China’s Trilemma

By Isaac Cohen*

The Executive Managing Director for Global Capital Markets, Mr. Hung Tran, from the Institute of International Finance headquartered in Washington and supported by major banks, recently described the results of this year’s China Economic and Financial Forum, held September 10-11 and hosted by the Bank of Beijing. Beyond the headlines about falling stock markets and currency devaluation, the Forum focused on the trilemma of China’s economic policy. This consists in trying to reconcile three divergent objectives: to maintain exchange rate stability, loosen monetary policy and opening the capital account.

The tension in the economic policy trilemma is located in the external sector and in the capital account. As a result of recent instability, capital flight has forced the central bank to intervene with a consequent drop in foreign exchange reserves. As of June 2014,   the foreign exchange reserves held by the People’s Bank of China held reached $4 trillion, one third of all currency reserves held by central banks. By the end of last August, this figure was down to $3.56 trillion.

The fundamental question is if policy makers will be able to resolve the tension, generated by the trilemma, in a way that leads to a soft landing. This is crucial for world economic growth, because through the last decade the Chinese economy contributed one third to global economic expansion, which contrasts with the contribution of 17 percent from the US economy.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.

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About Ramón Jiménez

Ramón Jiménez, actual Managing Editor de MetroLatinoUSA. Periodista que cubre eventos de las comunidades latinas en Washington D.C., Maryland y Virginia. Graduado de la Escuela de Periodismo de la Universidad del Distrito de Columbia. Galardonado en numerosas ocasiones por parte de la Asociación Nacional de Publicaciones Hispanas (NAHP) y otras organizaciones comunitarias y deportivas de la región metropolitana de esta capital. También premiado en dos ocasiones como Mejor Periodista del Año por la cobertura de la comunidad salvadoreña; premios otorgados por la Oficina de Asuntos Latinos del Alcalde de Washington (OLA) y otras organizaciones. Ha sido miembro del jurado calificador en diferentes concursos literarios, de belleza y talento en la región metropolitana. Ha visitado zonas de desastre en Nicaragua, Honduras y El Salvador e invitado a esos países por organizaciones que asisten a personas de escasos recursos económicos. Antes trabajó en otros medios de prensa de Virginia y Washington, D.C., incluyendo reportajes para una agencia noticiosa mundial.

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