For several years the Financial Times has been giving widespread publicity to an analysis, particularly promoted by its (rightly respected) chief economics commentator Martin Wolf, and US finance professor Michael Pettis, that China was pursuing a 'mercantalist' policy aimed at creating a large trade surplus. This blog has repeatedly pointed out that this is not the case and what China has aimed at is a high degree of openness of its economy, that is of both exports and imports in GDP. This does not necessarily imply a surplus at all.
At last, confronted with the decline in China's trade surplus, the message seems to be getting through more generally in the FT. Analysing the latest trade data, and a speech by China's president Hu Jintao, Kathrin Hille and Simon Rabinovitch from the FT' in Beijing note:
'China’s trade surplus is set to decline in 2011 for the third straight year and is on track to be about half the size of the record $298bn surplus in 2008. That would amount to less than 3 per cent of gross domestic product, suggesting that China’s trade relationship with the rest of the world is increasingly balanced.
'Critics in the US continue to point to their country’s yawning trade deficit with China as evidence of Beijing’s unfair support for its exporters, especially through what they allege is an artificially cheap renminbi.
'But the US deficit with China appears to be more the result of the global trade structure than Chinese policy distortions. As a major processing hub in the global supply chain, China runs large bilateral trade deficits with producers of raw materials and large bilateral surpluses with importers of finished products.'
This is entirely correct. Let us hope that the FT from now on will drop its wrong analysis.