【正文】 aused a significant reversal of capital flight and increased upward speculative pressure. Second, cyclical global macroeconomic developments are likely to reduce upward pressure on the RMB. Third, China is in the midst of critical structural reforms, especially in the financial sector, that require focused attention. Fourth, it is increasingly clear that the current economic overheating is sectoral in nature, which is in sharp contrast with the 19934 episode. These considerations suggest that it is not in China’s interest to revalue the currency at this time . Let’s take a closer look at each of these issues. Repegging the RMB Repegging the RMB at a value, say, 1520 percent higher against the . dollar would instantly vindicate the currency speculators, although they are mostly domestic players. Over the last couple of years, the errors and omissions category in China’s balance of payment has shown a large swing from persistent deficits to a surplus of $ billion in 2020. The errors and emissions category is believed to capture illegal capital movements. During much of mid to late90s, China’s capital flight, as a percentage of GDP, was the second worst in the world (only Russia was worse). In fact, it was worse than Mexico in 1994 and South Korea in 1997 during the height of their currency crises. Recently, however, some of this capital is finding its way back, as expectations of RMB appreciation have raised. There is also strong indication that businesses and individuals are involved in currency speculation, which has contributed to the overheating of real estate investment. Revaluing now will encourage future speculation, which could exacerbate the balance of payments pressure. More Chinese Interest Rate Flexibility As the Fed continues to boost . interest rates, Chinese authorities have more flexibility to raise domestic interest rates without worrying about widening the interest rate gap and encouraging further hot money inflows. With global economic growth only moderating a bit lately, demand for energy and modities remains strong, which is likely to keep oil and modity prices high and to increase the import bill for China and other Asian countries—yet another source of reduced pressure on the RMB. Indeed, as long as oil demand remains firm and geopolitical risks persist, the negative impact on Asia’s oil importing countries and conitant, marketdriven downward pressure on its currencies will not dissipate. China’ s Shaky Fundamentals Perhaps most important, the sharp cyclical upswing since the end of the SARS crisis is masking China’s shaky fundamentals to the outside world. Despite modern factories, spanking new airports, highways, and shopping malls, China’s social and financial institutions are perhaps parable to those of the . in the late 19th century period of the “Robber Barons.” A 2020 poll conducted by Peking University of about 100 China experts shows that one third of them believe there will be a major crisis in China before 2020. What is the most likely source of crisis? The most frequently mentioned are social (21 percent), financial (19 percent), economic (12 percent), and employment (10 percent). Rapid growth over the last two decades has increased ine and social inequality, environmental degradation, and regional disparity. The inplete transition from a centrallyplanned economy to a market economy under authoritarian rule has enriched the elite and economic opportunists at the cost of generating a large underclass and eroding public wealth. As some Chinese economists point out, many Chinese local governments are effectively broke and eventually will need a central government bailout. Reminiscent of the age of the . “Robber Barons,” the widespread, systematic corruption and abuse of power is estimated to cost as much as 14 percent of China’s GDP per year. The financial system—which includes the banking, securities, and insurance sectors needs an urgent overhaul to improve efficiency and be ready for foreign petition under China’s WTO mitment. Job creation remains a daunting challenge given continued efforts at transforming the stateownedenterprises and improving productivi