Chinese Revaluation and Emerging Market Prospects

While the financial crisis of 2008 caused deep recession in most of the world's developed economies, many of the largest emerging markets weathered the financial storm comparatively well. China remains a vital source of global demand, while India is also gaining an increasing weight in the global economy. China has differed from India and Brazil in that this growth has been associated with a significant current account surplus, and this has been a major issue, particularly in discussion with the US. The Russian current account surplus has been associated with its role as an oil producer. In this section we first compare economic performance prior to and during the financial turmoil among the so-called BRIC countries (Brazil, Russia, India and China) which constitute the world's largest emerging markets. We then discuss the Chinese current account surplus and policies that might be adopted to reduce it. These involve the expansion of demand in China, along with an appreciation of the exchange rate. However, there is no real long-term improvement of global imbalances if China just repegs the exchange rate at a higher level.