1、The Effect of a Generalized Appreciation of East Asian Currencies on Exports from China (节选 ) Gordon R Smith George Mason University, 2002 Master of Business Administration Over the past several years, China has seen a significant rise in its trade and current account surpluses. The International Mo
2、netary Fund (IMF) estimates that by the end of 2007,Chinas current account surplus represented 11.1 percent of the countrys gross domestic product (GDP). At $361 billion, it was the largest surplus of any country in the world, more than $100 billion greater than the country with the second largest s
3、urplus, Japan. With such a large overall surplus, it would seem that China would have a trade surplus with just about every other country in the world. Interestingly, this is not the case. There appears to be a fairly clear delineation, as it regards Chinas trade accounts between those countries in
4、East Asia and the rest of the world Of Chinas seven largest trading partners in 2007 (countries/regions that represented more than $100 billion in total trade value each), five were in East Asia.They were Japan, ASEAN (Association of Southeast Asian Nations), Hong Kong, South Korea, and Taiwan. Excl
5、uding Hong Kong, the four remaining countries/regions, as agroup, recorded a trade surplus with China of more than $180 billion. That is, in terms of its trade accounts, China ran a substantial trade deficit with its major trading partners in East Asia. On the other side of the equation, China had a
6、 substantial trade surplus with its two largest trade partners, the European Union (EU) and the United States (U. S.). With a total value in trade of more than $600 billion (imports plus exports), the EU and U.S. Had a combined deficit with China of more than $270 billion. What this implies is that
7、the trade deficits which China carries with its trading partners in East Asia are more than compensated by the trade surpluses that China carries with the rest of the world. It is the size of these trade surpluses that has become the focus of attention of a number of countries, especially the United
8、 States. China has received a great deal of scrutiny in the U.S. because of the size of its bilateral trade surplus. Several politicians and some economists have called for an appreciation of the RMB as a possible means of affecting Chinas trade surplus with the United States. This has come largely
9、on the belief that China has intervened in the foreign exchange market in order to keep its currency artificially low with respect to the U.S.dollar. An appreciation of the RMB is seen as a way to increase the cost of, and thus reduce, Chinas exports. However, an appreciation of the RMB alone may no
10、t deliver the desired impact on all exports originating out of China. This is due to the intricate production and trade networks which exist in East Asia. Referred to as vertical intra-industry trade, manufacturing firms in East Asia have taken advantage of differences in a countrys factor endowment
11、s (e.g. access to raw materials, low input costs, labor supply) to exploit efficiencies in cost and production. By utilizing foreign direct investment, firms located primarily in developed East Asia (e.g. Japan) have established production platforms throughout the rest of the region. In many cases,
12、extensive trade relationships have been established between emerging Asia (e.g. South Korea, Taiwan), providing intermediate parts and components, and developing Asia (e.g. China), providing assembly and export operations. Therefore, the total value of final goods for export from East Asia is often
13、a combination of value added from several different countries in the region. Though China maintains a sizeable percentage of trade in goods produced primarily from its own domestic inputs, the majority of its exports have been produced primarily from inputs originating from other countries in East A
14、sia. This accounts for the large trade deficits China has with countries like Taiwan, South Korea, and Japan. A significant percentage of these goods are exported to the EU and the U.S., which helps to explain the large trade surpluses China maintains with these countries/regions. Therefore, given t
15、he value added to Chinas exports from other countries in East Asia, an appreciation of the alone may not have the same impact as a generalized appreciation of currencies. This generalized appreciation would include not only the RMB ,but also the currencies of those countries which are Chinas primary
16、 suppliers of parts and components. This would go a lot further in affecting those goods produced primarily from Chinese inputs, as well as those goods produced primarily from inputs originating from other countries in East Asia. The U.S. Trade Deficit and China These issues highlight just some of t
