Transcript China and US: Situation and Problems in Economy & Trade

China and US: Situation and
Problems in Economy & Trade
Dr. Haixin Yao
Professor of Economics, Liaoning University, China
Visiting Scholar, California State University, Northridge
(CSUN)
April 15, 2008
Outline
I.
II.
III.
IV.
Introduction
Status Quo
Problems
Prospect and Suggestion
I. Introduction
1.
2.
A brief review
The comparison of some index: China vs. US
1. A Brief Review
(1) Feb.21,1972 , President Richard M. Nixon of USA
visited China.
This was the milestone for the normalization of ChinaUS relationship
--cont’
（2）In Dec.1975, President Ford of USA visited China.
（3）On Dec. 16,1978, China –US published the joint
communique.
（4）At the end of 1978, China started to make
economic reform and open up to the world !
（5）0n Jan. 1, 1979，China and US established their
formal diplomatic relationship.
Before establishing formal diplomatic relationship in
1978. The total trade between China and US was only
$0.99 billion. In 1979，this volume of trade increased
rapidly to $2.45 billion!
--cont’
（6）On Jan. 28, 1979, China leader Deng Xiao-ping visited USA.
-- cont’
（7）On Feb.1, 1980, The trade agreement of
China-US validated formally.
（8）During May 5-9,1982, Vice president
George Bush visited China. (older Bush)
（9）On Aug.17, 1982, Two government
published the China-US joint communique.
（10）During Apr. 25- May. 1,1984，president
Ronald Reagan visited China.
China and U.S. signed four agreements.
－cont’
(11) On Nov.19,1993, President Jiang Ze-min of
China met President Bill Clinton in Seattle
－cont’
--In 1993, the volume of China-US trade
increased rapidly to $27.65 billion.
--China became US’s the fourth largest import
trade partner and 13th largest export trade
partner of US.
--US also became the second largest export
trade partner and third largest import trade
partner of China.
-cont’
（12）During Oct. 26- Nov. 3, 1997, President Jiang Zemin of China visited U.S.
Two countries published the joint communique.
-cont’
（13）During Jun.25- Jul.3,1998,
President Bill Clinton visited
China.
（14）On Apr. 6-14, 1999，
Premier Zhu Rong-ji of China
visited U.S.
（15）On Nov.15, 1999, China
and US signed formally the
bilateral agreement about
China joining WTO.
 This bilateral negotiation had
lasted for 13 years!
-- cont’
（16）On May 25, 2000, US gave formally the
permanence normal trade position to China.
（17）On Oct. 19,2001, President Jiang Ze-min talked
with President George W. Bush in Shanghai
（18）On Dec.11, 2001, China joined formally WTO!
（19）On Feb. 21-22, 2002, President George W. Bush
visited China.
（20）On Oct. 19, 2003, China’s current President Hu
Jin-tao met with President George W. Bush in Bangkok
-- cont’
（21） On Dec. 7-10, 2003, China’s current premier
Wen Jia-bao made a formal visit to US.
（22）On Nov. 19-21,2005，President George W.
Bush made a formal visit to China.
（23）In Sep. 2006, China-US started strategic
dialogue mechanism
-- cont’
（24）On Dec.15,2006,the First economic strategic
dialogue.
The two parties reached a series of substantial
agreements on security, finance, energy and aviation.
（25）On May 22-23, 2007, the Second economic
strategic dialogue.
--cont’
（26）On Dec. 11, 2007, the Third economic strategic
dialogue .
14 cooperation files about economy & trade.
（27）The Fourth economic strategic dialogue of ChinaUS will be held in Washington in June, 2008.
2. The comparison of main social and economic
index : China vs. US
Table 1
International Comparison(1)(2005)
Country acreage
(million sq.km）
Population by the
end of year
（billion）
Density of pop.
（person/ sq.km）
Country /area
World
Developed countries
Developing countries
134.279
56.433
77.891
6.4378
1.0113
5.4264
47.9
17.9
69.7
G7
North America
Southeast Asia union
21.445
21.572
4.48
0.7176
0.4319
0.5514
33.5
20.0
123.1
China
USA
Russia
9.600
9.629
17.098
1.3076
0.2965
0.1432
136.2
30.8
8.4
Source: national bureau of statistics, P.R.C.
Table 2 International Comparison (2)(2005)
GDP
Country
/area
Per capita
GDP
（billion u.s.
（u.s .dollar）
dollars）
GDP
growth
(%)
GDP composing（％）
Primary Secondary
Tertiary
World
44384.87
6987
4.9
3.5
28.0
68.5
Developed
countries
34466.20
35131
2.6
1.6
26.2
72.2
Developing
countries
9926.40
1746
7.4
11.7
36.0
52.3
2228.9
1740
10.2
12.6
47.5
39.9
12455.07
43740
3.5
1.2
22.3
76.5
763.72
4460
6.4
5.6
38.0
56.4
China
USA
Russia
Table 3 International Comparison(3)(2005)
Trade
balanc
e
（billion （billion （billion （billio
（2003，
u.s.
u.s.
u.s.
n u.s.
（2003，million
million
dollar） dollar） dollar） dollar）
Standard
Standard
unit)
unit)
10672.01 1054371.0 21146.0 10393.0 10753.0 -360.0
energy
productions
Country /area
World
Developed
countries
Developing
countries
G7
Europe union
China
USA
Russia
Energy
consume
Goods
import
Goods
export
Total
trade
4351.54
537772.7
15141.5
7351.0
7790.4
-439.4
6369.97
520347.8
5903.7
3041.6
2862.1
179.5
2645.58
445.24
122127.5
8753.8
6076.0
4034.2
3085.6
4719.6
2990.4
-685.4
95.2
1380.79
1631.38
110692.4
140937.7
228079.1
63971.7
1421.9
26376.0
370.4
761.95
904.29
245.26
659.95
102.0
1732.71 -828.42
125.1 120.13
Table 4 China’s some index ranks in world （1978－2005）
index
1978
1980
1990
2000
2003
2004
2005
Country acreage
4
4
4
4
4
4
4
population
1
1
1
1
1
1
1
Expected life
75
77
83
88
86
87
GDP(U.S. dollar)
Per capital GDP(U.S.
dollar)
Total trade
amounts(U.S.dollar)
10
11
11
6
7
7
4
175
177
178
141
134
132
128
27
25
16
8
4
3
3
export
28
28
14
7
4
3
3
import
27
22
17
9
3
3
3
60
12
9
2
2
3
37
7
2
2
2
2
FDI(U.S. dollar)
Foreign exchange
reserve(U.S. dollar)
40
Table 5 International Comparison of Per capita national income
units：U.S. Dollar
Country /area
Total in world
Low income
countries
Middling income
countries
Modlling-low
income countries
High income
countries
non-OECD members
OECD members
Area of European
dollar
China
USA
1990
4075
356
2000
5244
383
2002
5158
394
2003
5559
439
2004
6338
507
2005
6987
580
1170
1723
1770
1938
2265
2640
848
1158
1183
1295
1507
1746
19617
26528
26130
28195
32132
35131
9150
20394
17747
14368
27564
22034
14109
27184
20524
14740
29389
23118
16341
33547
27921
17656
36715
31914
320
930
1100
1270
1500
1740
23330
34400
35230
37780
41440
43740
Table 6 International Comparison of GDP
Units: billion U.S. dollar
Country /area
1990
2000
2002
2003
2004
2005
Total in world
Low income countries
Middling income
countries
Modlling-low income
countries
High income countries
non-OECD members
OECD non-members
Area of European dollar
21748
597
3258
31776
837
5215
32821
926
5402
36875
1055
6104
41366
1216
7227
44385
1391
8535
386
6052
6327
7158
8443
9926
17894
596
17293
5583
25725
1163
24564
6130
26496
1138
2536
6753
29719
1218
28493
8316
32928
1358
31562
9501
34466
1528
32952
9813
China
Germany
Japan
U.K.
USA
355
1707
3040
990
5757
1199
1900
4746
1438
9765
1454
2022
3971
1565
10435
1641
2443
4291
1798
10951
1932
2741
4623
2124
11712
2229
2782
4506
2193
12455
II. China-US economy & trade
relationship: Status quo
1.
2.
3.
4.
Trade
Investment
Exchange rate
Finance field and capital market
1. Trade



