Imports Exports (2)

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Imports Exports (2)

  1. 1. Imports & Exports <ul><li>Since 1978  </li></ul><ul><li>role of exchange rate became more important  </li></ul><ul><li>more imports and exports needed </li></ul>
  2. 2. Imports & Exports <ul><li>1978 – 32nd </li></ul><ul><li>1989 – 15th </li></ul><ul><li>1997 – 10th </li></ul><ul><li>2001 – 6th </li></ul><ul><li>2008 – 2nd on exports; 3rd on imports </li></ul>
  3. 3. list of countries by imports
  4. 4. list of countries by exports
  5. 5. Case 1 – devaluation of RMB <ul><li>If: </li></ul><ul><li>RMB ↓  exports ↑ (Chinese goods are cheaper) </li></ul><ul><li>But: </li></ul><ul><li>imports ↓ (need more money to buy  production costs raising) </li></ul><ul><li> inflation ↑ </li></ul>
  6. 6. Case 1 - devaluation <ul><li>What‘s driving most of China‘s inflation is food. </li></ul><ul><li>food prices rose rapidly since 2006 </li></ul><ul><li>May 2008 – 19,9% </li></ul><ul><li>April 2008 – 50% (meat) </li></ul><ul><li> political sensitive problem </li></ul>
  7. 7. inflationary pressure 2006-2008
  8. 8. Case 1 - devaluation <ul><li>inflation  shock on goods made in China and sold in the international market </li></ul><ul><li> more expensive to make products (locally and for overseas markets) </li></ul><ul><li> Newest Chinese Export — Inflation? </li></ul><ul><li>(more expensive goods would be sold around the world) </li></ul>
  9. 9. Case 2 – What will be the consequences for trade of a revaluation? <ul><li>if: </li></ul><ul><li>RMB ↑  exports ↓  imports ↑ </li></ul><ul><li> inflation↓ </li></ul>
  10. 10. Case 2 - revaluation <ul><li>effect on the flow of trade </li></ul><ul><li> lead to an increase in the prices of Chinese exports </li></ul><ul><li>effect: make them less competitive </li></ul><ul><li>hope that this would lead to a drop in imports from China and renewed competitiveness for US producers </li></ul><ul><ul><ul><ul><ul><li>not as simple as that </li></ul></ul></ul></ul></ul>
  11. 11. Case 2 - revaluation <ul><li>1. </li></ul><ul><li>China imports = </li></ul><ul><li>components and raw materials that are processed as final products  exported to rest of the world (40% of China‘s total imports) </li></ul><ul><li>revaluation  cheaper to import into China </li></ul><ul><li> effect on export prices will be lower than the amount of revaluation </li></ul>
  12. 12. Case 2 - revaluation <ul><li>2. </li></ul><ul><li>import prices ↓  demand for imported goods ↑ </li></ul><ul><li>Opportunity for companies selling into Chinese market </li></ul><ul><li>goods rely on imported components that will become cheaper </li></ul><ul><li>prices ↓ </li></ul>
  13. 13. Investments (FDI) <ul><li>RMB ↓  exports ↑  FDI ↑ </li></ul><ul><li>Since 1978 - FDI in China has grown rapidly </li></ul><ul><li>1980ies – 1990ies: </li></ul><ul><li>FDI inflow to China: US$ 1.5 billion a year to more than US$ 40 billion a year in 1999. </li></ul><ul><li>During same period - actual use of FDI grows from about US$ 0.5 billion to more than US$ 40 billion a year. </li></ul><ul><li>further surge in FDI preceded China's accession to the World Trade Organisation (WTO) in December 2001. </li></ul><ul><li>by the end of 2003 China had accumulated more than 500 billion US in FDI. </li></ul>
  14. 14. FDI in China <ul><li>joint ventures </li></ul><ul><li>cooperative enterprises </li></ul><ul><li>solely foreign-owned enterprises </li></ul><ul><li>Sources of FDI: </li></ul><ul><li>East Asia – Hong Kong/Macau </li></ul><ul><li>Distribution of FDI: </li></ul><ul><li>more than 80% Greenfield investments </li></ul><ul><li>(most of them in manufacturing industry) </li></ul>
  15. 15. FDI policies <ul><li>compulsory FDI policy </li></ul><ul><li>neutral FDI policy </li></ul><ul><li>(refunding of VAT for export) </li></ul><ul><li>voluntary FDI policy </li></ul><ul><li>(tax preference, trade facilitation) </li></ul><ul><li> played important role in improving level of exports </li></ul>
  16. 16. FDI in China <ul><li>promote new industries: </li></ul><ul><li>new high-tech industries </li></ul><ul><li>advanced manufacturing </li></ul><ul><li>energy conservation </li></ul><ul><li>environmentally friendly sectors </li></ul>
