“bashing China to appreciate its currency is counterproductive”

according to a Standford professor, Ronald McKinnon. If I remember it correctly, Ronald is the advisor of Nan Li at the OSU (link: http://www.nanliweb.com/).
 
文章摘要:中国南方的罢工反映了中国工资上涨的压力。中国工资的上涨有两个好处:1。减少和发达国家工资的差异,从而降低贸易保护主义的压力;2。增加居民收入从而增加消费,减少对出口的依赖。在工资调整的过程中,为减少没必要的动荡,中国应该保持稳定的汇率。然后作者用日本为例子说明当时日元升值对日本工资调整造成的负面影响。
 
我的评价:文章反映了国际金融里的一个基本争论焦点:国际相对价格通过汇率调节还是通过价格自己调节更有效。价格,包括工资,通常在短期内是固定的,所以不一定能及时反映当时的经济情况,比如生产效率的改变等。传统国际宏观理论认为,在价格固定的情况下,浮动利率能帮助调整进出口产品的相对价格。所以浮动汇率制度更好。
 
浮动利率真的能帮助自动调节进出口相对价格么?这个说法不是很让人信服。首先,浮动汇率制度下,汇率变动非常大,很难想象经济基础,如生产效率等能改变这么频繁。其次,汇率对相对价格的影响受很多其他因素的影响,比如以什么货币定价。如果中国出口到美国的产品都以人民币定价,当人民币升值时,产品的美元价格也升值。但现实中,中国的出口基本都以美元定价,人民币升值对出口产品的美元价格短期没什么影响。另外还有很多其他因素,比如公司也不会把所有由于汇率变动引起的成本变化转移到价格中。这些都使汇率对价格的影响大打折扣。在对汇率对价格影响的研究中,基本发现从汇率对价格的传导很有限。10%的汇率变化,对进出口价格的影响低于5%,对最终消费品价格不到1%。所以很多知名经济学家对汇率能帮助调整进出口价格持疑问态度。推荐Charles Engel(Journal of International Economics 主编)一篇通俗易懂的文章(链接:http://www.ssc.wisc.edu/~cengel/WorkingPapers/staff0902.pdf)。
 
回到Ronald文章的主题。Ronald的一个观点是,中国出口产品都是以美元计价,但工资以人民币计价。如果人民币紧盯美元,厂家就比较容易估算自己同种货币下的收入和成本是多少。如果成本,比如工资,显然被低估了,比较容易计算提高到什么程度才是合适的。举个简单例子。我卖一产品到美国,价格$100。我只有人工成本,500人民币。如果汇率是1美元等于7块人民币。我知道我赚200块。如果发现工人更难雇用了,我要提高工资,并且清楚知道只有工资低于700我就有赚头。但如果汇率是变动的,我就不确定自己到底能赚多少人民币,在提高工资的时候,就不清楚提高多少是合适的。也就是说汇率变动给价格调整反而增加了更多的不确定因素,使价格的调整更缓慢。
 
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Below is the article from Ronald on today’s WSJ:
 
Ronald McKinnon: Wage Increases: The Win-Win Answer on China Trade

29 July 2010

Recent Chinese labor strikes — particularly in the heartland of manufactured exports in Guangdong and the Pearl River Delta — have taken most observers by surprise. Labor shortages in and around Shanghai and Beijing are also widespread. Many local governments, especially on the developed eastern seaboard, have increased minimum wages by 15% to 20% this year.

A wage explosion fed by labor militancy is obviously disconcerting to Beijing. But in the long term China’s wage increases should reflect its remarkably high productivity growth in manufacturing. Higher wage growth would have two great advantages for China and the rest of the world.

First, Chinese wages would become closer to those in the more mature industrial countries, thus reducing protectionist pressures. Second, higher wage settlements would reverse labor’s declining share in China’s national income. With a shift away from business profits — which have become exorbitantly high in recent years — to greater household disposable income, consumption would naturally rise and reduce China’s trade surplus.

For wages to grow less erratically, what should China’s long-term exchange-rate policy be? Much of the world, particularly Asia, is on a dollar standard. Most Chinese exports and imports are invoiced in dollars, as are international financial flows. China’s net saving surplus is manifested mainly in a huge buildup of liquid dollar claims. In this dollar-based world, a fully credible fix of the yuan/dollar rate is the key to encouraging sustained high growth in Chinese wages that matches productivity growth.

