Ａｄｊｕｓｔｉｎｇ　Ｇｒｏｗｔｈ Adjusting

　　How does China’s approach to economic growth differ from that of the United States? In the context of economic globalization, how can China and the United States establish win-win relations? Focusing on these questions, People’s Daily Online Washington-based correspondent Yong Tang recently interviewed Paul A Samuelson, professor of economics at the Massachusetts Institute of Technology, and Robert Mundell, professor of international economics at Columbia University, both of whom are Nobel Prize Laureates in Economics. Excerpts of the interview follow:
　　Yong Tang: According to a World Bank estimate, the Chinese economy grew at 9.3 percent in 2005. What do you think the growth figure will be in 2005 and 2006?
　　
　　Samuelson: I am not an expert on Chinese growth statistics. Because there are still so many hundreds of millions of Chinese outside the highest prosperity regions inside the triangle of Hong Kong-Shanghai-Beijing, I will not be surprised if 9-percent annual rates of real GDP will be reported during 2006-10.
　　Mundell: I would expect growth in China to be 8.5-9 percent in 2006.
　　China and America are two engines of the world economy. Given the increasing degree of economic globalization, the interdependence of Sino-American economic relations has become common sense. What are the major differences between China and the United States in the way of their economic growth?
　　Samuelson: Nations are like people. Persons aged 20 develop faster than persons aged 40. If China has not already by now surpassed Japan as second to America’s first in total real GDP, soon that will happen. Later, solely from the fact that China’s population is more than five fold greater than America’s, China will forge ahead of America in total GDP. However, when that does happen, China’s per-capita real GDP will still be a lot poorer than America’s. When later you move closer to the United States in per-capita affluence, your annual growth rate will recede down closer to America’s.
　　Mundell: The main difference is that China saves half its GDP, the United States saves almost nothing, as measured by current statistics.
　　What could China learn from America in its approach to economic growth, and vice versa?
　　Samuelson: America still has a lot to learn about striking the right balance between free markets and public government. The U.S. political shift to the right since President Ronald Reagan’s 1980 presidential victory went too far in corporate deregulation. Zero government regulation would be pathological. In the optimal mixed economy there is an Aristotelian Golden Mean to aim for.
　　For China, economics can be a fragile flower that wilts in the absence of uncorrupt courts and limited bureaucratic interferences.
　　Mundell: China can learn from the United States the usefulness of the market as a barometer of the health of companies and banks, which acts as an early warning signal that changes in policy or management are necessary; every major company that fails or gets in trouble provides a lesson to every other company.
　　America can learn again what it used to know but has long forgotten how useful it is to have a stable international monetary system based on fixed parities.
　　
　　HOT-BUTTON ISSUE: A series of negotiations on textile trade were carried out between China and the United States in 2005
　　Trade disputes between China and America are on the rapid increase. Some say this is because China relies too much on export. Do you think so? How can China and America establish win-win relations in trade?
　　Samuelson: China in its own self-interest will need to learn that there are limits to how much export-led growth can be tolerated. As China’s geopolitical power grows, it had best learn to avoid America’s isolationist hubris. When good Chinese policies succeed in building up a healthy home market, appreciation of the RMB will not be something to be feared.
　　Mundell: The United States has addressed the problem in textiles by re-imposed quotas for a provisional period. This in my view is a far better approach to the problem than emphasizing a large appreciation of its currency, which would do China irreparable harm.
　　The United States and China are the two economies that combine to be the major locomotives for the world economy. My hope is that these two economies could evolve into a free trade area and fixed exchange rate currency area.
　　Some experts say China has become the world low-cost manufacturing center. What does this mean for China and America?
　　Samuelson: If China has become the world low-cost manufacturing center, that could in part be explained by how low wages still are in China. Beyond this factor, some credit will have to be increasingly given to made-in-China technological innovations. Only this factor will count most in the distant future.
　　Mundell: China will have a comparative advantage in a vast number of manufacturing products. But most of the world trade takes place in intermediate goods and there will be ample benefits for all countries even when China’s share of world trade rises toward 10 percent.
　　Due to the rising price of energy and international raw materials, the profit of products made in China has fallen dramatically, according to some experts. In such a case, Chinese economic growth, though rapid and robust, is unsustainable. What do you think of this view?
　　Mundell: A country could get into a situation where the cost of its inputs exceeds the value of its outputs and that would be depressing to GDP in China, although there may be offsetting gains if new economies of scale can be exploited. The problem might have existed last year but I don’t think it is sufficiently pervasive to be a great worry at the present time. The problem couldn’t exist if companies were privatized and forced to compete on a level playing field.
　　Do you think the Chinese yuan should be further appreciated? It has been said that forcing China to appreciate its currency is like making a little horse ride a big wagon. China would eventually become exhausted. The further revaluation of RMB would become too much of a burden for China, and the country would feel unable to control the situation. Do you think so?
　　Samuelson: No one can force China to raise or lower its RMB currency parity. Language such as little horses riding big wagons is worthless and should be avoided in adult conversations. It is unrealistic to believe that dynamic China can be materially hurt or helped by a 10-percent change in the dollar-RMB rate.
　　Mundell: The best policy for China, in my opinion, would be to fix the RMB at 8:1 to the dollar and leave it there, while taking steps to loosen exchange controls and bring the balance of payments back into equilibrium.
　　Do you have any suggestions for China to stimulate its domestic demand and for Americans to increase their savings?
　　Samuelson: People’s decisions about saving and consuming cannot be made in either Beijing or Washington. In America, the most important and useful government action would be to cut down on both Iraq spending and tax giveaways to those already affluent. Achieved budget surpluses would elevate U.S.-owned capital formation that can be drawn upon in 2016-26 when U.S. retirees have fewer U.S. working-age taxpayers to support them.
　　For China, in its present fast-growing stages, high saving rates are to be expected. Best for these to be used to finance domestic capital formation rather than to get invested in 3-percent U.S. Treasury Bonds. At the least, China should recycle its trade surpluses into diversified indexes of U.S. and world equity securities.
　　What should China do in order to make its economic growth more sustainable?
　　Samuelson: Well-regulated private markets plus a limited, progressive tax system will help any economy anywhere to achieve a sustainable growth mode. What would hurt most is a central bank that stays ignorant of lean-against-the-wind money and credit policies.
　　Mundell: Work needs to be done in privatizing some SOEs [state-owned enterprises], reducing non-performing loans of the banking system, establishing a credit-rating system in China, privatizing some banks to provide better capital facilities for the private sector and take stronger action to control pollution.
　　In addition, I think a better deal could be worked out for farm people in the rural sector by giving them longer leases on land and an improved educational system that makes greater use of distance learning and information technology.

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