Nobel Prize Winner Robert A. Mundell during his online discussion at Strong China Forum of People's Daily Online, the website of Chinese leading newspaper People's Daily, Feb. 13, 2006.

The Nobel laureate for economics Robert Mundell asserted in his talks with readers of People's Daily Online that China's economy would grow by at least 7 percent annually for the next two decades.

He answered more than 20 questions focusing on Chinese economy, China's exchange rate system and foreign trade within one hour. Then he received an interview by several major Chinese media, which still put those issues under limelight.

But a big change of its exchange rate will "cut down China's growth rate from 9 percent now to perhaps half of 9 percent," said Mundell. Other damages will include decrease in companies' profits, deflation in the agricultural sector in the western part of the country, increase in unemployment, and less foreign direct investment.

He thinks that a too sharp appreciation of RMB would even cause a financial crisis. " I don't think it would be the right action for China would under any circumstance be any big and rapid changes on its exchange rate", he concluded.

Nor does Mundell think China's exchange rate change will help the United States and other countries. China's exports account for 5 or 6 percent of the world's total exports and will expand to 7 percent, 8 percent or even 9 percent, noted Mundell. "Nobody is going to be able to stop it," he said, "it's inevitable when a country grows rapidly." He reviewed Japan's experience to prove that.

He stressed that China has made it clear to Americans that big changes would be disastrous to China and China has been in the direction of easing up and opening up more. He has also noticed that the US did not press this issue too much last year, which he regarded as a "good sign".

He predicted that the RMB-dollar exchange rate will appreciate very slowly as it has been. He did not think slight appreciation so far is enough to make any difference" to international trade, capital flow.

But he did think China should pay attention to its foreign reserves, although he was not worried about China's use of its forex reserves because there are "so many opportunities for that". He advised that China "shouldn't build them up too rapidly." He also hopes China would make RMB "a little more convertible".

He projected that the Sino-US trade would increase rapidly and the two economies would integrate rapidly. In his view, the equilibrium of China's foreign trade is that the US will have deficit with China while China will have a deficit with the Southeast Asia.

He also hopes that Chinese companies would invest more abroad because that would "offset" the rapid increase in its trade surplus which in turn add more forex reserves to the country. Actually he has seen that happening.

By People's Daily Online