Yesterday the Financial Times published an editorial on inflation in China (“Inflation: China’s least wanted export’).They made the by-now-consensus point that inflation in China can no longer be dismissed as a one-off food price increase, that it is structural and reflects China’s lack of monetary control.The last paragraph in particular interested me:
There must now be a low, but non-zero, probability that China opts for a one-off revaluation of the renminbi in order to ease its domestic monetary problems. That would be the right move. The adjustment would be easier both for China and for the rest of the world if the renminbi had not been kept so low for so long. But the pain of unwinding global imbalances will only get worse the longer they are left.
In February when I told my finance class at Peking University that China would be forced into a one-off maxi-revaluation, I told them that this opinion might have seemed crazy, but it would gradually move from the “crank” corners of economic discussion towards the consensus view over a year or so (although I think that if the actual revaluation doesn’t happen in late 2007 or very early 2008, fear of ruining the Olympics, which begins August 8, will prevent it from happening until late 2008, which may be way too late). The need for a maxi-revaluation is still not a consensus view by any means, but I think it is clearly becoming more respectable.
Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business. He is a member of the board of directors of ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups. He has also worked as a partner in a merchant banking boutique that specialized in securitizing Latin American assets and at Credit Suisse First Boston, where he headed the emerging markets trading team. Besides trading and capital markets, Pettis has been involved in sovereign advisory work, including for the Mexican government on the privatization of its banking system, the Republic of Macedonia on the restructuring of its international bank debt, and the South Korean Ministry of Finance on the restructuring of the country’s commercial bank debt.
Pettis is a member of the Institute of Latin American Studies Advisory Board at Columbia University as well as the Dean’s Advisory Board at the School of Public and International Affairs. He is the author of several books, including The Volatility Machine: Emerging Economies and the Threat of Financial Collapse (Oxford University Press, 2001). He received an MBA in Finance in 1984 and an MIA in Development Economics in 1981, both from Columbia University.
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January, 2008
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