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Walking Along Two Worlds:A Reconsideration of China’s Dynamics to Trade Growth

Xingmin YinSchool 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

0

500

1000

1500

2000

2500

2001 2002 2003 2004 2005 2006 2007

US Exports US I mports Chi na Exports Chi na I mports

USD Billion

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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

-60-40-20

020406080

100120140160

1999 2000 2001 2002 2003 2004 2005 2006 2007

Chi na- J apan Chi na-ASEAN Chi na-Korea Chi na-US Chi na-Europe

SDR Billion

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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

0200400600800

100012001400160018002000

2001 2002 2003 2004 2005 2006 2007

G-6 J apan Russi a I ndi a Brazi l Chi na East Asi a

Billion SDR

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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

050

100150200250300350400450500

2000 2001 2002 2003 2004 2005 2006 2007

Increase of FX Trade Surpl us FDI Infl ows

Billion USD

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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

0

100

200

300

400

500

2001 2002 2003 2004 2005 2006

I mports Exports

USD Billion

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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

0

50

100

150

200

2001 2002 2003 2004 2005 2006

Pri mary Chemi cal s LTRMM Mi scel l aneous

USD Billion

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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 self-protection 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!