Transcript Clappers- US China Trade

U.S. – China Trade
With: The Clappers
Jared Baker
Rob Gillis
John Pinegar
Dean Thompson
Josh Tomsik
China’s Recent Economic
History
Mao Zedong
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Marxist
War & Revolution
Great Leap Forward
Cultural Revolution
Died 1976
具有中国特色的社会主义
Socialism with Chinese
Characteristics
• Farm Privatization
• Special Economic Zones (SEZ)
– Shenzhen
– Shanghai
• Joined WTO
Special Economic Zones
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Special tax incentives for foreign investments
in the SEZs
Greater independence on international trade
activities
Economic characteristics are represented as "4
principles":
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Constructions primarily relies on attracting and utilizing
foreign capitals
Primary economic forms are sino-foreign joint ventures and
partnerships as well as wholly foreign-owned enterprises
Products are primarily export-oriented
Economic activities are primarily driven by market
“Diplomatic Exchanges”
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“Shanghai Communique”
1972 – President Nixon visits
China to sign the initial pact
1973 – Established liason offices
in Beijing & Washington D.C.
1975 – President Ford visits
Beijing to “reaffirm…U.S.
interest”
1977 – President Carter also
commits to the 1972 agreement
January 1, 1979 – official
diplomatic relations established
– normalization
March 1, 1979 – Embassies
established in both countries
After “Normalization”
• 1979 & 1980 – agreements
reached on maritime, civil
aviation, & textiles
• 1980’s – multiple state visits by
both parties led to cooperation
in “scientific,
technological…cultural and trade
relations”
• 1989 – Tiananmen Square –
Economic sanctions issued by
U.S. in response to these events
U.S. Economic Approach to China
1) The United States seeks to fully integrate China into the global, rulesbased economic and trading system
- China's participation in the global economy will nurture the process
of economic reform
- Encourage China to take on responsibilities commensurate with its
growing influence
- China's stake in the stability and prosperity of East Asia.
2) The United States seeks to expand U.S. exporters' and investors' access
to the Chinese market
- As China grows and develops, its need for imported goods and
services will grown even more rapidly
- Will continue to work with China’s leadership to ensure full and
timely conformity with China’s WTO commitments
- Encourage China to move to a flexible, market-based exchange rate
in order to further increase U.S. exports of goods, agricultural
products and services
Source: U.S. State Department (www.state.gov)
The United States seeks to fully integrate China into the
global, rules-based economic and trading system
3 Examples:
1) Encourage responsibilities commensurate with its growing influence
- Intellectual Property Rights – Hu Jintao visited MSFT in April 2006
- in 2004, China had a reported 90% software
piracy rate*
2) China's stake in the stability and prosperity of East Asia
- China & U.S. role in the North Korean nuclear talks
- Multilateral talks to discourage nuclear proliferation
3) China's participation in the global economy will nurture
the process of economic reform
- Secretary Paulson recent visit to China (9/06)
- meeting to encourage further
economic reform
* Source: Business Software Alliance (www.netadvantage.standardandpoors.com)
The United States seeks to expand U.S. exporters' and
investors' access to the Chinese market
Investors Access to China
- U.S. companies have established more than
20,000 equity & contractual joint ventures, and
wholly owned enterprises
- 100+ U.S. multinational firms have business
in China
- $54 Billion cumulative U.S. investment in China
- 2nd largest
- $3 billion (2005) in foreign direct investment
- 5th largest –behind Hong Kong, Japan, S. Korea
and Virgin Islands
U.S. Exports to China
- $285 billion in two way trade in 2005
- $33 billion in 1992 (763% increase)
- 20% growth rate in U.S. exports to China
- U.S. is China’s largest trading partner
- China is U.S.’s 3rd largest trading partner
(behind Canada & Mexico)
Sources: U.S. State Dept. (www.state.gov) and U.S. China Business Council (www.uschina.org)
The United States seeks to expand U.S. exporters' and
investors' access to the Chinese market
WTO Commitments:
- Officially joined WTO in December 2001
- Agreed to lower tariffs and abolish market impediments
- U.S. agricultural import tariffs dropped from 31% to 14%
- U.S. industrial import tariffs dropped from 25% to 9%
- Opened opportunities to banking, telecommunications &
insurance
“While accession does not guarantee smaller trade deficits, full
implementation of all WTO commitments would further open China’s
markets to--and help level the playing field for--U.S. exports.”
