Carlos Alonso B. de Oliveira

Watershed - What is the importance of the foreign exchange regime and policy in the long-term economic performance of China?

Carlos Alonso Barbosa de Oliveira - The exchange regime – a devalued Yuan – has been of great importance for China. On one hand, it protects the production and employment of the country against the penetration of foreign products, and on the other hand stimulates exports and has allowed China to accumulate reserves, which protect it from sudden changes in the world market.

WS - Paul Krugman stated once that for an economy to integrate itself into the world economy, it must choose two among three objectives: stability of its exchange rate, monetary independence or integration into the financial markets. In this direction, what would be China´s choices? Why?

CO - China clearly opted for managing its exchange rate and maintaining the independence of its monetary and credit policies. To reach these objectives, the country does not allow the free international movement of capital, or rather, it does not accept financial opening up. These options are what guarantee the country being able to carry out extremely successful national development policies and defend its economy from abrupt capital movements such as those occurring in 1997.

WS - To what extent can the so-called “exchange war” between China and the USA affect Brazil?

CO - The so-called “exchange war” is a recent phenomenon. It is clear that the maintenance of a devalued Chinese currency provokes generalized complaints. However, until then we could not talk about an exchange war because other countries had not implemented policies of competitive devaluations. More recently, the FED policy of increasing the liquidity of the American economy is what sparked off exchange rate disputes. USA policy tended to provoke the devaluation of the dollar and consequently the appreciation of other currencies.  From then on, Japan carried out exchange intervention, a policy that was also practiced by Korea, while China kept the Yuan linked to the dollar, which devalued it in relation to other currencies. It is in this extremely adverse picture for Brazil, with an overvalued real that the country put forward measures to prevent the progressive appreciation of the real, which is damaging to the competitiveness of our industrial products both in the local market and in the other markets.      

WS - Supposing that China decided to change its exchange regime today, what would be the chance that the country would suffer from so-called speculative attacks?

CO - Since there is not even free movement international of capital in the developed internal financial markets, the country runs no risk of speculative attacks. Regarding the exchange rate, in the period prior to 2008, China was slowly revaluing the Yuan, a movement which was interrupted in the crisis and which now is beginning to be taken up again.

WS - Can we criticize the Chinese option of keeping the Yuan super devalued in relation to the dollar?

CO - In truth, the Yuan is not devalued only in relation to the dollar but also in relation to the other currencies. It is clear that this policy is not favorable to countries like Brazil and it is fitting not only to criticize but also to assume defensive policies, such as the recent raising of the IOF on the entry of foreign capital that led to the appreciation of the real or the taxing of the importation of Chinese footwear. In addition, in a picture of stirring up of international competition probably the government will deepen defensive measures.

WS - Some analysts suggest that the Brazilian government should practice a more assertive policy in relation to the protection of local industry from the “unfair” Chinese competition. Do you agree?

CO - In truth, as we already have stated, Brazil will probably deepen the defensive measures and not just in relation to China but also other countries, which intend to direct their growth via an increase in exports, and reduction of imports as seems to be the strategy of various developed countries.

WS - Is there a chance that Brazil will de-industrialize itself because of Chinese competition?

CO - Undoubtedly, there is a real possibility of the progressive de-industrialization of the country and not just because of Chinese competition but also from other countries, in the absence of a policy for the defense of national production.

WS - What must the government and Brazilian businessmen do to gain international competitiveness in relation to the emerging power of the East?
 
CO - The question of competitiveness is extremely complex to be answered quickly. Some factors can be highlighted in the case of Brazil: the matter of the exchange rate, the need to accelerate investments in infrastructure, industrial policy, the offer of credit at reasonable interest rates, etc.

WS - Celso Furtado stated that it would be impossible to generalize the standard of consumption of the advanced countries to that of the rest of the world since this process would run up against the limits imposed by the availability of natural resources. In this way, Celso Furtado would be against the forecasts accompanying high growth rates for China, Brazil and India in the coming decades?

CO - Celso Furtado, on observing that the standard of production and consumption of the developed world could not be generalized by the rest of the world was not defending a position that the backward countries should refrain from growing. In truth, the eventual tendency to generalization of this standard would make it unfeasible not only for developing countries but also their reproduction would be threatened in the developed countries themselves. It involves therefore the need for the gestation of a new standard of growth that would constitute a long and complex process that would have to be carried out on a worldwide scope.

WS - What importance should the government of Dilma Roussef give to Sino-Brazilian relations?

CO - China is already Brazil’s main trading partner, which immediately points to the importance of our relations with this country. These relations can be favorable to Brazil and evidently are not free from conflicts, but in any case, the importance of Brazil-China relations will certainly tend to grow and be considered by the Brazilian government.


Interview by Rafael Gonçalves de Lima