CKGSB’s Chair Professor Li Haitao analyzed why a foreign exchange crisis is unlikely to happen in China in an article in popular Korean newspaper Chosun Ilbo. Instead, he noted that economic fundamentals should be improved to overcome existing problems.
Li Haitao, Dean’s Distinguished Chair Professor of Finance and Associate Dean for the MBA Program at CKGSB, recently shared his analysis about China’s foreign exchange crisis and his views on the underlying factors of economic risks in an interview conducted with Chosun Ilbo, Korea’s most read newspaper. His interview was published in the weekly section of Chosun Ilbo in the form of a bylined column, demonstrating CKGSB’s knowledge and leadership on Chinese topics. Highlights of the article are translated below:
The RMB’s value has rebounded lately after long-term downward pressure since the second half of last year, with China’s foreign exchange authorities declaring war on speculators, spending 3.2 trillion dollars of foreign assets to defend the RMB’s value.
As China moves away from being an export-oriented economy, the government has no intention of depreciating its currency. The government’s priority is to keep a stable financial market and that is why the financial authorities have closed the door in order to prevent further capital outflow. In addition, foreign investors are unlikely to move their money out of China, since it’s still an attractive market that maintains a considerable growth rate.
So what is the core risk for China today? It is the economic fundamentals, which determine the currency value. We have to see how the Chinese economy will turn out in the long run. There are still some underlying risk factors within the Chinese economy.
Above all, the real estate bubble is the biggest problem. Oversupply of real estate in local areas can do mortal damage to China’s economy. We also need to see whether China successfully completes economic reforms for SOEs. Structural innovation is one of the biggest factors on which sustainable economic growth in China depends. Lastly, the Chinese government should focus more on fiscal policy rather than on monetary policy. Fiscal policy puts money directly into public goods, infrastructure and social safety nets.
– Bylined by Li Haitao, Associate Dean of CKGSB
To read the original Korean article in the Chosun Ilbo, please click here.
