On June 6, a smooth day, the eighth round of China-US Strategic and Economic Dialogue and the seventh round of China-US High-level Consultation on People-to-People Exchange opened in Beijing. As one of the important communication mechanisms between the two major economies in the world, the global nature of the theme is necessary. Unlike previous sessions, the issue of RMB exchange rate between countries has given way to China's domestic overcapacity, which is in line with the G7 at the end of May. The switching of topics has aroused the curiosity of the "members" of the Macro Senate and many friends. Why has our overcapacity become the concern of Americans?
As an important part of the global division of labor model of "consumer-production-resource country", China's dominant position in the traditional industrial sector, its influence on crude oil commodities, and their impact on the global economy through the changed RMB exchange rate formation mechanism, especially the inflation rate to be considered in the process of interest rate increase by the Federal Reserve. It is the main reason why the topic of this round of dialogue has changed from RMB exchange rate to China's basic industrial capacity.
According to Bloomberg data, in the CFETS RMB exchange rate index released by the central bank on December 11, 2015, the currencies with the highest weights were the US dollar, the euro and the Japanese yen, reaching 26.4%, 21.4% and 14.7% respectively, while the currencies of the other ten resource countries accounted for 37.5%.
Compared with the dollar-RMB exchange rate, which is more concerned by the market, the weight of the currency of the resource country enables the CFETS index to be adjusted according to the actual situation of domestic production capacity (including the production of important bulk products such as crude oil) and the changes of the international trade situation. This will affect the two major sectors of the global economy, namely, the inflation level of major consumer countries such as the United States, Europe and Japan (especially the United States), the demand for commodities and the direction of price changes in resource countries to maintain finance and people's livelihood.
Let's look at the former first: for the United States, whether its interest rate hike process can proceed smoothly or whether it can maintain a "better" interest rate hike expectation is the core of maintaining the credit of the US dollar and the existing global financial/economic governance system. Whether it is the Taylor rule or the "Bernanke rule" which increases the weight of output gap and uses PCE to measure inflation, including the so-called "fabricated" "Yellen rule" which increases the labor participation rate index but has a high degree of fitting, inflation has always been the key indicator to consider whether to raise interest rates and determine the extent of interest rate increase.
According to the statistics of the Ministry of Commerce, the trade volume between China and the United States reached 558.39 billion US dollars in 2015, an increase of 0.6% over the previous year. The United States is China's second largest trading partner, the largest export market and the fourth largest source of imports. According to US statistics, from January to November 2015, the bilateral trade in goods between China and the United States was 569.17 billion US dollars, up 2.4% year-on-year, accounting for 16.2% of the total trade in goods between the United States, up 1.2 percentage points from the same period in 2014. China has surpassed Canada as the largest trading partner of the United States.
Against the backdrop of a 13.8% decline in global trade volume (in US dollars), Sino-US trade in goods is still growing, and the influence of China's domestic industrial capacity on US domestic inflation through changes in export commodity prices is still increasing.
The CFETS index, which consists of 13 currencies and covers major consumer and resource countries, has gradually become an important index in the field of RMB exchange rate. Among the factors affecting the overall change of the index and the exchange rate with a certain currency, the change of domestic industrial capacity and its operating rate has become the dominant factor.
Huge basic industrial capacity and about 70% capacity utilization rate, on the one hand, put forward higher requirements for supply-side structural reform, but also because of its higher adjustment flexibility, can have an impact on the level of inflation in the United States through international trade, thereby disturbing the process of US dollar interest rate increase.
The use of WTO rules, even the rejection of the re-election of judges of the WTO Appellate Body, the "destruction" of the WTO dispute settlement system, and the expression of "concerns" about China's production capacity through the G7, as well as the use of "Section 337" to investigate some of China's steel products, have all become measures taken by the United States to hedge against the above disturbances. From this, we can see that at the end of May, the US Ministry of Commerce made a final ruling that the import tariff on corrosion-resistant plates exported from China was up to 450%, including 209.97% anti-dumping duty rate and anti-subsidy duty ranging from 39.05% to 241.07% (the import tariff rate imposed by the United States on such products from China in 2015 was 256%); On May 26, the U.S. International Trade Commission launched a "337 investigation" on carbon steel and alloy steel products sold in the United States by 40 Chinese iron and steel enterprises and their U.S. subsidiaries.
Compared with the above measures, TPP, TTIP and TISA, led by the United States and aimed at reshaping the future global trade rules, are also being pushed forward, but "distant water is difficult to quench the thirst of the present", and the transnational transfer of global basic industrial capacity needs "continuous efforts and long-term success". For a long time, it seems to be a better choice for both China and the United States to seek a solution that is "beneficial to both sides" in the quarrel. The G7's "restraint" in naming China and its "expectation" to reach the BIT negotiations make it difficult for China and the United States to agree on everything. At present, China and the United States need to improve macroeconomic policy coordination. China's economy is undergoing a necessary but difficult transformation. The United States promises to create a fair competitive environment for US-China trade. The new model of major power relations between China and the United States, which has not been mentioned for nearly three years, has been expressed again. What we see is that the attitude of both sides has softened, "hoping to reach a compromise in the current complex environment, without the will of conflict".
& emsp; & emsp; "Striking iron needs its own hardness". Even if the external environment is good, it is impossible to seize the opportunity without solid internal strength. Jack Lew, US Treasury secretary, said China was committed to important domestic reforms. Since 1978, reform and opening up has formed four driving forces, namely, institutional incentives, cost advantages, global dividends and late-development advantages, which have contributed to the rapid growth of China's economy.
Without reform, there is no way to talk about the second place in the world. "Compared with the political resources and policy toolbox of other governments in the world, we have more resources than them that have not yet been tapped and brought into play-the space for institutional efficiency to be released.". From state-owned assets to market order, if we think deeply, we can expect more, and we believe that the logic of economic recovery that the market needs can be given by the government. In the current environment, what the market really expects is a realizable institutional dividend.
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