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Dec

2009

China's currency: A yuan-sided argument | The Economist

Pressure is on China to revalue the RMB, but it's unlikely to happen anytime soon. Why? Read to find out...

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exchange rates China marshall lerner condition trade trade deficit current account

China allowed the yuan to rise by 21% against the dollar in the three years to July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan’s trade-weighted value has been dragged down this year by the sickly dollar, while many other currencies have soared. Since March the Brazilian real and the South Korean won have gained 42% and 36% respectively against the yuan, seriously eroding those countries’ competitiveness.
exchange-rate policy is decided by the State Council, not the central bank. And many policymakers, notably in the Ministry of Commerce, do not favour a revaluation right now.
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- “We don’t think that it’s good for the world economic recovery, and it is also unfair, that you ask others to appreciate while you depreciate your own currency,” said a spokesman for the Ministry of Commerce on November 16th. The previous day Liu Mingkang, China’s chief banking regulator, blasted Washington for its low interest rates and for the falling dollar, which, he claimed, was encouraging a dollar carry trade and global asset-price bubbles.
  - Jason Welker on 2009-12-02
    China's accusing the US of devaluing the US$ through low interest rates! How the times are changing!
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- Some Chinese economists warn that the benefits to America from yuan revaluation are much exaggerated. In particular, a stronger yuan would not significantly reduce America’s trade deficit. There is little overlap between American and Chinese production, so American goods cannot replace Chinese imports. Instead, consumers would simply end up paying more for imports either from China or other producers, such as Vietnam. This would be like imposing a tax on American consumers.

Nov

2009

Japan Sees Improved Trade Data in October - WSJ.com

Even as its currency hits a 10 year high against the dollar, Japan's current account surplus still grows! Why would spending imports fall even the Yen strengthens? Wouldn't a stronger yen lead to more spending on imports among Japanese households? How does the elasticity of demand for imports and exports affect the current account balance following a strengthening of the country's currency?

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balance of payments current account exchange rates marshall lerner condition

TOKYO -- Japan's merchandise trade balance logged its largest surplus in 19 months in October, as stronger Asian demand for steel, semiconductors and electronic components led a continued recovery in exports, the Ministry of Finance said Wednesday.
Demand for Japanese goods, especially cars and electronics, also continued to pick up in Europe and the U.S., the Ministry of Finance said.

Continued weakness in Japanese imports, however, highlights concerns about the domestic economy. Imports were down 35.6% from a year earlier at 4.502 trillion yen.
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- The Bank of Japan faces mounting pressure to loosen its policy as deflation tightens its grip on the nation's economy. The central bank last week kept rates unchanged and upgraded its assessment of the economy. The bank, which has stuck with super-easy monetary policy for more than a decade, has hoped to follow other central banks in looking at ways to tighten policy.

Nov

2009

A special report on China and America: : Round and round it goes | The Economist

China and the US have a complicated relationship when it comes to trade. It may be changing in the future due to the recession in America, but for some that change can't come fast enough!

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economics current account capital account protectionism exchange rates managed exchange rate China

China, a developing country, lent vast amounts of money to wealthy America to feed its spending habit. Americans spent the money on Chinese-made goods, sending the dollars back to China, which lent them to America again.
for its growth, and on America in particular. By 2007 the value of China’s exports amounted to about 36% of its GDP, up from just over 20% in 2001.
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- American market, overtaking Canada. And by September 2008 China had surpassed Japan as the largest holder of US Treasuries
- China certainly helped its exporters by keeping the value of its currency low, buying dollars that were used to buy US Treasuries.
- e much of the value of Chinese goods consumed in America was created elsewhere. The biggest driver of growth in China was investment, and that has become all the more true as China tries to pump up its economy with nearly $600 billion in stimulus spending.
  - Jason Welker on 2009-11-06
    America might not be as crucial for Chinese growth as previously thought! Domestic investment is biggest factor now!
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- trading system, but it has no desire to pull the rug from under America’s economy. A run on the dollar would be a blow to China itself, slashing the value of its stash of over $800 billion in US Treasuries. Chinese officials also worry openly about a possible resurgence of inflation in America, which would also drive down the value of the dollar.
  - Jason Welker on 2009-11-06
    China is worried about the dollar's value, but is not likely to sell its dollar assets, since this would surely devalue the dollar and harm China too.
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- A recent study by the Peterson Institute says that the yuan remains “significantly undervalued”, by 15-25% against a weighted average of the currencies used by China’s trading partners
- As Americans save more and buy less from China, America’s trade deficit with China—which has been its biggest with any country since 2000—will shrink anyway. But protectionist sentiment in both countries will remain strong.
- Americ
- reject a takeover bid by Coca-Cola for a Chinese juice company as a bad omen. As Chinese businesses look around America for bargains, they will get a mixed reception: sellers are eager for China’s cash, but worried about the survival and security of Brand America
  - Jason Welker on 2009-11-06
    Chinese continue to demand US assets in the capital account, but American businesses are reluctant to sell to Chinese investors...
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