Grim truths Obama should have told Hu in Beijing


Yesterday Barack Obama, president of the US, met Hu Jintao, president of the People's Republic of China, for a private meeting. The agenda was long, covering the world economy, climate change and non-proliferation of nuclear weapons. The last two are the most important, over the long run. But the first is the most urgent. If we do not achieve a healthy global economic recovery, hope of a co-operative relationship is likely to prove vain. Yet such a recovery is far from ensured. Worse, some of what is now happening – particularly China's decision to depreciate the renminbi along with the dollar – makes healthy recovery less likely.

美国总统巴拉克•奥巴马(Barack Obama)11月17日与中华人民共和国主席胡锦涛举行了不公开会谈。会谈的议题清单很长,涵盖世界经济、气候变化和核武器不扩散问题。长远来看,后两个问题最重要。但第一个问题最紧迫。如果我们不能实现一种健康的全球经济复苏,建立合作关系的希望就有可能化为泡影。然而,这种健康复苏还远未得到保证。更糟的是,正在发生的一些事情——尤其是中国决定让人民币跟随美元贬值——降低了健康复苏的可能性。

This, then, was an opportunity for Mr Obama to tell some brutal truths. I hope he did, after careful briefing from his staff, on the following lines.


“Mr President, as I said in Japan, ‘the US does not seek to contain China, nor does a deeper relationship with China mean a weakening of our bilateral alliances. On the contrary, the rise of a strong, prosperous China can be a source of strength for the community of nations'. For the foreseeable future, our two countries will be the leading players on the world stage. We must approach our challenges in a spirit of co-operation and accommodation. But that is, alas, not happening over your exchange rate policies.


“Chinese officials have expressed understandable concern over US fiscal and monetary policies. Most recently, Liu Mingkang, your chief banking regulator, has argued that the combination of a weak dollar with low interest rates had encouraged a ‘huge carry trade' that was having a ‘massive impact on global asset prices'. Similarly, many Chinese officials complain about our huge fiscal deficits and worry about the safety of Chinese investments in US Treasury bonds.


“I do share these concerns. But our current fiscal and monetary policies have a straightforward cause: we were contemplating the abyss a year ago. Even now, our recovery is too weak to reduce unemployment from intolerable levels. Confronted with these risks, the Federal Reserve and my administration have acted to sustain demand. if anything, those who warned our stimulus package would prove too small were right.


“We faced a slump for a simple reason: the financial crisis we inherited triggered a collapse in US private spending and a sharp rise in private saving. My advisers have told me that between the fourth quarter of 2007 and the second quarter of 2009, the balance between US private income and spending shifted from a deficit of 2.1 per cent of gross domestic product to a surplus of 6.2 per cent – a swing towards frugality of 8.3 per cent of GDP. The collapse of our fiscal position is no more than the mirror image of this shift in the balance between private income and spending. The Fed's easing is also an inevitable response to the collapse.

“我们陷入经济衰退,原因很简单:我们接手的金融危机,触发了美国私人消费的暴跌和私人储蓄的猛增。我的顾问们告诉我说,在2007年第四季度和2009年第二季度之间,美国私人收支差额从相当于国内生产总值(GDP) 2.1%的赤字转变为6.2%的盈余,换句话说,美国人转向节俭的幅度达到GDP的8.3%。我国财政状况的崩溃,只是这种私人收支差额变化的镜像。美联储的宽松政策,也是针对财政状况恶化的必然回应之一。

“I am president of the US. I am not going to put our economy into a depression, to protect the value of Chinese savings. After all, nobody in the US asked you to intervene on so massive a scale in currency markets and so accumulate the incredible total of $2,275bn in foreign currency reserves by September of this year, much of it in our currency.


“The policy China apparently recommends to us would not even work on its own terms. Suppose the Fed stopped quantitative easing and raised interest rates, to strengthen the dollar, while we pushed through a huge fiscal tightening. This would return the economy into a slump. Thereupon the fiscal deficits would surely worsen, once again.