From 1979 to 2006,the total trade between China
and US has increased 106 –fold ,its growth rate
has averaged 18.9% per annum!
In 2006, US was the second largest trade partner
of China , the first largest export market, the sixth
import origin place, and the third tech. import
origin place.
In 2007 US was still the second largest trade
partner of China, it had 13.9％ shares of total
foreign trade in China.
But, US has become the second largest export
market of China !
Table 7
term
year
The data of China-US trade in recent 3 years
unit：billion
Total trade
amount
Export to US
Growth rate
amount
Growth rate
Import from US
amount
Growth rate
2005
211.63
24.78％
162.90
30.4％
48.73
9.1％
2006
262.68
24.12％
203.47
24.9％
59.21
21.8％
2007
302.08
15％
232.70
14.4％
69.38
17.2％
Source: China customs - customs statistics
Table 8 the trade between China and main trade partner
（2005－2007）
unit：billion
Total trade
year
2007
2006
2005
country
EU
USA
Japan
HK
Southeast
union
EU
USA
Japan
HK
Southeast
union
EU
USA
Japan
HK
Southeast
union
export
amount growth amount
import
growth
amount
growth
balance
356.15
302.08
236.02
197.2
27％
15％
13.9%
18.7
245.19
232.70
102.07
184.4
29.2％
14.4％
11.4%
18.8
110.96
69.38
133.95
12.8
22.4％
17.2％
15.8%
18.9
134.23
163.32
－31.88
171.6
202.6
26
94.2
32.1
108.4
21.0
－14.2
272.3
262.7
207.3
166.2
25.3
24.1
12.4
21.6
182.0
203.5
91.6
155.4
26.6
24.9
9.1
24.8
90.3
59.2
115.7
10.8
22.7
21.8
15.2
-11.8
91.7
144.3
－24.1
144.6
160.8
23.3
71.3
28.8
89.5
19.4
－12.8
217.3
211.6
184.5
136.7
22.6
24.8
9.9
21.3
143.7
162.9
84.0
124.5
34.1
30.4
14.3
23.4
73.6
48.7
100.5
12.2
5.0
9.1
6.5
3.6
70.1
114.2
－16.5
112.3
130.4
23.1
55.4
29.1
75.0
19.1
－19.6
2. Investment
（1）U.S. Enterprise invest in China
U.S. started to invest directly in 1980.
At the beginning of 1990s, the investment of
U.S. Enterprise had less than $0.4 billion per
annum .
In 1990, there were only 45 U.S. Enterprises.
Table 9 U.S. enterprise invest in China:1986-2007
project
year
Actual investment
proportion
amount（billion
%
U.S. dollar）
0.3262
14.54
number
proportion%
1986
102
6.81
1987
104
4.66
0.2628
11.36
1988
269
4.52
0.2360
7.39
1989
276
4.78
0.2843
8.38
1990
357
4.91
0.4560
13.08
1991
694
5.35
0.3232
7.4
1992
3265
6.7
0.5111
4.64
1993
6750
8.09
2.0631
7.5
1994
4223
8.88
2.4908
7.38
1995
3474
9.39
3.0830
8.22
1996
2517
10.25
3.4433
8.25
--cont’
project
year
Actual investment
number
proportion%
amount（billion
U.S. dollar）
proportion
%
1998
2238
11.3
3.8984
8.58
1999
2028
11.99
4.2159
10.46
2000
2609
11.67
4.3839
10.77
2001
2606
9.97
4.4332
9.46
2002
3363
9.84
5.4239
10.28
2003
4060
9.88
4.1985
7.85
2004
3925
8.99
3.9410
6.50
2005
3741
8.50
3.0612
5.07
2006
3208
7.73
3.0000
4.56
2007
2627
6.94
2.6262
3.50
--cont’
--cont’
--cont’




