Bellerbys Economics - Mr Stephenson

Tuesday, April 18, 2006

China & USA

This week sees the visit of President Hu Jintao to the USA to meet George Bush - they have much to discuss.

The USA's current account deficit is now 7% of GDP which many economists would argue is unsustainable - although the USA appears to be sustaining it - or rather it is being sustained by an ever-extending credit line from Japan, China and Germany, amongst others!

Half of this current account deficit is with China and the Americans are arguing that this is because the renminbi is undervalued. It's true that China has a large current account surplus but this may be because it has a policy of developing export-orientated products and domestic demand is low. It could equally be argued that the dollar is overvalued as it is still seen as the world's reserve currency and is used in most oil transactions - therefore demand for the dollar is unreasonably high.

This period in history may be coming to an end with the first non-dollar oil exchanges opening up in Syria and Iran and a number of countries central banks broadening their foreign exchange reserves into other currencies.

My own view is that the dollar may be overvalued by as much as 30% and a managed fall would do the US economy a great deal of good - as well as showing the average per capita earnings of Americans in a more realistic light.

China is now the 4th biggest economy in GDP terms and the 2nd largest in PPP terms. It appears to be demonstrating a Kondratiev long-range 50-year economic cycle (or thereabouts) and has seen a period of accelerating growth since about 1989. At the moment, GDP growth is 10.1% a year and this may accelerate even further up to about 2014 before the rate of growth begins to decline reaching a more sustainable level of about 2-3% a year by about 2039 - at which stage, China may well have the world's biggest economy.


  • oh hi Mr stephenson, love your personal blog.It's really useful and provide lots of news and information. It is much more interesting to read your blog rather than read boring nespapers.
    will have a look at this everyday!

    By Anonymous cindy, at 8:07 am  

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