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Imports  Exports (2)
 

Imports Exports (2)

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    Imports  Exports (2) Imports Exports (2) Presentation Transcript

    • Imports & Exports
      • Since 1978 
      • role of exchange rate became more important 
      • more imports and exports needed
    • Imports & Exports
      • 1978 – 32nd
      • 1989 – 15th
      • 1997 – 10th
      • 2001 – 6th
      • 2008 – 2nd on exports; 3rd on imports
    • list of countries by imports
    • list of countries by exports
    • Case 1 – devaluation of RMB
      • If:
      • RMB ↓  exports ↑ (Chinese goods are cheaper)
      • But:
      • imports ↓ (need more money to buy  production costs raising)
      •  inflation ↑
    • Case 1 - devaluation
      • What‘s driving most of China‘s inflation is food.
      • food prices rose rapidly since 2006
      • May 2008 – 19,9%
      • April 2008 – 50% (meat)
      •  political sensitive problem
    • inflationary pressure 2006-2008
    • Case 1 - devaluation
      • inflation  shock on goods made in China and sold in the international market
      •  more expensive to make products (locally and for overseas markets)
      •  Newest Chinese Export — Inflation?
      • (more expensive goods would be sold around the world)
    • Case 2 – What will be the consequences for trade of a revaluation?
      • if:
      • RMB ↑  exports ↓  imports ↑
      •  inflation↓
    • Case 2 - revaluation
      • effect on the flow of trade
      •  lead to an increase in the prices of Chinese exports
      • effect: make them less competitive
      • hope that this would lead to a drop in imports from China and renewed competitiveness for US producers
              • not as simple as that
    • Case 2 - revaluation
      • 1.
      • China imports =
      • components and raw materials that are processed as final products  exported to rest of the world (40% of China‘s total imports)
      • revaluation  cheaper to import into China
      •  effect on export prices will be lower than the amount of revaluation
    • Case 2 - revaluation
      • 2.
      • import prices ↓  demand for imported goods ↑
      • Opportunity for companies selling into Chinese market
      • goods rely on imported components that will become cheaper
      • prices ↓
    • Investments (FDI)
      • RMB ↓  exports ↑  FDI ↑
      • Since 1978 - FDI in China has grown rapidly
      • 1980ies – 1990ies:
      • FDI inflow to China: US$ 1.5 billion a year to more than US$ 40 billion a year in 1999.
      • During same period - actual use of FDI grows from about US$ 0.5 billion to more than US$ 40 billion a year.
      • further surge in FDI preceded China's accession to the World Trade Organisation (WTO) in December 2001.
      • by the end of 2003 China had accumulated more than 500 billion US in FDI.
    • FDI in China
      • joint ventures
      • cooperative enterprises
      • solely foreign-owned enterprises
      • Sources of FDI:
      • East Asia – Hong Kong/Macau
      • Distribution of FDI:
      • more than 80% Greenfield investments
      • (most of them in manufacturing industry)
    • FDI policies
      • compulsory FDI policy
      • neutral FDI policy
      • (refunding of VAT for export)
      • voluntary FDI policy
      • (tax preference, trade facilitation)
      •  played important role in improving level of exports
    • FDI in China
      • promote new industries:
      • new high-tech industries
      • advanced manufacturing
      • energy conservation
      • environmentally friendly sectors
    • Fluctuations of the RMB exchange rate
      • labour productivity
      • total factor productivity
      • institutional factors
    • GDP growth rate
    • Labor Productivity
      • Increase due to rapid urbanization
      • Urbanization has also upgraded China‘s industrial structure and technology
    • Total Factor Productivity
      • Increase due to significant improvements in incentive mechanisms and management
    • Institutional Factors
      • Implementation of reform and opening-up policies
      • Establishment of a market-oriented economy system
      • launch of a scientific development principle
      • - harmonious society
      • 4. Greater respect for the rule of law and intellectual property rights
      • 5. Promotion of energy conservation and environment protection.
    • Inflation since the 1990ies – to date
      • especially in:
      • 1994
      • 1997
      • 2005
      • 2006 – to date
    • 1994
      • Annual inflation rate 1979-1993 under 9%
      • In 1994: sudden surge in price  October 1994 record-setting 27,7%
      • Causes:
      • Nature of inflation was structural rather than monetary
      • Food price increased
      • Increase of rural industrial usage & bad weather
      • -> Output↓ -> Grain price↑
      • Depreciation of RMB
      • -> Prices of imported fertilizer and feed↑ -> Grain price↑
    • 1994
      • Policies:
      • Soft-landing policy
      • Suspend the price reform, mandate the state owned enterprises and food store to increase the supply and suppress the price
      • Credit plan and credit control
      • Control the market prices of goods items
      • Lower the economic growth rate
    • 1997 - Asian Financial Crisis
      • RMB pegged to US dollar at a ratio of 8.3 (1994)
      • Heavy speculation from the west, that China would be forced to devalue its currency to protect the competitiveness of its exports
      •  however: RMB‘s non-convertibility protected its value from currency speculators
      • Decision :
      • maintain the peg of the currency; improving the country‘s standing in Asia
    •  
    • 1997 - Asian Financial Crisis
      • convinced the Chinese government of the need to resolve the issues of its enormous financial weaknesses, such as:
      • too many non-performing loans
      • primitive and inefficient banking system
      • relying heavily on trade with the United States.
      • since 1999 inflation ↓
      •  reflecting tighter monetary policies and stronger measures to control food prices
    • 2005
      • The July 21st Currency Reform
      • PBOC revalued RMB by 2.1% against US dollar
      • RMB will be traded at a eate of 8.11. to US dollar
      • RMB to US dollar pegging system switched to a basket of foreign currencies
      • Inflation ↓ since 1997
      •  except in 2004: 3,9%
      •  2005: 1.8%
    • 2006 – to date
        • highest in the last decade;
        • mainly affecting food and housing;
        • more industries are now impacted; and
        • higher in rural areas than cities
      • Contributors:
      • international economy
      • imbalance between supply and demand
      • continuing increase in material costs
      • excess liquidity
    • Inflationary pressure 2006-2008
    • 2006 – to date
      • 1997 - 2006 inflation: below 2% a year
      • 2007 inflation: 4.8%
      • January - July 2008 inflation: 7.7%
      • (highest point in February – 8,7%)