in recent five years, the number of projects invested
and actual investment of U.S. enterprise has
decreased gradually.
By the end of 2006,
52,211 U.S. Investment enterprises
actual accumulated investment reached $54 billion
8.78% and 7.87% share of total FDI
In 2007,those two proportions had decreased to 6.94
％ and 3.5％ respectively.
By the end of July, 2007，
accumulated project 53,754，
actual accumulated investment $55.42 billion
Table 10 industry distribution of U.S. investment in China
（2004-2006）
New set up corporate
industry
year
number
Actual investment
prop（％）
amount（million
prop（％）
U.S. dollar）
2004
agricultur
e
Manufactur
e , mining
and
extraction
service
2005
79
2.11
40
1.31
2006
62
1.93
27
0.95
2004
2669
68
2773
70.4
2005
2403
64.23
2287
74.70
1926
59.87
1965
58.58
2004
1150
29.3
1057
26.8
2005
1259
33.65
734
23.98
2006
1217
37.97
873
30.47
2006
---cont’


The basic aim is to
produce in China and sell in China
globalization strategy
In 2002 and 2003, the U.S. enterprise’s investment
in commerce, finance, insurance and real estate in
China has increased obviously
The characteristics of U.S. investment in China





――multinational companies are main
participants.
――purchasing from international market.
――production base in China, sold in China
market.
――pay attention to localization business.
――business performance is all right.
The performance of U.S. enterprise investment
in China


2004：
Investment Return rate :19.2%
(the IRR of its whole world was only 10.1% )
2005:
U.S. enterprises in China earned profit about
$3.0 billion
81% U.S. enterprise in China earned profit.
--cont’
（2）China’s invest to U.S.

