galbraith china hot money slides

8/14/2019 Galbraith China Hot Money Slides

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This is my wifes uncle. He was America desk officer for Zhou En-Lai in 1971.


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A Puzzle: Rising Chinese Unit Export Values


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Table One: Export Unit Value (In US Dollars)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Export UnitValue (Our

Calculations) 0.51 0.47 0.47 0.46 0.46 0.45 0.46 0.56 0.66 0.79 1.00Export Unit

Value (OfficialStatistics) 0.05 0.06 0.07 0.08 0.10 0.08 0.60 0.70 0.76 N/A N/AManufacturing

Export UnitValue (Our

Calculations) 0.40 0.38 0.39 0.39 0.39 0.38 0.40 0.49 0.59 0.72 0.97


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Table Two: Export Volumes and Total Exports Attributable to Volume Gain

(in Billions of Current US Dollars)

Exports of Goods and

Services

Exports of Goods andServices at

Unchanged UnitValues Difference 1

2002 365.4 365.4 02003 485.0 398.4 86.62004 655.8 457.1 198.7

2005 836.9 490.2 346.72006 981.0 452.4 528.6

Source: World Bank WDI and authors calculations


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Table Five: Sector Unit Value Representation in Total Dollar Value per Exported Unit, by SITCCode

(in US Dollars)

Totaltrade

0Foodandliveanimals

2Crudematerials,inedible,exceptfuels

3Mineralfuels,lubricantsandrelatedmaterials

4Animalandvegetableoils, fatsandwaxes

5Chemicalsandrelatedproducts,n.e.s.

6Manufacturedgoods

7Machineryandtransportequipment

8 Miscellaneousmanufacturedarticles

1994 0.51 0.04 0.02 0.02 0.00 0.03 0.10 0.09 0.211995 0.52 0.04 0.02 0.02 0.00 0.03 0.11 0.11 0.19

1996 0.51 0.03 0.01 0.02 0.00 0.03 0.10 0.12 0.191997 0.47 0.03 0.01 0.02 0.00 0.03 0.09 0.11 0.181998 0.47 0.03 0.01 0.01 0.00 0.03 0.08 0.13 0.181999 0.46 0.02 0.01 0.01 0.00 0.02 0.08 0.14 0.17

000 0.46 0.02 0.01 0.01 0.00 0.02 0.08 0.15 0.16001 0.45 0.02 0.01 0.01 0.00 0.02 0.07 0.16 0.15002 0.46 0.02 0.01 0.01 0.00 0.02 0.08 0.18 0.14003 0.56 0.02 0.01 0.01 0.00 0.03 0.09 0.24 0.16004 0.66 0.02 0.01 0.02 0.00 0.03 0.11 0.30 0.18

Source: OECD Data and authors calculations


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Table Fourteen: Change in Unit Value, Year on Year, by Sector(in Percentages)

Totaltrade

0Foodandlive

animals

2Crudematerials,inedible,exceptfuels

3Mineralfuels,lubricantsandrelatedmaterials

4Animalandvegetableoils, fatsandwaxes

5Chemicalsandrelatedproducts,n.e.s.

6Manufacturedgoods

7Machineryandtransportequipment

8Miscellaneousmanufacturedarticles

1995 3% -17% -11% 10% -23% 22% 17% 20% -8%1996 -3% -2% -12% 6% -21% -7% -16% 7% -1%1997 -7% -17% -20% -10% 32% -12% -7% -5% -4%1998 1% -4% -16% -26% -52% 1% -5% 15% 0%1999 -2% -9% 2% -17% -61% -8% -6% 8% -5%2000 0% -8% -11% 32% -31% -9% 0% 10% -7%2001 -3% -5% -15% -2% -13% 1% -6% 5% -8%

2002 3% -4% -12% -16% -26% -4% 1% 12% -3%2003 21% 8% 3% 18% 6% 15% 17% 33% 12%2004 18% -6% 2% 14% 12% 18% 28% 25% 9%


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Table Fifteen: Export Unit Values of ASEAN Countries 1 (in US Dollars)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005Indonesia 109 104 81 65 100 90 96 103 120 81

Philippines 146 134 105 121 100 84 77 79 77 N/ASingapore 120 112 97 96 100 93 91 90 93 96Thailand 127 122 107 102 100 102 97 105 118 130

Source: UN Comtrade Yearbook 2005


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Is it Price Increases?


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Table Sixteen: U.S Import Price Indices (from World 1) by Commodity Category

Foodand

liveanimals

Beverages

andtobacco

Crudematerials,inedible,

exceptfuels

Mineralfuels,lubricantsand

relatedmaterials

Chemicalsandrelated

products,n.e.s.

Manu-

facturedgoods

Machineryand

transportequipment

Misc.manu-

facturedarticles

Com-moditiesandtran-

sactions,n.e.s.

