China is being pressed to revalue its currency. It is a mistake to become obsessed by this. What the global economy needs is for China to grow and for its current account surplus to fall.

Some (inside and outside China) see this as a static zero-sum game for global market share. This is unhelpful. The main issues are growth and the restoration of global demand. The latter is in short supply because of the rise in US savings, caused by the crisis but likely to persist. China has a big contribution to make – in the order of a third of the deficit in global demand. Its high growth figures and rebounding trade, with imports outgrowing exports, suggest the crisis policies are working. But they may have to be reined in to avoid overheating, inflation and asset bubbles. Further, surpluses serve no strategic purpose in a developing country that is fully financing its investment.

The singular focus on the exchange rate appears based on the assumption that it is the key cause of the surplus and the main policy instrument for removing it. The reality is more complex. Reducing the surplus in China involves deep structural change, much as reducing the US deficit does. The high savings in China are embedded in the structure of the economy. The government controls too much income directly and through ownership of the state-owned enterprises. Household income at 60 per cent of gross domestic product is way below international norms and household saving at 30 per cent of disposable income is high. This puts household consumption in the range of 40-45 per cent of GDP. A significant change in both these ratios is needed to sustain growth, make better use of the now large domestic market and guide the structural change in the economy associated with the middle-income transition, and to reduce the surplus without damaging growth.