Roubini Topic Archive: Northeast Asia
One of the top themes for 2010 in economics, politics, and diplomacy was the damage being done to the U.S. economy by an undervalued Chinese yuan. As the yuan began to appreciate in the second half of the year, slowly in nominal terms but more rapidly in real terms, everyone cheered. At the same time the yuan appreciated, the dollar depreciated, not just relative to the yuan, but to all foreign currencies on average. The broad weakness of the dollar was welcomed much less enthusiastically. Words like “unpleasant” and “grim” tended to be used instead.
By freezing its exchange rate and pulling out all the stops on fiscal and monetary stimulus, China got through the global recession with only a mild slowdown in GDP growth. Now it is facing the inflationary consequences. Consumer price inflation, after rising steadily all year, hit a 4.4% annual rate in October, approaching the government’s red line. How will China choose to deal with the inflation threat? The answer is important both for China and its trading partners, because anti-inflation policy will determine what happens to the exchange rate of the yuan over the coming months.
The eclipse of the G7 by the G20 puts the spotlight more than ever on India and China as the economic superpowers of the future. So far, China has the lead, but India has a secret weapon that will carry it into first place by the end of the century. What exactly? Widely spoken English? That helps India’s service sector, but it is not decisive. Democracy? True, democracies outperform authoritarian regimes on average. It is no coincidence that 17 of the G20 are functioning democracies, but China is hanging in there as an exception to the rule. No, the real secret weapon that will carry India into the lead is demographics.