1991 96 86 82 63 96 91 105 981992 93 87 86 60 97 90 106 100 1221993 95 87 91 48 96 90 108 101 1361994 111 88 102 56 104 98 110 102 1371995 105 91 111 59 106 104 112 104 1381996 103 93 106 80 105 98 110 103 133

1997 108 97 103 61 101 99 105 103 1101998 103 98 92 38 97 94 102 101 1051999 103 100 101 83 98 97 100 101 1042000 100 101 97 106 101 100 99 100 952001 95 103 90 61 97 92 98 99 992002 99 103 95 95 98 94 96 99 1142003 101 104 108 108 101 98 95 100 1392004 112 107 126 141 110 110 95 101 157

2005 117 109 134 202 115 114 94 101 171 Source: BLS Data 2


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Table Eighteen: Japanese Imports from World, Unit Price Index on Yen Basis,

(2000 average=100)

Allcom-modities

Foodstuffs&feedstuffs Textiles

Metals&relatedproducts

Wood,lumber&relatedproducts

Petroleum,coal &natural gas

Chemicals& relatedproducts

Machinery&equipment

Othergoods

991 118 122 116 125 110 99 103 143 116992 111 120 110 114 115 88 94 139 110993 100 109 98 93 141 73 90 125 100994 94 107 99 95 125 62 95 117 97995 94 106 98 100 117 63 104 110 100996 103 119 106 102 131 80 102 115 107997 111 123 113 112 133 92 111 119 113998 105 123 118 108 111 73 108 122 117999 96 108 107 94 107 71 98 108 105000 100 100 100 100 100 100 100 100 100001 102 110 103 101 104 107 105 97 106002 101 113 103 100 107 105 105 93 107003 100 116 100 102 104 112 110 85 103004 104 124 99 125 111 124 115 80 104005 118 127 100 153 113 172 124 78 109006 137 135 105 216 132 216 139 81 120

Source: Statistics Bureau, Ministry of Internal Affairs, Japan and authors calculations 1


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Table Seventeen: EU15 Unit Price Index (2000 = 100), Imports from China (excl HK)

Source: Eurostat Online and authors calculations 1

Foodandliveanimals

chieflyforfood

Beverages andtobacco

Crudematerials,

inedibleexceptfuels

Mineralfuels,lubricants

andrelatedmaterials

Animalandvegetable

oils, fatsandwaxes

Chemicals and

relatedproducts,n.e.s.

Manu-facturedgoods

Machinery

andtransportequipment

Misc.

manu-facturedarticles

Total -Allproducts

1995 88 67 81 87 82 99 87 92 77 831996 92 75 85 96 99 101 89 92 81 861997 97 94 93 103 119 103 95 95 89 931998 96 97 94 102 125 98 92 91 88 901999 96 96 90 92 105 94 89 90 88 89

2000 100 100 100 100 100 100 100 100 100 1002001 100 100 103 127 98 99 101 100 99 1002002 98 92 91 112 83 91 94 97 93 952003 87 83 84 127 78 82 84 88 82 852004 82 75 90 261 84 78 83 88 78 842005 85 75 97 217 94 82 85 88 79 842006 94 77 97 187 90 83 89 89 85 88


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Table Three: ASEAN Share in World Exports 1

(Percentages)1998 1999 2000 2001 2002 2003 2004 2005

ASEAN Sharein WorldExports 4.8% 5.1% 5.6% 5.2% 5.2% 4.0% 5.4% 5.4%

Source: UNCTAD Statistics Database


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Is it the Processing Trade?


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Table Four: Import Unit Values (into China)(in USD)

1996 1997 1998 1999 2000 2001 2002 2003 2004Import Unit Values 0.47 0.38 0.38 0.36 0.36 0.38 0.38 0.43 0.45

ManufacturingImport Unit Values 0.74 0.52 0.54 0.47 0.43 0.52 0.55 0.59 0.61



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Is it a Rising Wage Bill?


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Table Six: Wage to Output Ratio(in Percentages)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

13% 12% 11% 11% 11% 11% 11% 11% 11% 11% 11%

Source: China Data Center and authors calculations


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Is it Quality Improvement?