“As Dominique Strauss-Kahn, managing director of the International Monetary Fund, has just pointed out here in Beijing, ‘at the end of the day, higher Chinese domestic demand, along with higher US savings, will help rebalance world demand and assure a healthier global economy for us all'.

“正如国际货币基金组织(IMF)总裁多米尼克•斯特劳斯-卡恩(Dominique Strauss-Kahn)刚刚在北京指出的那样,‘最终,中国国内需求增加,与美国储蓄增加一起,将有助于重新平衡世界需求,并有助于确保全球经济更加健康,让所有人受益。'

“I recognise that China has played an invaluable role by stimulating domestic demand and so facilitating needed global adjustments. The IMF apparently expects a huge decline in China's current account surplus this year. Unfortunately, that may well prove temporary: first, your stimulus programme, with its reliance on massive credit expansion, may prove unsustainable; second, the decline in China's trade surplus is largely the result of the crisis-induced collapse in world trade; and, third and most important, China has embarked on currency deprecation by locking the renminbi to the falling dollar.


“At a time of such weak global demand, yours is a ‘beggar thy neighbour' policy. You complain about the protectionist actions I have implemented. But their impact will be trivial compared with China's ‘exchange rate protectionism'. This policy will shift the costs of adjustment on to China's trading partners. Yet, again in Mr Strauss-Kahn's words, ‘a stronger currency is part of the package of necessary reforms. Allowing the renminbi and other Asian currencies to rise would help increase the purchasing power of households, raise the labour share of income, and provide the right incentives to reorient investment'.


“You have, I am sure, decided that such lectures mean nothing. What you may fail to understand is the speed with which democracies can shift their attitude from the open hand to the clenched fist. If, over the next year or two, your current account surplus exploded upward, while our deficit did the same, it would be impossible for us to ignore. This is particularly true when sober analysts – Goldman Sachs, in this case – estimate that, on its present path, China might have a bigger surplus, relative to world GDP, by 2020, than ‘the combined surpluses run by Germany, Japan and Middle Eastern countries in 2007'.

“我肯定,你一定已经判定,这种说教毫无意义。但你也许未能理解的是,民主国家的态度能快速地从张开的手转变为攥紧的拳头。如果在未来一两年里,贵国的经常账户盈余出现激增,而我国的赤字也大幅扩大,那么我们就不可能对此熟视无睹,尤其是鉴于冷静的分析师们——这里是高盛(Goldman Sachs)的分析师们——预测,如果中国沿着现在的轨道走下去,那么到2020年,其经常账户盈余相对于全球GDP的比例,将超过‘2007年德国、日本和中东国家的盈余总和'。

“Yet we do not have that much time. If the US domestic economy remained weak and unemployment high, while our trade deficit soared, particularly our bilateral deficit with China, the pressure to ‘do something' would become irresistible. I would have to consider the sort of actions that Richard Nixon took in 1971. To force revaluations by Germany and Japan, he threatened a 10 per cent import surcharge. With great regret, I might feel obliged to do the same. I would then argue that China's determination to thwart needed adjustment in exchange rates had become intolerable. The US is entitled to protect itself against such mercantilism. The trading system would be terribly damaged. But the alternative would be unbearable.”

“然而,我们没有那么多的时间。如果美国国内经济依旧低迷,失业率居高不下,同时贸易逆差急剧飙升(特别是对中国的双边贸易逆差),那么,要求我们‘做点什么'的压力将变得不可抗拒。我可能不得不考虑采取类似于理查德•尼克松总统(Richard Nixon)在1971年出台的行动。为了迫使德国和日本货币升值,他威胁要加征10%的进口附加税。届时我可能不得不采取同样的措施,这将是非常令人遗憾的。那时我会辩称,中国坚决阻挠必要汇率调整的行为,已经到了不可忍受的程度。在这种重商主义面前,美国有权保护自己。贸易体系可能会因此受到严重破坏。但其它选择的后果根本不可承受。”

Did Mr Obama speak so bluntly? Probably not. Should he have? Yes, I think he should. We have spent long enough discussing China's exchange rate policies. It is time for action.