The NYT reported that China is becoming less dependent on exports to the United States, noting that the U.S accounted for 31 percent of Chinese exports in 2000, but just 22.7 percent in February. However, the article mistakenly uses an exchange rate of measure of GDP to tell readers that U.S. exports are still almost 10 percent of China's GDP. (This would imply that almost half of China's GDP is exported.) By a purchasing power parity measure, China's exports would be just 2.5 percent of GDP. Of course, given the dynamics of China's economy, the true importance of U.S. exports would probably best be assessed by taking an average of the two measures -- approximately 6 percent of GDP. The BBC reports this morning that China's economy grew at an 11 percent annual rate in the first quarter, far above its 8 percent target. The segment implied that China's government is struggling to find ways to slow the economy. It would seem that a very obvious way to bring down the growth rate would be to raise the value of the yuan. Reducing its net exports would be a quick way to slow its growth rate and the availability of lower cost imports would allow for a substantial boost in living standards. Of course this would also reduce the U.S. trade deficit with China, albeit at the cost of much higher import prices. I suppose there is an argument as to why China would not want to raise the value of its currency, but apparently it is being kept a secret.
--Dean Baker