China’s outward FDI is relatively small!
Table 11 China’s non-finance FDI to North America （20032006）
unit：million U.S. dollar.
year
flow
stock
2003
65.05
502.32
2004
119.93
665.20
2005
231.82
822.68
2006
198.34
1237.87
Source: www.fdi.gov.cn

By the end of Jun. 2007，China’s FDI to U.S. had only
$1.036 billion!
3. Exchange rate

Before exchange rate reform, i.e. July. 21, 2005, $1
= 8.2765yuan
Table 12 Chinese currency exchange rate （average value,
exchange U.S. dollar）
year
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
yuan/us dollar
1.5549
1.4984
1.7050
1.8925
1.9757
2.3270
2.9366
3.4528
3.7221
3.7221
3.7651
4.7832
5.3233
5.5146
year
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
yuan/us dollar
5.7620
8.6187
8.3510
8.3142
8.2898
8.2791
8.2783
8.2784
8.2770
8.2772
8.2770
8.2765
8.0759
7.8238
--cont’
Fig. 3
The reform of Chinese currency exchange rate

On July. 21,2005, China decided to reform its
exchange rate
――give up pegging US dollar and set consult a basket
of currencies.
――Chinese currency revalue 2%, from 8.2765 yuan/us
dollar to 8.11yuan /us dollar .
――Chinese currency exchange rate was decided by the
central rate set by a basket of currencies(fluctuation
0.3％)
Table 13 Chinese currency exchange rate change since reform
（2005.07.21 — 2008.04.14, selected date）
date
2005/7/21
Exchange rate(yuan /us dollar)
8.1100
2005/12/30
8.0702
2006/6/30
7.9956
2006/12/29
7.8087
2007/6/29
7.6155
2007/9/28
7.5108
2007/12/28
7.3046
2008/2/1
7.1903
2008/3/3
7.1058
2008/3/28
2008/04/14
7.0137
6.9996
--cont’ Fig.4
--Cont’


Since exchange rate reform, Chinese currency is
appreciating continually with a faster speed.
In theory, Chinese currency appreciate would
decrease adverse balance of US’ trade to China.
But in fact, this effect is very limited.
From Jul. 21, 2005 to Mar. 28, 2008,
8.11yuan/us dollar → 7.01yuan/us. Dollar,
appreciated accumulatively by 15.7％.
But, during this period , US’ adverse balance to
China has not decreased!
4. Finance field and capital market



China is gradually opening Finance field and capital
market.
More and more US’s finance institution go into China’s
capital market directly or indirectly by all ways.
More and more US’s enterprise are holding or controlling
the shares of listed companies in China through capital
market, or by making M&A.
-- 17 US’s finance and investment institutions obtained
the QFII.
-- 6 US’s investment companies held the shares of fund
management companies.
-- 25 US’s enterprise are holding or controlling the shares
of China’s enterprises.
Table 14
List of US’s QFII Companies in China
No.
Name of QFII (USA)
Date approved
Rations approved
(100 millions)
1
2
3
4
5
6
7
8
9
10
11
12
13
Morgan Stanley &Co. International Limited
Citigroup Global Markets Limited
Goldman, Sachs & Co.
J.P. MORGAN Chase Bank
Merrill Lynch International
Lehman Brothers International
Bill & Melinda Gates Foundation
INVESCO Asset Management Limited
Templeton Asset Management Ltd
Goldman Sachs Asset Management Intl.
JF Asset Management Limited
AIG Global Investment Corp.
AMP Capital Investors Limited
2003.06.05
2003.06.05
2003.07.04
2003.09.30
2004.04.30
2004.07.06
2004.07.19
2004.8.4
2004.9.14
2005.05.09
2005.12.28
2005.11.04
4.0
5.5
3.0
1.5
3.0
2.0
1.0
2.5
2006.4.10
2
14.
15
Yale University
2006.04.14
Morgan Stanley Investment Management 2006.07.07
Intl.
0.5
2.0
16
17
Stanford University
GE Asset Management Incorporated
0.5
2.0
2006.08.05
2006.08.05
2.0
1.5
0.5
Table 15 US’s enterprise are holding or controlling the shares of
China’s enterprises
US’s enterprise
The Blackstone Group
Synnex Group
Carlyle Asia Partners II
Prudential Ins. Co.
Anheuser-Busch Limited
Best Buy
China’s enterprises
中国蓝星集团
中国万网
扬州诚德钢管
深圳怡景中心城
唐山啤酒厂
江苏五星电器
Goldman Sachs Group
Pacific Alliance Group
中国工商银行
好孩子集团
2005
FedEx
Carlyle Group
大田快递
徐工机械
2004
Bank of America Corp
Monster
Morgan Stanley
中国建设银行
中华英才网
永乐家电
Amazon.com
Cendant Travel Group
Anheuser-Busch Limited
P&G
卓越有限公司
中青旅电子商务
哈尔滨啤酒集团
宝洁（中国）有限公司
Kodak
New Bridge Capital Ltd
Anheuser-Busch Limited
General Motors
Emerson Electric
乐凯胶片
深圳发展银行
青岛啤酒
上汽五菱汽车
安圣电气有限公司
20％
15%
20%
34％
100％
ＩＤＴ
新涛科技有限公司
Ford Motor
PPG
江铃汽车
南昌市化工原料厂
100％ CMOS
、
semiconductor
20％ auto
100％ Charcoal
year
2007
2006
2003
2002
2001
2000
Share(%)
20%
>50％
49%
50%
100%
51%
4.93%
67.5%
50%
45%
Industry
chemistry
network
Steel tube
Real estate
beer
Home
electronic
银行业
Child’s
goods
express
Expert equip.
8.19% bank
45% network
20% Home
electronic
100％ EC
40% Tour service
29.6％ beer
100％ consumable
chemistry
bank
beer
auto
communication
--cont’


