Is Chinese mercantilism good or bad?

CHINA’S trade balance is on course for another bumper surplus this year. 
Meanwhile, concern about the health of the US recovery continues to mount.
Both developments suggest that China will be under renewed pressure to nudge its currency sharply upward.
The conflict with the US may well come to a head during congressional hearings on the renminbi to be held this month, where many voices will urge the Obama administration to threaten punitive measures if China does not act.
Discussion of China’s currency focuses around the need to shrink the country’s trade surplus and correct global macroeconomic imbalances.
With a less competitive currency, many analysts hope, China will export less and import more, making a positive contribution to the recovery of the US and other economies.
In all this discussion, the renminbi is viewed largely as a US-China issue, and the interests of poor countries get scarcely a hearing, even in multilateral fora.
Yet a noticeable rise in the renminbi’s value may have significant implications for developing countries.
Whether they stand to gain or lose from a renminbi revaluation, however, is hotly contested.
On one side stands Arvind Subramanian, from the Peterson Institute and the Centre for Global Development.
He argues that developing countries have suffered greatly from China’s policy of undervaluing its currency, which has made it more difficult for them to compete with Chinese goods in world markets, retarded their industrialisation, and set back their growth.
If the renminbi were to gain in value, poor countries’ exports would become more competitive, and their economies would become better positioned to reap the benefits of globalisation.
Hence, Subramanian argues, poor countries must make common cause with the US and other advanced economies in pressuring China to alter its currency policies.
On the other side stand Helmut Reisen and his colleagues at the Development Centre of the Organisation for Economic Cooperation and Development, who conclude that developing countries, and especially the poorest among them, would be hurt if the renminbi were to rise sharply.
Their reasoning is that currency appreciation would almost certainly slow China’s growth, and that anything does that must be bad news for other poor countries as well.
They buttress their argument with empirical work that suggests that growth in developing countries has become progressively more dependent on China’s economic performance. They estimate that a slowdown of one percentage point in China’s annual growth rate would reduce low-income countries growth rates by 0.3 percentage points – almost a third as much.
To make sense of these two contrasting perspectives, we need to step back and consider the fundamental drivers of growth.
Strip away the technicalities, and the debate boils down to one fundamental question: what is the best, most sustainable growth model for low-income countries?
Historically, poor regions of the world have often relied on what is called a “vent-for-surplus” model.
 This model entails exporting to other parts of the world primary products and natural resources such as agricultural produce or minerals.
This is how Argentina grew rich in the nineteenth century, and how oil states have become wealthy during the last 40 years.
The rapid growth that many developing countries experienced prior to the crisis was largely the result of the same model.  – Project Syndicate

*Dani Rodrik is professor of political economy at Harvard University’s John F. Kennedy School of Government and the author of One Economics, Many Recipes: Globalisation, Institutions, and Economic Growth.