CATO JOURNAL ing domestic demand, increasing imports, investing abroad, and accelerating urbanization--in addition to currency appreciation. In fact, many measures can generate impacts similar to currency appre- ciation, such as imposing environment protection requirements enhancing labor standards, strengthening labor protection, and upgrading the judiciary system. All these measures mean higher costs, lower competitiveness, and a reduced trade surplus, which will move the economy toward equilibrium. Also, it is important to rec- ognize that it will take time for these measures to bring about struc tural changes. Policymakers in Washington and elsewhere should therefore be patient as China makes its way toward a full-pledged foreign exchange market References Bai, C. Hsieh, C; and Qian, Y(2006)"The Return to Capital in China. " Brookings Papers on Economic Activity 2: 1-28 Yi, G.(2000)"Selection of Exchange Rate System. Financial Research 9: 46-52 Yi, G. and Tang, x.(2001)"Theoretical Foundation of "Corner Solution Assumption of the Exchange Rate System. Financial Research 8:5-17 Obstfeld, M, and Taylor, A. M. (1998)"The Great Depression as a Watershed: Intemational Capital Mobility over the Long Run. "In M. D. Bordo, C D. Goldin, and E N. White(eds) The Definin Moment: The Great Depression and the American Economy in the Twentieth Century, 353-402. Chicago: University of Chicago Pr196 Cato Journal ing domestic demand, increasing imports, investing abroad, and accelerating urbanization—in addition to currency appreciation. In fact, many measures can generate impacts similar to currency appre￾ciation, such as imposing environment protection requirements, enhancing labor standards, strengthening labor protection, and upgrading the judiciary system. All these measures mean higher costs, lower competitiveness, and a reduced trade surplus, which will move the economy toward equilibrium. Also, it is important to rec￾ognize that it will take time for these measures to bring about struc￾tural changes. Policymakers in Washington and elsewhere should therefore be patient as China makes its way toward a full-pledged foreign exchange market. References Bai, C.; Hsieh, C.; and Qian, Y. (2006) “The Return to Capital in China.” Brookings Papers on Economic Activity 2: 1–28. Yi, G. (2000) “Selection of Exchange Rate System.” Financial Research 9: 46–52. Yi, G., and Tang, X. (2001) “Theoretical Foundation of ‘Corner Solution Assumption’ of the Exchange Rate System.” Financial Research 8: 5–17. Obstfeld, M., and Taylor, A. M. (1998) “The Great Depression as a Watershed: International Capital Mobility over the Long Run.” In M. D. Bordo, C. D. Goldin, and E. N. White (eds) The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, 353–402. Chicago: University of Chicago Press