- China is the 4th largest importer of U.S. agricultural goods
April 11, 2006 – Joint Commission on Commerce & Trade
- Addressed U.S. concerns regarding trade with China
- Lack of transparency in regulatory process causes trepidation
amongst U.S. investors
- Concerns still existed regarding strict testing and standards
requirements
Video: Walmart/U.S Trade and China
Current Trade Situation and
U.S. Deficit
Walmart 2004
• Walmart Claimed $15 B in Chinese imports (Total
U.S. Deficit $162 B)
• Other estimates higher $20+ or $30+ B
2005 Trade Situation
China
• Total exports 752.2 B
• To US 21.4%
• Imports 631 B
• From US 7.4%
United States
• Total Exports 927 B
• To China 4.6%
• Total Imports 1.727 T
• From China 15%
*Trade Data from CIA factbook; Walmart Data from “Is Walmart Good for America”
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Billions
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Deficit with China (Billions)
250
20 0
15 0
10 0
50
0
China deficit % of U.S. Total
800
700
600
500
400
300
200
100
0
*Data from http://www.census.gov
U.S.
China
* Graphs from St. Louis Fed’s International Economic Trends publications
New Records - August 2006
• Record one month total deficit - $69.86 B
• Record one months deficit with China $21.96 B
• 3 times the trade gap
with Japan
*From the Wall Street Journal
What are we trading?
Top 12 2005 Imports (millions)
Top 12 2005 Exports (millions)
Computer accessories, peripherals and parts
25,742
Civilian aircraft
3,837
Other (clocks, port typewriters, oth household
gds
22,646
Semiconductors
3,361
Toys, shooting and sporting goods, and bicycles
20,158
Soybeans
2,253
Computers
14,446
Plastic materials
1,831
Apparel and household goods-other textiles
13,112
Industrial machines, other
1,531
Furniture, household items, baskets
11,548
Steelmaking materials
1,466
Television receivers, vcr's & other video equip.
10,779
Computer accessories
1,426
Footwear of leather, rubber, or other materials
9,628
Cotton, raw
1,399
Apparel and household goods-cotton
7,607
Chemicals-organic
1,365
Household and kitchen appliances
7,082
Measuring, testing, control instruments
1,072
Radios, phonographs, tape decks, and other
stereo
7,081
Pulpwood and woodpulp
1,023
Telecommunications equipment
7,022
Telecommunications equipment
1,001
*Data from http://www.census.gov
Trade and Currency
Regulations
Import Regulations
• China
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Since joining WTO, China has made
efforts to reduce administrative barriers
to trade. Mostly tariffs and exchange
rate adjustments
Categories of commodities subject to
licensing controls reduced to 3 from 8
Average Tariff rate 9.9% in 2006 vs.
15.3% in 2001
In 2000 import taxes cut by as much
as 2%. Import taxes imposed on
certain types of goods, mostly textile
and raw material sectors
Gradual abolishment of state monopoly
of foreign trade
Introduction of tariff-free and VATexemption imports for capital
equipment for projects within the hitech and priority sectors
WTO bars quotas, China has been
gradually eliminating them.
• United States
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No foreign exchange controls over
payments for imports
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Imports to US often subject to duties,
but import licenses are generally not
required
Usually ad valorem or specific import
duties. Regular rates on imports from
locations enjoying normal trade
relations of formerly most-favored
nation status, including Hong Kong and
the Chinese mainland.
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Chinese Securities Market
• 1970’s- Chinese Securities market begins development
• 1984- 1st joint stock company in China is founded (Beijing Tiangiao
Department Store Co. Ltd.)
