Isn’t THAT the truth.

finally, someone decided two months ago to reverse (in seems) the policy of faster appreciation in the rMB (v the $) that was decided last fall. Either that or there was an ex ante decision to slow down and reassess after a few months … and i am not sure that the tortoise and the hare analogy works. the hare and the tortoise were heading toward the same finish line. so far, china hasn’t managed to adopt policies that have even started to direct policy toward a smaller external surplus and less exchange rate intervention.

Ever since the Gang of Four got kicked out, China has never done anything quickly and decisively. Even things that look decisive in hindsight turn out to take several years of experimentation and debate. It’s worked quite well so far, and I don’t see much reason to change.

The story of the turtle and the hare is relevant there.

It’s actually not. A lot of Chinese policy has been to improve productivity and efficiency. While export factories created new jobs, this was happening at exactly the same time the old state owned factories were laying people off in huge numbers.

If you want job growth, you want to make things *inefficient* and *unproductive*. The trouble with doing that is that you get jobs, but they end up being low paying.

In the case of China, the number of manufacturing jobs hasn’t increased over the last thirty years. However productivity has increase tremendously and once you have productivity, you boost incomes which then creates a service sector, which then moves people off of farms and into the city. Someone gets a pay raise, and they get their hair done, hires a babysitter, and then remodels their kitchen.

Actually inflation is a concern for China, though less of a concern than unemployment. Remember 1989. China is not a liberal democracy, but it isn’t a totalitarian regime.

Emmanuel: My guess is that China is really keen on maintaining a gradualist strategy towards RMB appreciation, come hell or high water.

I doubt things are that coordinated. Most likely the thinking is “well, after a 100 meetings, we finally decided six months ago to gradually change the RMB, and if we want to revisit that decision, we need a hundred more meetings.”

The Chinese Communist Party intentionally distributes power across a lot of centers to prevent another Mao Zedong, and so to make any decision on anything fundamental takes time.

cas127: Why is the Chinese government willing to ship hard goods to every corner of the planet and yet be utterly content to simply sit on the corresponding mountains of paper debt?

It keeps people in factories and off of the street. Also, this assumes that the Chinese government is much more directed than it actually is. It takes a while for the Chinese government to figure out what it wants to do, and what it wants to do may not always match what actually happens, since you do W for reason X, expecting that Y happens but then Z actually does. I doubt that there was a master plan to make reserves so large.

bsetser: Isn’t there a risk that China’s population turns on its government for “wasting” so much of its savings buying US debt?

Doubtful. As long as it isn’t obviously coming out of their pocket people just won’t care what happens. Part of the skill of politics (whether in China or the United States) is to extract wealth in ways that aren’t obvious.

I wonder if you could comment on how so much money flows back into the rest of the financial system. Presumably it starts with account balances at the banks used by counterparties in the forex markets where USD is first purchased with newly-minted yuan.

It is hard to understand how flows this big could remain invisible.