Larry Thomas — Furniture Today,
MYRTLE BEACH, S.C. — Calls for China to revalue its currency are misguided and would do little to help its trade imbalance with the United States, an expert on the Chinese economy told furniture finance executives here.

Albert Keidel, a fellow at the Carnegie Institute and former Treasury Department official, said currency revaluation is a “total red herring” that could slow the influx of capital into China and curtail Chinese purchases of U.S. Treasury securities.

Neither outcome would be good for the Chinese economy and could hamper the U.S. government’s ability to sell its securities, Keidel said in a speech at the AHFA Finance Division annual meeting here.

“We have to move in the direction of higher productivity and technology … and help them with their system of intellectual property rights,” Keidel told attendees.

He said that while U.S. imports from China have soared in recent years, imports from non-Chinese sources have fallen since 2000.

“There is a tendency to brand China as a cheater,” Keidel said. “But don’t look at the bilateral trade balance, look at the worldwide figures.”

He said the Chinese economy is growing at a warp-speed rate of 10% annually, and that even if the rate slows to 8% to 9%, it will eclipse Japan by 2025 and be bigger than the U.S. economy by 2040.

However, China’s standard of living will remain well below that of the U.S. or Japan for decades. Keidel said that even by 2050, China’s standard of living would be comparable to a poorer European country such as Spain.

“China is not what Japan was in the 1980s,” he said, referring to the hyper-expansion of the Japanese economy in those days. “Its per capita Gross Domestic Product is much less than either Japan or the U.S.”

He credited the Chinese government with making “smart, practical decisions” that have aided economic growth, especially an emphasis on infrastructure such as roads, hospitals, schools and communications systems. And he noted there is far less government corruption in China than in emerging nations of Southeast Asia or Africa.

The corruption that most frequently occurs, Keidel said, surrounds commercial transactions. He said bribes, or “side payments” as they are sometimes called, are relatively common but still less prevalent than in many Asian or Latin American economies.

However, he said a state-sponsored development bank that loans money to cities and counties for infrastructure improvements has all but ignored the “horrible problem” of air pollution. And as visitors from the U.S. are frequently warned, the vast majority of the population lacks clean drinking water.

“Nobody is going to volunteer to make improvements (to air and water quality) because it would put factory owners at a competitive disadvantage. And the government would rather put resources into other areas, such as transportation,” Keidel told the group.

But he doesn’t see the Chinese government de-emphasizing growth anytime soon because the country’s status as a manufacturing juggernaut has vastly improved living standards, especially in rural areas.

“No other economy has had that kind of growth over that period of time,” he said.