China Removing Subsidies, A Few More Articles

By November 30, 2007Trade

The NAM’s news release with President John Engler’s comments is now up on our website.

A good and balanced piece in The New York Times, “China Agrees to Remove Certain Export Subsidies.

Forbes, out of Hong Kong: “China Bends To U.S. On Trade Subsidies.”

An analyis by Reuters economics editor, Alan Wheatley, “Scrapping China subsidies may ease pressure on yuan.” Here’s the thesis:

By agreeing at U.S. behest to scrap a dozen tax breaks and other subsidies, China is increasing exporters’ cost of production to force prices higher; as such the yuan’s real, or inflation-adjusted, exchange rate will rise, which should eventually trim China’s trade surplus and hence the need for faster appreciation of the yuan’s nominal rate.

Li Xiangyang, vice-head of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences (CASS), the government’s top think-tank, said settling the row was a very smart move by Beijing.

“On the nominal exchange rate, China might face less pressure from the U.S. as a result of the subsidy withdrawal,” he told a forum in Beijing on Friday.

The economics arguments exceed our knowledge. Politically, the claim that pressure will ease on exchange rates seems far-fetched; the EU is even more exercised about the Euro than is the United States is about the yuan-dollar rate.

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