Charles Dumas’ earlier book, The Bill from the China Shop, received widespread praise on publication in 2006 for its analysis of how Asian savings were fuelling an unsustainable consumer boom in the US. This title can be considered a sequel, effectively updating the story since then. Indeed, as it includes much of the earlier book as an appendix taking up more than half of the pages in this volume, it might better be thought of as a second edition. 
The new book is a disappointment, for three reasons. First, once you strip out the appendix, it’s a slim volume. Second, most of the points made in the new material are now part of conventional wisdom. This book does not challenge that wisdom as the earlier volume did. And third, it leaves out, or dismisses, some important elements of the global imbalances story. Most notably, in focusing on the ‘Eurasian savings glut’, the current huge petrodollar surpluses are ignored, even though the book argues that oil prices will show medium term strength. Yet in 2006 – before the recent surge in oil prices – net capital outflows from oil producers were $484bn, according to a recent McKinsey Global Institute report. This was some $40bn higher than the outflows of the entire East Asia region.
The book argues that the Chinese economy is overheating, leaving the authorities with three choices – accept inflation, deflate domestic demand or allow the Yuan to appreciate significantly. What we will probably get is a mixture of all three. Some deflation of demand, via a tightening of monetary policy, is already under way. All external observers probably agree that the currency needs to appreciate. But this wouldn’t avoid painful adjustment for the world economy; a stronger Yuan would reduce Chinese inflation, but add to inflation pressures elsewhere. And it appears that some Chinese officials favour a slowdown, or even reversal, of Yuan appreciation. This would definitely be bad news for the long term health of the world economy. 
It is not clear what sort of audience this book is targeted at. For most professional economists, its arguments will seem familiar. For people without any economics training, the analysis may seem confusing and obscure. It is probably best suited to A level or first year university students.

 
Patrick Foley
Director, Group Strategy & Corporate Development, Lloyds TSB