House prices and stock prices have soared. The inflation rate has hit an 11-year record. Trade surplus has been running high. In short, China's economy is on the edge of overheating. In order to maintain sustainable economic growth, some drastic measures must be taken.
The crux of the current macroeconomic problems rests in the liquidity surplus and the huge trade surplus caused by imbalance generated by an externally orientated economy. Solutions to growing aggregate demand, increased inflationary pressures and rising asset prices all depend on easing and eliminating this crux. To solve the problem our fundamental strategy would be to reduce intervention in the foreign exchange market, thus allowing the market to decide a valid RMB exchange rate via supply and demand.
China should promote a balanced economy through structural adjustments. Transform the income distribution mechanism. Reform the exchange rate system. In time a flexible floating exchange rate mechanism will evolve.
For more details, please read the full story in Chinese. (http://www.caijing.com.cn/newcn/home/todayspec/2007-09-16/30434.shtml)
(China.org.cn September 17, 2007)
