches.”

But he added that the main problem was foreign firms were feeling more business pressure from growing competition from local rivals.

Cheng said that China’s policies did not discriminate foreign enterprises but granted them favorable policies to attract investment.

“The Chinese government gave too many favorable polices to attract foreign investment and the current policies are not so favorable as they were, which caused complaints,” he added.

Rising China

Experts said that it was quite understandable that China would face more challenges and criticism as it gained in power.

China has rapidly grown to become the world’s third-largest economy land and is posed to overtake Japan to become number two.

China’s growth slowed when the financial crisis hit in 2008. However, the economy soon resumed its rapid expansion after the government unveiled a 4-trillion yuan ($586-billion) stimulus package in November of 2008, which helped to push the growth rate up to 11.9 percent in the first quarter this year after an 8.7-percent increase in 2009.

“China is very successful in dealing with the economic slowdown, making China more visible and more important,” Loechel said.

“Somehow not all people in the west have good feelings, and the west needs some time to get familiar with the fact and accept it.”

The media was also responsible for creating misunderstandings, experts said.

Cheng said foreign media in some western nations focuses on reporting negative events because of the cold-war mentality or ideological factors.

Role of media

The Western media should abandon the cold-war mentality or downplay ideologies and report China in a more object way, Cheng added.

“The role of press in the west is to sell newspaper. So sometimes bad news is good news,” Loechel said.

“Actually, three important events are able to help Western people know better about China,” he added, citing the Beijing Olympics Games, the impressive recovery from the global economic crisis and the Shanghai World Expo.

To clear up misunderstanding, every nation must be more open, Loechel said, adding that more forums and talks should be organized on various levels to improve understanding.

Loechel said that China was in the process of becoming integrated in the global community and China—given its growing strength—would play a very influential role in transforming the world this century. –XINHUA

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