Also, I disagree with Lardy as far as pace of changes. The Chinese economy has enough moving parts and unexpected things, that I think it is a very bad idea to move suddenly. Since 1978, China has tried to do everything slowly rather than to do “big bangs” so that any sort of unexpected consequences can be handled.
A sudden one-time revaluation (say 20%) of the RMB is such a large shock to the system, that I believe it would have had very, very bad effects that would have left much China worse off than it is now. Having seen examples of big bang changes, I’m skeptical of *any* dramatic and sudden policy changes, which is why I don’t accept the conclusion of Lardy that the Chinese government is moving too slowly. One thing to remember is that this is a government that thinks in terms of hundreds and thousands of years, and a change that takes two to five years is lightning quick. It’s much better to phase in the revaluation over a number of years.
I think the reason people think in terms of sudden moves is with the belief that if you don’t do things suddenly, then this gives “opponents of reform” time to regroup and water down the changes. However, this presupposes a late-Soviet model of government, which isn’t applicable in the Chinese case.
The big problem with sudden changes is summarized by Aesop’s the tortoise and the hare.