Distinguished Speaker Seminars

Koichi Hamada, Professor of Economics at Yale University, addressed invited guests and ADBI staff on capital flows and exchange rates on 24 July. His lecture, in particular, focused on current account imbalances in the US, Japan, and the People's Republic of China (PRC). In the past decade the United States has been running a huge current account deficit while the PRC in recent years has been experiencing a current account surplus, thus joining Japan and others as a large current account surplus country.

Professor Hamada conceded that the Plaza Accord had a genuine effect in reducing Japan's current account surplus from a peak of 4.3% of GDP in 1986 to 1.4% of GDP in 1990. In a situation where price and wage movements are sluggish, nominal exchange rate movements can create similar movements in the real exchange rates, which, in turn, can affect the country's current account and macroeconomic performance. However, today he does not recommend a Plaza Accord type of adjustment to correct the PRC's current account surplus because it involves the risk of producing undesirable macroeconomic side effects, as Japan's experience demonstrates.

Some noted economists, Professor Hamada pointed out, take the imbalance in the current account as abnormal and hence, in need of correction. Taking a different view, Hamada argued that current account imbalances across countries are a norm rather than an exception. If countries have different rates of time preference, there is no guarantee for the current account to be balanced. For instance, American consumers prefer to consume earlier while East Asian consumers prefer to save and consume later. In this case, it is natural to observe current account imbalances in these countries, and inter-temporal trade of goods will benefit the countries that have different rates of time preference. Policy or exchange rate coordination aimed at addressing current account imbalances across countries, Hamada concluded, is futile and sometimes harmful.

View Koichi Hamada's presentation.

Angus Maddison, Emeritus Professor, Faculty of Economics, Groningen University, presented a paper on “Six Transformations in China: 960–2030 AD” at ADBI on 1 October.

The first transformation relates to the Sung dynasty from 960–1280, when per capita income rose by a third and population almost doubled. There was also a significant opening to the world economy in the southern Sung, Yuan, and early Ming dynasties (1130–1433). In 1300, China was the world's leading economy in terms of per capita income. It outperformed Europe in levels of technology, the intensity with which it used its natural resources, and capacity for administering a huge territorial empire. By 1500, however, western Europe had overtaken China in per capita real income, as well as technological and scientific capacity.

The second transformation occurred between 1700 and 1820, when population rose nearly threefold with no fall in per capita income. The third transformation occurred from 1840 to 1950, when China suffered from internal conflict and collusive foreign intrusions on its territory and sovereignty. Chinese GDP (measured at PPP) fell from a third to a twentieth of the world total, and per capita income fell in a period when it rose tremendously in Japan, Europe, and the US.

The fourth transformation is the Maoist period (1950–78), which saw a significant recovery of per capita income, but growth was interrupted by disastrous economic and social experiments. In the fifth transformation (1978–2003), China reversed the Maoist policies and adopted a pragmatic reform and open door policy which was successful in sparking growth. There were large gains in efficiency in agriculture, an explosive expansion of foreign trade, and accelerated absorption of foreign technology through foreign direct investment. The sixth transformation is largely forward-looking (2003–2030): Professor Maddison sees catch-up continuing. But he predicts that the pace of progress will slacken as China approaches the technological frontier. By 2015, according to Maddison's predictions, China will have overtaken the US as number one economy in terms of PPP GDP, and by 2030 will be producing nearly a quarter of world GDP.

View a summary of Angus Maddison's presentation.

Voice of a Visiting Fellow

General predictions for the PRC's economic future may be optimistic, and the expansive trend of interprovincial disparities has slowed down since 2000 and began to decrease somewhat in recent years, but according to ADBI Visiting Fellow Shantong Li, widening income disparities between rural and urban may be cause for concern. The contribution of urban-rural income disparities to total regional income disparities has been widening over the years, reaching 80.4% in 2004.