Transcript Lecture Five China and World Economy

Lecture Five
China and World Economy
Xingmin Yin
School of Economics
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 China’s Embrace of Globalization, by
Lee Branstetter and Nicolas Lardy
 China and World Economy, by Barry
Naughton
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7.
Introduction
The move to freer trade prior to WTO accession
The opening to FDI prior to WTO accession
China’s WTO accession agreement and its implication
China’s liberalization in the service sector
The structure of China’s exports
China’s exchange rate regime: the need for further
change
8. China’s impact on the world
9. Conclusions
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1. Introduction
 China’s progressive opening to foreign trade
and investment in the years since 1978. These
reforms led China’s foreign trade to soar from
$21 billion in 1978 to the world largest trade
economy in 2009/10.
 Accession to the WTO market an important
watershed of Chinese policy.
 The impact of China’s integration into the world
economy.
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2. The Move to Freer Trade Prior to
WTO Accession
The pre-reform trade regime
Trade liberalization
The export-processing regime
China’s porous protectionism in the 1990s
Discussion
 Foreign exchange reform and tax policy
Discussion
 International versus intra-national trade
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One Country, Two Systems
 By the mid-1980s, China had two trade
regimes- a very open one for foreign firms and
domestic enterprises engaged in export
processing and a more restrictive trade regime
for all other enterprises.
 Problems for a dualistic trade regime: trade
diversion, and a large part of the Chinese
economy could remain effectively protected
from foreign competition.
 “Leakage ” of goods and components into the
domestic economy via the export-processing
regime, of smuggling……
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Devaluation of RMB
 The authorities devalued the official exchange
rate in stages, from RMB 1.5 to the dollar in
1981 to 8.7 in 1994.
 Following a modest appreciation, the
government effectively fixed the exchange rate
at RMB 8.28 to the dollar in 1995, a rate that
was not changed until the summer of 2005.
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3. The Opening to FDI Prior to WTO
Accession
 Liberalization of foreign direct investment
 A new Law on Joint Ventures was passed in
1979, providing a basic framework under which
foreign firms were allowed to operate.
 SEZs
 Open cities
 Export and technology development zones
 “export-oriented” projects and “technologically
advanced ”projects……
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The Rise, Fall, Rise of FDI Since
1989
Amount of FDI
Sources of FDI
Figures 16.2 -16.6
A dramatic change in the Chinese
operating environment for FDI business.
 Domestic demand for goods……
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Did Trade and FDI Drive Growth in
the 1990s?
 As foreign producers have been allowed
steadily greater freedom to operate in the
Chinese market, this competitive pressure has
intensified, increasing the likelihood that
market share gains are concentrated in the
most efficient firms.
 The ability to import technology embodied in
the capital goods and components has certainly
contributed to output expansion.
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4. China’s WTO Accession Agreement
and its Implication
 China chose to unilaterally liberalize its
economy.
 China agreed to a set of conditions that were
far more stringent that terms under which
other developing countries had acceded. I
certain aspects China’s liberalization
commitments exceed those of advanced
industrialized countries.
 The competition will also promote a more rapid
and more healthy development of China’s
national economy.
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A trade in manufactures
FDI in the manufacturing sector
Agricultural trade
A double standards for China?
WTO accession: a whatershed, not a sea
change
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 Some predicted that China would incur
significant restructuring costs in meeting its
WTO commitments.
 There was a tendency for these studies to
overestimate the impact of WTO accession.
 The combination of China’s pre-WTO and postWTO reforms is making it arguably the most
open large developing economy.
 Different tariff rates for developing
countries……
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 China’s FDI regime is one of the most open and
welcoming of any country in the world, and
China has made liberalization commitments in
all of the service industries covered by the
WTO General Agreement on Trade and Services.
 China has also made relatively strong
commitments to liberalize financial and
telecommunication services.
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5. China’s Liberalization in the Service
Sector
 By 2004, China had phased out all geographic,
ownership, and most other types of restrictions
on wholesaling and retailing, and related
distribution services.
 China agreed to substantially open its market
in banking, insurance, securities, fund
management, and other financial services.
 Telecommunication services.
 International comparison……
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6. The Structure of China’s Exports
 More discussions
 How to measure the capital-intensive
products?
 The impact of global production chain to
China’s exports.
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7. China’s Exchange Rate Regime: the
Need for Further Change
 Is Chinas’ currency undervalued? If so, what is
the appropriate Chinese response? What
difference would this response make to China’s
global trade balance?
 What is the evidence for the judgment that the
currency is undervalued in recent years?
 The U.S. policy of encouraging China to
liberalize its capital account and adopt a
floating exchange rate system, Is it a long term
objective?
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 In the short and medium run, a convertible
currency with a floating exchange rate is a
risky option for China, Why?
 What comments on following judgments: an
acceleration of the pace of appreciation of the
RMB is desirable, both to improve the
authorities’ control over monetary policy and to
contribute to a reduction in global economic
imbalances.
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8. China’s Impact on the World
 Locomotive engine for Asian growth;
 A reallocation of assembly activity from other
East Asian countries to China;
 Sino-US trade pattern;
 Export displacement;
 On net, the advanced Asian economies benefit
from Chinese growth, while the ASEAN
countries lose, Is it true?
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9. Conclusions
 Liberalization of trade and FDI regimes;
 China’s embrace of globalization has increased
the degree of competition in the product
markets……
 The impact of China’s opening of its service
sector to FDI……
 The currency regime.
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