During the 1997 Asian economic crisis, the values of many regional currencies collapsed, making their goods cheap to foreign buyers. The Chinese then won the gratitude of their neighbors — and cast their country as a responsible power — by keeping the renminbi’s value fixed. That prevented a competitive spiral of devaluations that many economists feared might make the crisis much worse.
The latest financial crisis tells a different story: China’s exchange rate controls are cited as a leading cause of huge global imbalances that contributed to the collapse of 2008.
Until 2008, Mr. Pettis said, “most of these countries ran trade surpluses, and the U.S. was the countervailing trade deficit.”
“The entire model depended on the ability of an external agent — the United States — to absorb trade deficits,” he added.
Indonesia is especially vulnerable to the shift. It is the most populous and arguably the least economically advanced
Most analysts say China has too many steel mills. Its excess steelmaking capacity equals the entire annual production of the world’s No. 2 steelmaker, Japan.
“China is China, you know?” he said, shrugging. “Even the U.S. cannot talk to China.”
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