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Table Twenty-Two: Top Twenty Subcategories (within SITC 6 through 8) for Change in Share due toValue Change 1

SITC 6 through 8, 3-digit level categoryChange in Share due to Value Change,2002-4

752 Automatic data processing machines, n.e.s. 11%764 Telecommunication equipment, n.e.s.; &parts, n.e.s. 8%759 Parts, accessories for machines of groups751, 752 5%845 Articles of apparel, of textile fabrics, n.e.s. 3%894 Baby carriages, toys, games & sporting goods 3%776 Cathode valves & tubes; diodes; integratedcircuits 3%

763 Sound recorders or reproducers; televisionrecord. 3%851 Footwear 3%778 Electrical machinery & apparatus, n.e.s. 3%842 Women's clothing, of textile fabrics 2%821 Furniture & parts; bedding & similar stuffedfurni. 2%841 Men's clothing of textile fabrics, not knitted 2%893 Articles, n.e.s., of plastics 2%772 Apparatus for electrical circuits; board,panels 2%658 Made-up articles, of textile materials, n.e.s. 1%

699 Manufactures of base metal, n.e.s. 1%848 Articles of apparel, clothing access.,excluding textile 1%653 Fabrics, woven, of man-made fabrics 1%871 Optical instruments & apparatus, n.e.s. 1%771 Electric power machinery, and parts thereof 1%


1 To c alculate this, we look at the cha nge in the unit value, relat ive to the a verage ,rom 2002-4 relative to the o riginal p erce nta ge of to tal va lue in 2002. This ga ve us a

pe rce ntag e tha t presents the unit-value c hang e c om po nent o f the shif t in share

ow ard the sec tor.


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Well, maybe its capital inflow, channeledthrough the current account to evade capitalcontrol, facilitated by the legalization of dollaraccounts held by Chinese firms in China atthe end of 2002 and incentivized by interestdifferentials and expectations of an RMBappreciation. Could that be it?


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Table Eleven: RMB Less Dollar Yields

1998 1999 2000 2001 2002 2003 2004 2005 2006

vg 3-monthhineseepo less US

reasury 1.96 -1.17 -3.4 -0.83 0.54 1.59 1.35 -1.44 -2.41vg 3-monthHIBOR

ess USDIBOR 2.23 0.95 -2.46 0.03 1.6 1.66 1.71 -0.77 -2.57

Source: CEIC, US Treasury Statistics, British Bankers Association


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Table Twelve: Non-Deliverable Forward Premium

(Percentage of Spot)

Source: Ma and McCauley (2007, p. 16)


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Table Thirteen: Foreign Exchange Transactions within China

(in 100 Million Units)

OverallTurnover(in USD)

USDTradingVolume

HKDTradingVolume

JPYTradingVolume

EUROTradingVolume

2001 750.3 741.3 30.6 613.9 N/A2002 971.9 951.1 108.8 730.8 1.12003 1511.3 1478.2 186.3 761.6 3.02004 2090.4 2044.1 244.9 1349.6 1.9

Source: Peoples Bank of China


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If so, how big are the disguised inflows and whatdifference would they make to the trade balance?


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Table Ten: Effect of estimated capital inflows disguised as current account on Balance of Trade(in Current billions of US Dollars)

Exports of Goods andServices

Exports of

Goods andServices atConstant

Unit Values

Difference(Max HotMoney

Inflows)

Imports of Goods andServices

Balance of Trade

Balance of Trade

Adjustedfor

Minimum

Value(30%) of Hot Money

Inflows

Balance of Trade

Adjustedfor

MaximumValue

(100%) of Hot MoneyInflows

1998 207 207 0 164 44 44 44

1999 221 221 0 190, 31 31 31

2000 280 280 0 251 29 29 292001 299 299 0 271 28 28 28

2002 365 365 0 328 37 37 37

2003 485 398 87 449 36 10 -51

2004 656 457 199 607 49 -10 -149

2005 837 490 347 712 125 21 -2222006 981 452 529 878 103 -55 -425

Source: WDI and authors calculations


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Finally, where did they go?


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Table Seven: Gross Capital Formation

(In Current US Dollars or Percentages where indicated)

GDP (billionsof current US$)

Gross capitalformation(billions of current US$)

Percentagechange ingross capitalformation

Percentage

change ingross capitalformationadjusted formin hotmoney inflows

Percentage

change ingross capitalformationadjusted formax hotmoney inflows

1996 856.1 346.2

1997 952.7 361.5 4% 4% 4%1998 1,019.5 378.2 5% 5% 5%1999 1,083.3 398.0 5% 5% 5%2000 1,198.5 420.9 6% 6% 6%2001 1,324.8 480.5 14% 14% 14%2002 1,453.8 550.5 15% 15% 15%

2003 1,641.0 676.1 23% 18% 7%2004 1,931.7 835.7 24% 19% 8%2005 2,243.9 971.0 16% 12% -2%2006 2,668.1 1,085.8 12% 7% -11%

Source: WDI and authors calculations


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Table Eight: Beijing Real Estate Statistics

(in Million Yuan)

Real Estate IndustryOperating Income

Real Estate IndustryTotal Profits

Investment inOffice Buildings

CommercialBuildings Sold

2000 -1862 -1303 4521.9 424.842001 -1046 -215.3 7199.3 1245.8

2002 -1026 -587.1 9732.6 2595.32003 895.9 1743.3 14275 5177.92004 8661.1 10701 18789 5883.42005 6184.4 8131 19617 120852006 11053 14959 21674 16256

Source: CEIC


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