Who Adjusts, II

Update (Back date?): This post by Brad Setser nicely links the current mess to the broader current imbalance and exchange rate arrangements in Asia.

Somehow I missed Paulson's last trip to China in connection with the Strategic Economic Dialogue. While achieving little, it did reveal a bit of information about how the Chinese government is thinking about the global recession and global imbalances. When asked about the appropriate policy response, Zhou Xiaochuan, governor of China's central bank, said "The United States should speed up domestic adjustment, raise its savings rate and reduce its trade and fiscal deficits." (HT to Kaylan).

Discouraging but not surprising news, really. Discouraging because adjusting global current account imbalance is less painful if China expands than if the US contracts. Thus, the Chinese position implies a more-painful-than-necessary adjustment path. Unsurprising because China's position reflects its interests as a large creditor. As Wang Qishan, China's deputy prime minister, put it, the United States should stabilize its economy as soon as possible to "ensure the safety of China's assets and investments in the U.S." This sounds somewhat like the advice another large country often offers emerging market governments, though that country rarely is so brash as to admit that the advice is offered to safeguard American assets.

The IHT article also contains a terrific non sequitur: "During his campaign for president, Barack Obama often accused China of manipulating its currency, but ... his choice for Treasury secretary, Timothy Geithner, has lived in China and speaks Mandarin."