Being lectured on economic policy by the Chinese is like being called ugly by a frog. And yet there was Liu Minkang, Chairman of the Chinese Banking Regulatory Commission, calling American fiscal and monetary policy a threat to the global economy last month on the eve of President Obama’s first visit to Beijing.
This latest example of Chinese chutzpah would be amusing if it weren’t so provocative, so hypocritical, and so wrong.
How did we get here? What led to the almost $5 trillion of U.S. government support for our almost $15 trillion economy, support that all economists, analysts and pundits agree has to be withdrawn once the economy is back on the mend?
We’ve blamed many culprits for this financial/economic disaster – greedy bankers; inept or uninformed regulators; imperfect markets; and conflicted credit-rating agencies, to name just a few. But what about the Chinese?
Didn’t they consciously decide to build their economy on exports – on the comparative advantage of a cheap and plentiful labor supply that could outproduce the developed countries, leading to outsized, double-digit economic growth, and huge trade surpluses for the Chinese the past 15 years? And, to preserve that advantage, didn’t China insist on keeping its currency – the yuan/renminbi -- both non-convertible and pegged to the dollar, unable to fluctuate like other global currencies?
And didn’t this currency mis-pricing, coupled with their comparative advantage, cause the Chinese to amass the largest trade surplus in world history, part of which the Chinese used to purchase our long-term Treasury bonds? These “global imbalances” helped drive down long-term U.S. interest rates, leading to very cheap mortgages that helped to inflate the huge real-estate bubble that popped in 2006. And so whose economic policies helped to create the need for our fiscal and monetary measures that now so concern the Chinese?
We should of course not begrudge the prerogative of any country to act in its own interests, following the ancient dictum of Hillel that “if you’re not for yourself, who will be for you?” But to then criticize the policies of another country that has had to respond to the imbalances you helped to create is nothing short of slick hypocrisy.
On the other hand, the U.S. is no stranger to slick hypocrisy, either. Our own views have “fluctuated” over the years as our interests have changed. Just a decade ago, in the wake of the Asian debt crisis, Treasury Secretary Bob Rubin congratulated and thanked China for notdevaluing its currency, while all its Asian neighbors were furiously devaluing. Now we urge China at every opportunity, in the strongest language possible, to devalue its currency. Times change, as do nations’ interests.
The current U.S. fiscal stimulus, along with the Fed's easy money and quantitative easing, have sent our dollar tumbling in the currency markets over the past 18 months, directly threatening China's export-led growth. That certainly helps explain Liu Minkang's intemperate remarks.
With the electrons of finance respecting no geographical borders and the global economy still in fragile condition, now is no time for trade tiffs, bellicose bluster, nor sanctimonious speeches. We’re all in this together, and a rising tide will lift all boats, after many of them were stranded on the sands of irrational exuberance, blind ideology, and failed economic theories. The sooner we all stop the recriminations and the “blame game” the sooner confidence, growth and opportunity will return.
So let’s not blame the Chinese for our predicament, in hopes that they will also show some restraint and thoughtfulness in their public utterances. Perhaps the only good thing to come from this disastrous financial and economic meltdown will be an increased global understanding of our mutual interdependence and the greater need for global co-operation. If Liu Minkang’s untimely outburst will help us all realize our common destiny, our future need not be consigned to perpetual conflict and acrimony, but rather can rise to a new plane of co-operation and mutual respect.
Marc E. Lackritz was the first President and CEO of the Securities Industry and Financial Markets Association until his retirement in 2007. He is now an Adjunct Professor at Georgetown’s McDonough School of Business and a Lecturer at The Washington Campus, a consortium of 16 business schools.