Transcript Walking Along Two Worlds: A Reconsideration of China`s Dynamics

Walking Along Two Worlds:
A Reconsideration of China’s Dynamics to
Trade Growth
Xingmin Yin
School of Economics, Fudan
University
Shanghai, November 2009
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1. China and US Trade Profile
 Review of export and import over the past five
years shows there was slow growth of the US
exports and acceleration of export growth in
China.
 China’s merchandise exports to world ratio
increased to 8.76% in 2007; corresponding
ratio of the US is 8.37%.
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Trade Balance
USD Billion
2500
2000
1500
1000
500
0
2001
2002
US Exports
2003
US Imports
2004
2005
China Exports
2006
2007
China Imports
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 A generalized view on unbalanced
global trade.
 More debates on this issue due to
complete different stance today.
 China’s position in global pattern: a
triangular trade
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Different Pictures of China’s Trade Balance
SDR Billion
160
140
120
100
80
60
40
20
0
-20
-40
-60
1999 2000 2001 2002
China-Japan
China-ASEAN
2003
2004
China-Korea
2005
China-US
2006
2007
China-Europe
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 East Asia – China – The US and Europe.
 Who are major beneficiaries of this
triangular trade?
 More factors to ……
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 An increase of China’s trade surplus to
the US and Europe;
 China has been running trade deficit
with Japan, Korea and ASEAN.
 To discuss China’s market concentration
in export and import sectors……
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 Why does China’s trade growth rate so
high?
 How to give explanations to China’s
trade dynamics?
 Can it be sustainable?
 A new question is raised for substantial
surplus in East Asia on global economy.
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2. A Burned Child Fears Fire
 East Asia accounts for half the global
surplus. There are multiple reasons why
East Asia has accumulated vast reserves.
 Stockpile of foreign exchange reserves.
 What are the major functions of forex
reserves in world?
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Buildup of Forex Reserves
Billion SDR
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2001
G-6
2002
Japan
2003
Russia
2004
India
2005
Brazil
China
2006
2007
East Asia
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 The amount of forex reserves has been
accumulated much more than import
demand and played an unusual
counteract power to any external shocks.
 Legacy of Financial Crisis
 The case of Korea and India case……
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Sources of China’s Forex Reserves
Billion USD
500
450
400
350
300
250
200
150
100
50
0
2000
2001
2002
Increase of FX
2003
2004
Trade Surplus
2005
2006
2007
FDI Inflows
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Discussion
 Trade surplus;
 FDI inflows;
 So-called “hot money”.
 At end-March 2008, China’s reserves
hit $1.66 trillion; more than double
that of 2006.
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East Asia as Burned Child: True!
 The buildup of foreign exchange
reserves ma represent “precautionary”
holdings in East Asian countries.
 It is urgent to change the international
financial architecture in order to protect
the financial interests of emerging
economies.
 New question is whether large reserve
stockpile can cause the pressure on
currency appreciation.
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3. Currency Appreciation:
A Panacea for Trade Imbalance?
 Comments on “An increase of 40 per
cent in the RMB and other Asian
currencies against the dollar would
reduce the US global current account
deficit by about $150 billion per year.”
 The consequences of RMB appreciation
on both Chinese and US economies……
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 RMB appreciation over the past three
years;
 Effects of RMB appreciation on trade;
 Industry development from 2001
onwards. The case of machinery and
electronic goods……
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Trade Growth of Machinery
and Electronic Goods
USD Billion
500
400
300
200
100
0
2001
2002
2003
Imports
2004
2005
2006
Exports
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 The export share of machinery and
electronic goods from 40 per cent in
2001 to 50 per cent in 2006.
 The share of textile and apparel goods
decreased from 21 per cent to 15 per
cent.
 China’s industry is moving up the value
chain……
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4. China’s Dynamics to Global Trade
A. Growth power for global economy;
 It is forecasted that the amount of
China’s GDP will be as high as RMB 100
trillion at around 2020; thus more
demand will be expanded……
2. Market for emerging economies……
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Growth of Imports
USD Billion
200
150
100
50
0
2001
2002
Primary
2003
Chemicals
2004
LTRMM
2005
2006
Miscellaneous
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A Tale of Two Worlds
 Different growth rates for developed and
developing countries;
 Different picture for China and the US
developments in economy and trade.
 What are our suggestions for two worlds?
Any economic growth should be based
on productivity instead of bubble……
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 It is unlikely to change Chinese
savings behavior; The contribution of
China’s investments to a more stable
world economy.
 More investments will increase
China’s imports from many countries;
 More changes are under way……
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5. Conclusions
 The contribution of trade to economy has been
enlarged;
 The impact of global production chain on
export destination has a major factor for
unbalanced trade;
 The stockpile of forex reserves was a selfprotection strategy;
 RMB appreciation has an insignificant role to
reduce US deficit;
 The size of Chinese market may be beyond any
expectations.
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Thanks!
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