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The Wall Street Journal: World Bank Officer Opposes Yuan Rise

China shouldn't be forced to let its currency appreciate as a way to rebalance the world economy, World Bank Chief Economist Justin Yifu Lin said, staking out a strong position that runs contrary to calls from the International Monetary Fund and policy makers in the U.S., Europe and Asia.

 
World Bank Chief Economist Justin Lin Yifu, shown in a March 2008 photo, spoke out against yuan appreciation.

"Currency appreciation in China won't help this imbalance and can deter the global recovery," he said in a lecture Monday at the University of Hong Kong.

Officials from the U.S., Europe and the IMF have called for China to allow its currency to strengthen as a way to get Beijing to boost domestic consumption and to rely less on exports. Such "rebalancing" is necessary, they argue, to produce more sustainable global growth.

A recent World Bank report endorsed the need for rebalancing but didn't specifically address the currency issue. World Bank President Robert Zoellick's advice to Beijing has largely been to boost spending and sustain growth as a way to help global growth.

Mr. Lin, the first Chinese national to be the World Bank's chief economist, said the lecture reflected his views "as a scholar," rather than being an official World Bank policy position. A professor on leave from Peking University, he earned a doctorate in economics from the University of Chicago in 1986 and later served as a deputy of China's People's Congress. He was appointed World Bank chief economist last year.

[Currency Control chart]

As an institution, the World Bank isn't at the forefront of currency issues, which are part of the mandate of the IMF. Even so, World Bank chief economists have sometimes crossed swords with the IMF. But it is far from clear that Mr. Lin was looking to pick a fight with the IMF. Rather, he has taken some unorthodox views on his native country, including arguing that Chinese companies "are subsidized through the lower wages" they pay workers -- echoing complaints of U.S. labor unions.

Although the U.S. current-account deficit has shrunk substantially during the recession, policy makers and economists fear that global economic imbalances could swell again as the world economy recovers and spark new problems like asset bubbles.

Mr. Lin said a yuan move upward could snuff out the global recovery. It would depress U.S. consumer demand because imported Chinese consumer goods would be more expensive. And it wouldn't shrink the U.S. trade deficit because the types of goods China exports to the U.S. for the most part aren't made domestically in the U.S. So, he said, American consumers would simply pay more for goods either from China or from another country.

On the Chinese side of the equation, Mr. Lin said, a stable yuan is critical to keeping the Chinese export economy humming, which will in turn spread economic health to other countries. "China's dynamic growth is very important to the global recovery," he said.

Mr. Lin said short-term currency moves won't fix what is wrong with the global economy. He said "structural reform" is needed. That includes the U.S. putting its fiscal house in order and China creating conditions to lower its high savings rate and to increase domestic consumption.

Write to Alex Frangos at alex.frangos@wsj.com and Bob Davis at bob.davis@wsj.com

Printed in The Wall Street Journal, page A14
 
 


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