1 Walking Along Two Worlds: A Reconsideration of China ’ s Dynamics to Trade Growth Xingmin Yin School of Economics, Fudan University Shanghai, November 2009

2 1. China and US Trade Profile  Review of export and import over the past five years shows there was slow growth of the US exports and acceleration of export growth in China.  China ’ s merchandise exports to world ratio increased to 8.76% in 2007; corresponding ratio of the US is 8.37%.

3 Trade Balance USD Billion

4  A generalized view on unbalanced global trade.  More debates on this issue due to complete different stance today.  China ’ s position in global pattern: a triangular trade

5 Different Pictures of China ’ s Trade Balance SDR Billion

6  East Asia – China – The US and Europe.  Who are major beneficiaries of this triangular trade?  More factors to ……

7  An increase of China ’ s trade surplus to the US and Europe;  China has been running trade deficit with Japan, Korea and ASEAN.  To discuss China ’ s market concentration in export and import sectors ……

8  Why does China ’ s trade growth rate so high?  How to give explanations to China ’ s trade dynamics?  Can it be sustainable?  A new question is raised for substantial surplus in East Asia on global economy.

9 2. A Burned Child Fears Fire  East Asia accounts for half the global surplus. There are multiple reasons why East Asia has accumulated vast reserves.  Stockpile of foreign exchange reserves.  What are the major functions of forex reserves in world?

10 Buildup of Forex Reserves Billion SDR

11  The amount of forex reserves has been accumulated much more than import demand and played an unusual counteract power to any external shocks.  Legacy of Financial Crisis  The case of Korea and India case ……

12 Sources of China ’ s Forex Reserves Billion USD

13 Discussion  Trade surplus;  FDI inflows;  So-called “ hot money ”.  At end-March 2008, China ’ s reserves hit $1.66 trillion; more than double that of 2006.

14 East Asia as Burned Child: True!  The buildup of foreign exchange reserves ma represent “ precautionary ” holdings in East Asian countries.  It is urgent to change the international financial architecture in order to protect the financial interests of emerging economies.  New question is whether large reserve stockpile can cause the pressure on currency appreciation.

15 3. Currency Appreciation: A Panacea for Trade Imbalance?  Comments on “ An increase of 40 per cent in the RMB and other Asian currencies against the dollar would reduce the US global current account deficit by about $150 billion per year. ”  The consequences of RMB appreciation on both Chinese and US economies ……

16  RMB appreciation over the past three years;  Effects of RMB appreciation on trade;  Industry development from 2001 onwards. The case of machinery and electronic goods ……

17 Trade Growth of Machinery and Electronic Goods USD Billion

18  The export share of machinery and electronic goods from 40 per cent in 2001 to 50 per cent in  The share of textile and apparel goods decreased from 21 per cent to 15 per cent.  China ’ s industry is moving up the value chain ……

19 4. China ’ s Dynamics to Global Trade A. Growth power for global economy;  It is forecasted that the amount of China ’ s GDP will be as high as RMB 100 trillion at around 2020; thus more demand will be expanded …… 2. Market for emerging economies ……

20 Growth of Imports USD Billion

21 A Tale of Two Worlds  Different growth rates for developed and developing countries;  Different picture for China and the US developments in economy and trade.  What are our suggestions for two worlds? Any economic growth should be based on productivity instead of bubble ……

22  It is unlikely to change Chinese savings behavior; The contribution of China ’ s investments to a more stable world economy.  More investments will increase China ’ s imports from many countries;  More changes are under way ……

23 5. Conclusions  The contribution of trade to economy has been enlarged;  The impact of global production chain on export destination has a major factor for unbalanced trade;  The stockpile of forex reserves was a self- protection strategy;  RMB appreciation has an insignificant role to reduce US deficit;  The size of Chinese market may be beyond any expectations.

24 Thanks!