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Back to Two birds, one stone

Rolf Campos and Gonzalo G. Bengoechea , IESE Professors , University of Navarra

Two birds, one stone

Fri, 16 Apr 2010 09:07:34 +0000 Published in La Razón (Madrid)

When the global economic crisis erupted in early 2008, the Chinese government warned that its Economics would suffer a severe setback. Its first estimates indicated that the country's Gross Domestic Product (GDP) would grow by "only" around 6% in 2009.

To prevent this from happening, the government launched a $586 billion state investment plan at budget. The largest in the world.

With these investments, China is killing two birds with one stone. On the one hand, it is getting its Economics back to strong growth. After closing 2009 with growth almost three points higher than initially forecast (8.7%), we have now learned that its GDP increased by an annualized 11.9% in the first quarter of the year.

Both data, together with the recovery of consumption and gross capital training , confirm the effectiveness of the massive stimulus plan.

On the other hand, it is managing to reduce its current account surplus without having to resort to currency revaluation, as US President Barack Obama himself has called for. The recovery in growth is favoring the emergence of inflation and appreciating China's real exchange rate subject .

As a result, its products are becoming more expensive and its exports are declining.
Thus, the Chinese government is adding a new argument in its favor for not revaluing the yuan and sending the message that external "suggestions" on its economic policy are not exactly welcome.