• 1990- Shanghai and Shenzhen stock exchanges established with
Shenzen Shekov Anda Ind Co Ltd. the first listed company
• 1992- International investors allowed to invest in B-shares
• 2002- Qualified Foreign Institutional Investors (QFII) allowed to
invest in A-shares
• 2006- Largest IPO, ICBC raises $19bb, lists on both Hong Kong and
mainland exchanges to attract domestic and intl. investment
• Regulated by Chinese Securities Regulatory Commission (CSRC),
China’s equivalent of SEC
Chinese Securities Market
Chinese Markets
No. of domestic listed
companies (A,B)
No. of B share
companies
Total Shares Issued
(100 million shares)
Tradable Shares (100
million shares)
Total Stock Mkt Cap
(RNB 100 million yuan)
Mkt Cap (millions US
dollars)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
53
183
291
323
530
745
851
949
1088
1160
1224
1287
1377
1381
18
41
58
70
85
101
106
108
114
112
111
111
110
109
68.87
387.73
684.45
848.42
1219.54
1942.67
2526.79
3088.95
3791.71
5218.01
5875.45
6428.46
7149.43
7629.51
21.18
107.88
226.04
301.46
429.85
671.44
861.94
1079.65
1354.26
1813.17
2036.9
2269.92
2577.18
2914.77
1048.13
3531.01
3690.61
3474.28
133.18
448.67
468.95
441.46
NYSE
No. companies
No. US companies
No. non-US companies
Total Mkt Cap (billions
US dollars)
2006
2019
1655
364
19257
9842.38 17529.24 19505.64 26471.17 48090.94
43522.2 38329.12 42457.72 37055.57 32430.28
1250.62
5530.14
2227.35
2478.48
3363.55
6110.67
4870.28
5394.88
4708.46
4120.75
Trade Regulations
• The most comprehensive guide to Chinese Customs
regulations is The Practical Handbook on Import &
Export Tax of the Customs of the PRC, compiled by the
General Customs Administration. This guide contains the
tariff schedule and national customs rules and
regulations.
It may be obtained for 220 RMB plus shipping and
handling from:
Xing Sheng Zhong Hai Fa Xing Zhong Xing Company.
#6 JianNei DaJie
Dong Cheng Qu, Beijing 100730.
Phone: (8610) 6519-5923 Fax: (8610) 6519-5616.
Currency
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Official Currency Renminbi
Means People’s Currency
Also know as Yuan and Kuai
Official Abbreviation CNY
Also abbreviated RMB
Renminbi
• 1 Yuan = 10 Jiao =
100 Fen
• Yuan = Kuai
• Jiao = Mao
• Notes
• Coins
– Yuan 100, 50, 20 , 10,
5, 2 and 1
– Jiao 5, 2, and 1
– Fen 5, 2, and 1
– Yuan 1
– Jiao 5, 2, and 1
– Fen 5, 2, and 1
History
• Renminbi first issued shortly before takeover of
mainland China by Communists in 1949
• 1st task was to end hyperinflation
• 1978 dual track currency: RMB usable only
domestically, foreigners forced to use foreign
exchange certificates.
• Strong black market in currency transactions
• In 1980s and early 1990s swap centers brought
the exchange rates to realistic levels abolishing
the dual track
US $/RMB exchange rate
• From 1994 to July 2005, policy was to peg
the value of the renminbi to the US $.
• Policy was praised during the Asian
financial crisis of 1998 as it prevented a
round of competitive devaluations.
• In 2003, came under criticism by the US
as the value of the dollar fell.
Currency
• Pegged to the US $ at 8.28 during the
previous decade
• July 21, 2005, removed from the peg to
the US $
• Subsequently revalued to 8.11 per US $
Revaluation
• Resulted from pressure from US and World
Economic Council
• RMB would be pegged to a basket of foreign
currencies and would trade within a 0.3% band
against this basket of currencies.
• Dominated by US $, euro, Japanese yen and
South Korean won
• Smaller proportion of British pound, Thai baht
and Russian ruble.
Exchange Rate Jan 2000-Present
RMB/US$
DATE
RATE
3-Jan-00
8.28
31-Jul-00
8.28
2-Jan-01
8.28
31-Jul-01
8.28
2-Jan-02
8.28
31-Jul-02
8.28
2-Jan-03
8.28
31-Jul-03
8.28
2-Jan-04
8.28
30-Jul-04
8.28
3-Jan-05
8.28
29-Jul-05
8.11
3-Jan-06
8.07
31-Jul-06
7.97
2-Nov-06
7.87
Revaluation
• Revalued by 2%
• Another 3% since
• September 2006 G7 urged China to let its
currency rise faster
– Imbalances in trade and capital flows pose
one of the biggest risks to global growth
– China claimed that it would slowly increase
the band the Yuan trades in
Consequences of revaluation or
floating RMB
• US economy
– Chinese buy less US securities
– Demand down, prices down, interest up
– Hamper US economy
• China
– Fewer exports
• The purchase of US bonds (briefly touch
on this and mention that Prof. Bryson will
further address it.)
Currency Regulations
• Foreign currency cannot be circulated within
China or used to determine the price and settle
accounts
• You have to show your currency exchange
receipts when you change RMB back to your
own currency when you depart
• No limit on the amount of foreign currency
brought in but it must be declared
• Cannot bring Renminbi into China
• Cannot take Renminbi out of China
Questions