In recent 5 years, more and more China’s
enterprises go to overseas for listing and financing.
By the end of 2007，
77 China’s enterprises had been listed in America ,
-- 19 companies listed in NYSE
-- 30 companies listed in NASDQ
-- Other 28 listed in OTC
--cont’

China has also held the second largest US’s
treasury bill.
By the end of 2007, China held $346.6 billion
US’s treasury bill(government bond).
It had 8.1% share of total US’s treasury bill
III. Relationship of China-US
Economy & Trade: Problems
1. Basic features







Larger complementary
Processing trade is main part of China-US trade
The volume of U.S. invested in China is more than
that of China invested in U.S.
China has become the center of world assembling,
“made in China” is also “made in world ”.
The degree of trade imbalances remains large.
In goods trade, China has trade surplus to US
In services and capital investment trade, China has
adverse trade balance to US.
Trade surplus is in China, while profits is in US.
For example:
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The report published by three researchers in UC showed
Apple Company sold iPod at $299 each one. Its cost and
profit were as following:
Sell price:
$299
Cost:
purchased main parts $73 (from Japan )
purchased other parts $60 (from other country)
assemble
$3 (in China !)
Profit:
$163 (in US)
Apple Company gained $80
Other
$83
2. The problems of China-US Economy & Trade
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larger balance of trade, i.e. trade imbalances!
Chinese currency exchange rate: marketization
China’s intellectual property rights (IPR)
China’s safety of product
China’s capital market: further opening
US: trade problem is being politicized
US’s export controlling over China
US’s protectionist policy on trade
四、Prospect and Suggestions
1. Prospect
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a. Complex and uncertainty
b. Chinese currency (Renminbi) will continue to appreciate
c. Trade friction and disputed will still increase.
d. Energy resources and environment protection will become
new topics
e. Trade balance (trade imbalances) of China-US will reduce
gradually
f. China’s finance ,service and infrastructure industry will open
further to world.
g. China’s reform and opening has its irreversibility！
h. China and US economy will be face up long-term structural
challenges.
2. Suggestions
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China is the world’s third largest trading nation.
With the largest population with over 1.3 billion
people and one of the world’s fastest growing
economies
China has the largest potential and realistic market
U.S. is the second largest trade partner of China and
the second largest export market of China .
China is the fourth largest trade partner of U.S.
--cont’
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The relationship of China-US economy and
trade is and should be mutual beneficial and
reciprocal relation in nature!
From the view of Game theory,
If cooperate , then both will obtain the benefits;
If not cooperate, then both will lose!
U.S. should
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a. Adjust and control excess import.
b. Implement export free, cancel export restrict
ions to China.
c. Adjust trade policy and system, improve
outdated national trade act. Further liberalize
trade .
d. Enlarge opening of industry and tech.
market to other countries
e. Not politicize the trade problems
China should
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Continue to adjust economic structure.
Continue to deepen reform
Reform and adjust national policy and system about
distribution
Change the relationship of consumption, investment and
saving. Decrease saving rate.
Further Enlarge import.
Control export，adjust and change export policy.
Make Renminbi exchange rate more marketable
Further reform the financial system.
Enhance protecting for IPR.
Cancel some government subsidy for export enterprise
Any Questions?
Thank You !
Contact Me
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