Look to China

Article excerpt

Philippine trade and investment promotion efforts should focus on China, to whom the United States of America is heavily in debt. Holding more than a trillion US dollars in US debt papers in its dollar reserves of over 2 trillion dollars, China's decision on these dollar holdings will not only affect the global economy but, more important, the US economy. We can see the power of China in the Obama administration's continuing efforts to woo its leaders, including having only a private, low- key meeting between the Dalai Lama and Barack Obama.

These dollar reserves and continuing exports earning more dollars ($156.6-billion merchandise trade surplus for the last 12 months, ending June, 2010) have led to calls for China to revalue its yuan.

Economists have pointed to China's refusal to allow the yuan to appreciate as one of the biggest causes of distortion in the world economy and suggested that a stronger yuan would ease China's inflation malaise. This is not a recent concern. I remember that as far back as the IMF-World Bank meeting in Dubai, a team of Chinese researchers visited me to ask my views on the then mounting call for a yuan appreciation. Tracing the high dollar reserves of China as the main reason, I suggested that China should bring down these reserves by buying more from other countries and increasing its investments, especially in the developing countries.

Economic and financial indicators indicate that China may be doing that - buying more than it is selling to the world. While exports grew by 21% early this year, its imports soared by 85.5% in the same period. Its trade surplus also shrank to $14.2 billion from $18.4 billion in December 09. OECD's latest economic survey of China projects China's current account surplus to decline to 5.4% of GDP in 2010, from 11% in 2007, and 9.8% in 2008. In fact as of the first quarter, it was 4.1% of estimated GDP for 2010.

China's huge domestic market, encouraged by a changing Chinese leadership stance of consumption rather than savings, would be a substantial magnet for Philippine products. …