  17. 17. Fluctuations of the RMB exchange rate <ul><li>labour productivity </li></ul><ul><li>total factor productivity </li></ul><ul><li>institutional factors </li></ul>
  18. 18. GDP growth rate
  19. 19. Labor Productivity <ul><li>Increase due to rapid urbanization </li></ul><ul><li>Urbanization has also upgraded China‘s industrial structure and technology </li></ul>
  20. 20. Total Factor Productivity <ul><li>Increase due to significant improvements in incentive mechanisms and management </li></ul>
  21. 21. Institutional Factors <ul><li>Implementation of reform and opening-up policies </li></ul><ul><li>Establishment of a market-oriented economy system </li></ul><ul><li>launch of a scientific development principle </li></ul><ul><li>- harmonious society </li></ul><ul><li>4. Greater respect for the rule of law and intellectual property rights </li></ul><ul><li>5. Promotion of energy conservation and environment protection. </li></ul>
  22. 22. Inflation since the 1990ies – to date <ul><li>especially in: </li></ul><ul><li>1994 </li></ul><ul><li>1997 </li></ul><ul><li>2005 </li></ul><ul><li>2006 – to date </li></ul>
  23. 23. 1994 <ul><li>Annual inflation rate 1979-1993 under 9% </li></ul><ul><li>In 1994: sudden surge in price  October 1994 record-setting 27,7% </li></ul><ul><li>Causes: </li></ul><ul><li>Nature of inflation was structural rather than monetary </li></ul><ul><li>Food price increased </li></ul><ul><li>Increase of rural industrial usage & bad weather </li></ul><ul><li>-> Output↓ -> Grain price↑ </li></ul><ul><li>Depreciation of RMB </li></ul><ul><li>-> Prices of imported fertilizer and feed↑ -> Grain price↑ </li></ul>
  24. 24. 1994 <ul><li>Policies: </li></ul><ul><li>Soft-landing policy </li></ul><ul><li>Suspend the price reform, mandate the state owned enterprises and food store to increase the supply and suppress the price </li></ul><ul><li>Credit plan and credit control </li></ul><ul><li>Control the market prices of goods items </li></ul><ul><li>Lower the economic growth rate </li></ul>
  25. 25. 1997 - Asian Financial Crisis <ul><li>RMB pegged to US dollar at a ratio of 8.3 (1994) </li></ul><ul><li>Heavy speculation from the west, that China would be forced to devalue its currency to protect the competitiveness of its exports </li></ul><ul><li> however: RMB‘s non-convertibility protected its value from currency speculators </li></ul><ul><li>Decision : </li></ul><ul><li>maintain the peg of the currency; improving the country‘s standing in Asia </li></ul>
  26. 27. 1997 - Asian Financial Crisis <ul><li>convinced the Chinese government of the need to resolve the issues of its enormous financial weaknesses, such as: </li></ul><ul><li>too many non-performing loans </li></ul><ul><li>primitive and inefficient banking system </li></ul><ul><li>relying heavily on trade with the United States. </li></ul><ul><li>since 1999 inflation ↓ </li></ul><ul><li> reflecting tighter monetary policies and stronger measures to control food prices </li></ul>
  27. 28. 2005 <ul><li>The July 21st Currency Reform </li></ul><ul><li>PBOC revalued RMB by 2.1% against US dollar </li></ul><ul><li>RMB will be traded at a eate of 8.11. to US dollar </li></ul><ul><li>RMB to US dollar pegging system switched to a basket of foreign currencies </li></ul><ul><li>Inflation ↓ since 1997 </li></ul><ul><li> except in 2004: 3,9% </li></ul><ul><li> 2005: 1.8% </li></ul>
  28. 29. 2006 – to date <ul><ul><li>highest in the last decade; </li></ul></ul><ul><ul><li>mainly affecting food and housing; </li></ul></ul><ul><ul><li>more industries are now impacted; and </li></ul></ul><ul><ul><li>higher in rural areas than cities </li></ul></ul><ul><li>Contributors: </li></ul><ul><li>international economy </li></ul><ul><li>imbalance between supply and demand </li></ul><ul><li>continuing increase in material costs </li></ul><ul><li>excess liquidity </li></ul>
  29. 30. Inflationary pressure 2006-2008
  30. 31. 2006 – to date <ul><li>1997 - 2006 inflation: below 2% a year </li></ul><ul><li>2007 inflation: 4.8% </li></ul><ul><li>January - July 2008 inflation: 7.7% </li></ul><ul><li>(highest point in February – 8,7%) </li></ul>

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