By real, I mean the real side, not the monetary/currency side. Of course, I am playing the pun that what politicians and economists in DC says aren't real.
Suppose there is a country A. Its people want to import a good from country B. However that has not been possible due to all kinds of reasons. Nevertheless, it expects that it will soon be able to import that good. If the expected import of that good is large enough, we will not be surprised to witness a gigantic trade surplus for country A now. This is my "Suppressed Import Hypothesis".
Back to China. What is the suppressed import I have in mind? Education. The number of students coming from China to US (or abroad more generally) for high school and undergraduates have been growing exponentially. I have not yet looked up official data, but anecdotal evidence is striking enough. For UC Berkeley, it started with single digit, and within 2 years, it reached 3 digits. NowI think the number is about 400. I heard similar stories in other state universities. I am talking about undergraduates here, who for the most part, pay every single cent. That is a gigantic number. This trend is a new phenomenon, and it should partly explain the current account surplus of China in previous year. There are lots of other reasons I will discuss in later blogs, but I think this is one story that is missing from the scene.
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