3. GDP Evolution
Gross domestic product (GDP) is the
total market (or dollar) value of all final goods and
services produced in a country during a given period of
time
U.S./China GDP Graph
5. Historical Exchange Data
Current Trends
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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
China, P.R.: Mainland National Currency per U.S.
Dollar, period average National Currency per US
Dollar International Financial Statistics (IFS) Annual
Published Core Data Value Units
United States National Currency per U.S. Dollar,
period average National Currency per US Dollar
International Financial Statistics (IFS) Annual
Published Core Data Value Units
Exchange Data
Good Afternoon! When we think of China, the first thought is Socialism, since the 1980s, China's Communist Party has been using "socialist market economy" to describe their nation's economic system. China joined the World Trade Organization in 2001,China's economy is subject to market forces, and capitalists are involved, however, the Party does not believe that capitalists run their economy.
My name is Chris Davis and I will be discussing China’s Economy and Foreign Exchange... Next Slide
China is the top exporter of the world and in 2013 its value of export was 1.4 times the value of exports of the United States, which is the second largest exporter. China places a strong reliance on encouraging exports while at the same time protecting the domestic market has been a cornerstone of China's transition to a market economy
Role of Exports: So what is the role of exports? Exports play an important role in the Chinese economy; it’s influencing the level of economic growth, employment and the balance of payments. In addition, increased exports generate many benefits to the economy; in particular, as exports grow, they support an increasing number of well-paying jobs.
China’s Exports: China’s wealth creation in recent years has come primarily from two, inter-related sources: domestic investment and an export-oriented manufacturing sector. This is in contrast to most advanced industrial countries, where household consumption (frequently, in recent years, debt-driven) is the main driver of the economy. There is a tendency in the West to view China’s newfound dominance of global manufacturing as marking a profound and permanent shift in the global economy, as if the Chinese Communist Party has discovered the key to perpetual prosperity. We can see on the chart China exports have grown substantial since opening up to foreign investment and joining the WTO in 2001... Next slide
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, in the chart China’s GDP in 2010 was 9 %, the following the year GDP is down 7/10 to 8.3 %, this is thought to mean that the economy has contracted over the last year. Is it significant? Not too much, it’s expected to have peaks and slight drops. On the other hand if a steep drop was too occur like what happened to the U.S. 2008 that would be considered catastrophic.
The medium-term outlook is for a further easing of growth to 6.7 percent in 2015 and a stable outlook thereafter reflecting a gradual slowdown in China that starts to be offset by a pickup in the rest of the region in 2016-17... Next Slide
What is the NIIP? The term Net International Investment Position (NIIP) is used to refer to a country’s net foreign wealth, that is, the difference between the value of foreign assets owned by the country’s residents and the value of the country’s assets owned by foreigners.
So if the net position is positive, the country is referred to as a net creditor such as China and if its negative its often called a net debtor. A net debtor simply means that ownership of foreign assets by the host country residents is less than foreign ownership of host country assets. E.g. the residents of Brazil owning foreign assets are much smaller than foreign ownership of Brazilian assets...
The NIIP can change for two reasons. One is deficits or surpluses in the current account. The other source of changes in the NIIP is changes in the price of the financial instruments that compose the country’s international asset and liability positions.... Next Slide
As we can see from the chart the dollar had much more buying power in 2005 as opposed to 2013. Some contend China has been undervaluing its currency the Yuan Renminbi by approximately 30%. This is a source of friction in the US, with firms claiming they lose out to a cheap Chinese currency, which can undercut US goods.
Its postulated the Chinese government wishes to keep the currency undervalued because:
A weaker exchange rate makes exports more competitive and increases demand for Chinese exports.
Chinese economic growth is dependent on exports, so the value of the currency plays a key role in boosting growth... Next Slide
Which brings me to our next slide since I’m referring to currency. China utilizes a pegged exchange regime. Pegged currency is a currency whose value relative to their currencies is set by the government; a currency in a fixed exchange rate system, also known as a fixed currency.
Most notably the Yuan is pegged with the U.S. dollar, if the dollar weakens the Yuan weakens. Hence their heavy investment in U.S. debt, if the U.S. does well so does China. So they’re becoming more capitalists by the minute, however, with a bit more caution and regulation... Next slide
