China's trade _defecit_

Rohit Khare (
Thu, 17 Jul 1997 16:45:11 -0400

Paul Krugman has a witty and provacative piece in Slate this week:


I am always grateful when influential pundits make such statements,
especially in prominent places, for in so doing they protect us from the
ever-present temptation to take people seriously simply because they are
influential, to imagine that widely held views must actually make at least
some sense.


A useful clue comes if we look again at the last page of the Economist and
ask which country runs the biggest trade surplus of all. And the answer is
... Russia. Obviously this isn't because Russia's economy is
super-competitive. What that trade surplus actually reflects is Russia's
sorry state, in which nervous businessmen and corrupt officials siphon off
a large fraction of the country's foreign exchange earnings, parking it in
safe havens abroad rather than making it available to pay for imports.

=A0=A0=A0=A0=A0=A0 China, if you think about it, suffers from a milder form=
of the same
ailment. The reason those inflows of foreign capital don't finance a trade
deficit is that they are offset by outflows of domestic capital. In
particular, huge sums are being invested abroad to establish overseas nest
eggs for honest Hong Kong businessmen just in case Hong Kong ends up
looking like the rest of China, and no doubt to establish similar nest eggs
for corrupt Chinese officials just in case the rest of China ends up
looking like Hong Kong. To the extent that China does run a trade surplus,
in other words, that surplus is a sign of weakness rather than strength.

Rohit Khare /// MCI Internet Architecture (BOS) ///
Voice+Pager: (617) 960-5131  VNet: 370-5131   Fax: (617) 960-1009