China currency debate bursts into the open
Economists are sparring over the yuan’s value as China’s trade surplus continues to grow.
A contentious debate has emerged among experts regarding China's rising trade surplus and the implications of its currency, the renminbi. According to former US Treasury official Brad Setser, the renminbi may be 30-35% undervalued, a claim that has spurred EU policymakers to advocate for Chinese currency appreciation. However, a group of economists, including former IMF Chief Economist Gita Gopinath, argue that such appreciation could worsen China's deflation and further diminish demand for foreign goods.
They advocate for structural reforms in China to stimulate domestic consumption instead. Setser, on the other hand, contends that the world cannot afford to wait, as China could soon be exporting 20 million cars annually, which is double its current rate, or account for one-third of all cars sold outside the country.
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