17、he potential outcomes which could result from a consistent and growing U.S. trade and current account deficit. However, the potential problems dont end here. Another issue for the U. S. is the primary driver behind its trade deficit； the deficit in the trade of goods Splicing the trade deficit into
18、goods and services, had it not been for a favorable run of trade surpluses in the services sector, the trade deficit would have easily eclipsed 6 percent of GDP by the end of 2005. On a year-to-year basis, trade in goods as a group has represented more than 100 percent of the total trade deficit fro
19、m as early as 1976, the first year of the current string of consecutive trade deficits. Even when deflating the dollar value of the trade in goods and taking it as a percentage of real GDP, the percentages are roughly the same as those obtained using nominal data When disaggregated into its componen
20、t parts, and accounting for energy products within the industrial sector, a large part of the trade deficit is in consumer goods . These goods, which have little income producing value, represent more than 35 percent of the trade deficit. Capital and industrial supplies (excluding energy products),
21、which are primarily used as investment for building and supporting income producing assets, account for less than 5 percent of the total trade deficit. The U. S. is apparently going into debt with the rest of the world in order to increase its levels of personal consumption. While the U. S. deserves
22、 much of the focus for its large trade deficit, most of the attention over the past several years has fallen on China. Of the nations that the U. S. Is most indebted to in terms of trade, China is the largest. In 2006, the U.S. trade deficit in goods and services with China was $229.4 billion, or ap
23、proximately 30 percent of the total U. S. trade deficit with the rest of the world. This is more than ten percentage points higher than the percentage of the deficit represented by all the countries in Europe, more than 50 percent of the entire trade deficit with those countries in the Asia and Paci
24、fic region, and three times as large as any other single nation with which the U. S. engages in trade . China has also gained a significant amount of attention with regards to the size and composition of its foreign exchange reserves. By the end of 2006, the Peoples Bank of China (PBoC) held more th
25、an $1 trillion dollars in foreign exchange reserves.This growth has come largely on the heels of Chinas rapidly expanding export economy. Since 2003, Chinas economy has grown in real terms by more than 10 percent per year, facilitated by large inflows of foreign direct investment (FDI). When combine
26、d with its trade surplus, China has faced significant inflationary pressure due to the potential increase in the supply of money in the economy. In spite of this phenomenon, Chinas inflation rate through 2006 remained relatively benign, rising above 2 percent only once since 2000. The conversion of
27、dollars into Yuan into RMB 一 denominated bonds has provided a substantial barrier to the growth of RMB over the past several years. As for the composition of Chinas foreign exchange reserves, no official breakdown is available, however several estimates have been offered. In terms of dollar reserves
28、, the general range of approximations has been between 60 and 75 percent.Setser (2007) estimates that Chinas dollar reserves peaked at around 80 percent in 2003 but have fallen to around 70 percent since that time. Though 70 percent in reserve holdings represents a substantial percentage in a single
29、 currency, it doesnt capture the significant increase in dollar holdings that have taken place in China since 2000. As an example, in terms of fixed income dollar dominated assets, China has been an aggressive buyer of U. S. Treasury securities over the past several years. using data from the US tre
30、asury departmenti, China purchased an average of $48.2 billion of treasury securities per year from 2000 to 2007. In addition, over the same time period, Chinas average yearly increase in Treasury securities purchased was 30.3 percent. In the process, the relative size of Chinas position in terms of
31、 official holdings of U.S. Treasury securities rose from 6.4 percent in 2000 to 18.6 percent in 2007. While most of East Asia has been a significant buyer of dollar-denominated fixed income securities, due in part to the speculative runs that took place in the currency markets at the turn of the cen
32、tury, Chinas rapid growth in this area stands out by comparison. In June 2000, Japan dwarfed the other major East Asian holders of U.S. Treasury securities, including China, by more than 370 percent. By June 2007, while Taiwan, Hong Kong, Korea, Singapore, and Thailand had all doubled their holdings, Chinas total holdings had grown by 5 times their original amount. Within that time, the relative gap in U.S. Treasury security holdings between Japan and China
