From Prof Robert H. Wade.
Sir, I broadly agree with Gideon Rachman (“China can no longer plead poverty”, October 26) that the world at large would be better off if China allowed its exchange rate to appreciate more against the US dollar and improved civil liberties at a faster pace. Then come the qualifications. First, China can plead more poverty than Mr Rachman suggests. World Bank figures indicate that the number of people who live on less than about $2 a day is more like 500m than Mr Rachman’s 150m. Out in the western provinces, far from ultra-modern Shanghai, poverty levels are bad even by south Asian standards. Second, he and most other analysts give the exchange rate too much significance, as though the problem of China’s surpluses and US deficits could be substantially eliminated if only China would allow a sizable appreciation. The appreciation would have to be implausibly large, however, to offset the competitive advantage of high productivity and low wages (held down by the almost unlimited labour supply out west). Third, China’s disregard of the external effects of its exchange rate policy and its “go for broke” growth strategy is driven partly by its leaders’ fears that it will become old before it becomes rich. Within a generation it will have an older population than the US. The fear is that it will become stuck in a “semi-peripheral” role in the world economy, unable to rise to the ranks of developed economies as it loses the advantages of a young labour force. Fourth, China is by no means the only large economy whose leaders have disregarded the far-reaching effects of their economic policies on the rest of the world. Exhibit A is the US and its monetary policy, as in “the dollar is our currency and your problem”. China does at least have the excuse of poverty. Robert H. Wade, London School of Economics, UK