In contrast, bashing China to appreciate its currency is counterproductive. If Chinese employers fear that the yuan will be higher in the future, then they become loath to grant large wage increases in the present. Producers of export products could be bankrupted if they granted high wage claims in yuan only to find out afterward that the yuan had also ratcheted upward, making the effective wage increases much larger in dollar terms.

In a world where competing goods from other countries (including the U.S.) are all invoiced in dollars, a safely fixed yuan/dollar rate allows a Chinese employer to estimate more precisely what wage increases are commensurate with expected future growth in labor productivity. If any one employer offers less, others could well bid away his most prized workers.

The earlier experience of Japan shows the importance of the yen/dollar rate in determining wage growth. After the inflationary chaos and disorganization following World War II, in 1949 the Japanese government with American financial assistance unified the battered currency (got rid of multiple exchange rate and payments restrictions) and fixed the central rate at 360 yen per dollar.

With this dollar anchor, the postwar Japanese miracle unfolded: From the early 1950s to 1971, GDP and labor productivity in manufacturing began to grow by about 9% per year while growth in money wages was in excess of 10%, more than twice as high as in the U.S. With stable wholesale prices, trade was roughly balanced and so was international competitiveness.

But in August 1971, President Richard Nixon shocked the world by forcing the other industrial countries — Japan, Canada and those in Western Europe — to appreciate against the dollar. Nixon imposed a tariff on all industrial imports until the other industrial countries agreed to appreciate, which they all did by the following December. Japan appreciated by 17%. As early as 1970, the expectation of dollar depreciation caused huge hot money flows out of the U.S. Foreign central banks intervened heavily to buy dollars to prevent their currencies from appreciating more than what was agreed to with Nixon. The result was a world-wide loss of monetary control, great inflation, large business cycle fluctuations, and slow economic growth in the 1970s into the ’80s.

Because Japan had by then emerged as America’s foremost industrial competitor, the U.S. mistakenly began "bashing" Japan to force further yen appreciation. The yen rose to a high of 80 per dollar in April 1995 from 360 per dollar in August 1971. Hot money inflows first contributed to land- and stock-market bubbles in Japan in the late 1980s. But after these burst in 1990 and the overvalued yen rose even further, the economy was thrown into a deflationary slump from which it has yet to recover. By the end of the 1970s, money wage growth had slumped to less than in the U.S. — and Japanese wages are actually falling in 2010.

What is the lesson for China? Exchange rate appreciation and money wage growth are substitutes in the long term. But an erratically appreciating exchange rate with the associated hot money flows does long-term damage to the economy. Best to keep the exchange rate safely fixed near 6.83 yuan/dollar — as it had been for two years through mid June. Then gently explain to would-be China bashers that Beijing fully respects — and even encourages — workers to bargain in good faith for higher wages to match high productivity growth in manufacturing, which Chinese employers can more readily accept if they expect the yuan/dollar rate to remain stable.

Nevertheless, the U.S. Congress is again threatening to impose punitive tariffs on imports from China unless the yuan is appreciated. To contain the political risks from trade protectionism, the People’s Bank of China bowed to this pressure on June 19 and depegged the yuan in favor of managed floating against an (unspecified) basket of foreign currencies. Whether this ambiguous "float" will succeed in defusing U.S. protectionist pressure remains to be seen.

But any systematic yuan appreciation — or threat thereof — will immediately restart the hot money inflows and, in the longer term, slow money wage growth. Moreover, a discrete sharp appreciation won’t defuse the situation because it would be unlikely to reduce China’s trade (i.e., net saving) surplus on which the Americans are so focused.

Behind this unnecessary political crisis is a widely held but false economic belief: that the exchange rate can be used to control any country’s trade balance — the difference between its saving and investment. The imbalance actually arises from a large saving deficiency in the U.S. — with very large fiscal deficits and low personal saving — coupled with "surplus" saving in China from high business profits and buoyant government revenue.

The yuan/dollar debate that continues in Washington is more than a distraction. The threat of appreciation may well impede the natural process by which Chinese wages rise as fast as labor productivity in manufacturing, leading to greater unrest and perhaps even a Japan-like Chinese bubble.

Mr. McKinnon is a professor at Stanford University and a senior fellow at the Stanford Institution for Economic Policy Research.

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