kent nickell
Well-known member
From the last sentence ""A substantial appreciation of the yuan would contribute to the rebalancing and would also reverse the decline in the terms of trade.""
An appreciation of the yuan would give Chinese workers more purchasing power. This would hurt Chinese exports but help with their imports and thus help their terms of trade as many of their exports are dependent on importing the component parts and raw materials... The yuan appreciation would give them more purchasing power in international markets... But similar to other countries it would involve difficult restructuring as they move toward less but higher quality exports....
http://www.cepii.fr/anglaisgraph/publications/newsletter/e_newsletter/e_newsletter1043.htmNo 43
1st Quarter
2010
T H E F R E N C H C E N T R E F O R R E S E A R CH
A N D S T U D I E S O N T H E W O R L D
E C O NOM Y
FOCUS
China?s Export-Led Growth Has Reached its Limits
The rise of China has been a major feature of the global economic landscape for the last three decades. Research carried out at the CEPII has amply shown how the integration of China?s economy into the world economy has produced dramatic changes in its foreign trade and led to a far-reaching reshuffle of international trade. It has also argued that China?s extraordinary export performance could not provide by itself a sound base for its long-term development.
In 2009, China has become the leading world exporter. The expansion of China?s exports was made possible by a rapid diversification, from textile to electronics. This has also resulted in China becoming the world top exporter of high-technology products since 2004, ahead of the US since 2003. The degree of sophistication of China?s exports is now similar to that of a country with a level of income per capita three times higher. These spectacular achievements originate mainly from foreign firm affiliates located in China carrying international processing activities, i.e. assembling duty-free imported inputs for exports. Foreign affiliates are responsible for half of China?s trade and 80% of its high-technology exports. During the past decade, the gap between the export performance of foreign and domestic firms has widened both in terms of sophistication and technological levels. The foreign trade sector has thus remained highly dualistic, which has far reaching implications for China?s long-term development. Indeed the analysis at provincial level indicates that the export upgrading of foreign entities has no direct positive impact on economic performance. Only the technological upgrading of ordinary exports (for which the main part of the value-added chain is produced in China) has a significant impact on growth. Still, ordinary trade accounts for a small part of total high-tech exports.
The analysis of China?s position in international trade has also revealed that the technological advance of Chinas exports has not been accompanied by their quality/price upgrading. Based on the calculation of the unit value of trade goods (at a very detailed level of commodity classification), the composition of Chinese exports by price/quality range appears to be distorted downward even for the high-technology products. China?s exports are concentrated (70%) in low-price/quality goods and this has not changed since the mid-1990. The low unit value of Chinese exports has several explanations. The most plausible is that Chinese exports are mostly composed of mass market, standardized products. The undervaluation of the yuan is part and parcel of this strategy aimed at price competitiveness. In this respect, China?s position in world market segment strongly differs from that of India. China?s specialization has contributed to cushion the costs of adjustment for its major partners, as has left room for advanced economies in the upper ranges of the market.
Due to a scissor effect between the evolution of export and import prices, China?s terms of trade have sharply deteriorated since the mid 1990s. Prices (unit values) of China?s exports declined between 1997 and 2002 and they have shown a moderate upward trend since then. By contrast, China?s import prices (unit values) increased much faster, due on the one hand to the prices of imported manufactured goods (parts and components) and on the other hand to the prices of primary products. This has reduced the gains China has derived from its integration in international trade.
In the 2000s, China?s exports surged and its economic growth became increasingly dependent on external demand. The global economic crisis which broke out at the end of 2008 severely affected China?s exports and a strong stimulus package was necessary to support economic growth in 2009. The uncertainty of future external demand is now forcing China to shift to a growth model centered on domestic demand and, more specifically, on household consumption. A substantial appreciation of the yuan would contribute to the rebalancing and would also reverse the decline in the terms of trade.
References:
Lemoine, F. & ?nal, D., Rise of China and India in International Trade: From Textiles to New Technology, China & World Economy, Vol. 16, N? 5, September-October 2008.
Gaulier, G., Lemoine, F. & ?nal, D., China?s Emergence and the Reorganisation of Trade Flows in Asia, China Economic Review, N? 18, pp. 209-243, 2007 ; China?s Integration in East Asia: Production Sharing, FDI & High-Tech Trade, Economic Change and Restructuring, Vol. 40, N? 1-2, June 2007.
Lemoine, F. & ?nal, D., Assembly Trade and Technology Transfer: the Case of China, World Development, Vol. 32, N? 5, 2004.
Jarreau, J. & Poncet, S., Export Sophistication and Economic Performance: Evidence from Chinese Provinces, CEPII Working Paper, N? 2009-34, December 2009.
Gaulier, G., Lemoine, F. & ?nal, D., China: the Price of Competitiveness, La Lettre du CEPII, N? 254, March 2006.
Bensidoun, I., Lemoine, F. & ?nal, D., The Integration of China and India into the World Economy: a Comparison, The European Journal of Comparative Economics, Vol. 6, N? 1, pp. 131-155, 2009.
B?nassy-Qu?r?, A., Lahr?che-R?vil, A. & Lemoine, F., Should the Yuan Be Revalued?, La Lettre du CEPII, N? 227, October 2003 ; Rzepkowski, B., Speculating on the Yuan, La Lettre du CEPII, N? 234, May 2004 ; B?nassy-Qu?r?, A., Lahr?che-R?vil, A. & Mignon, V., Le Yuan et le G20, Revue d'?conomie financi?re, 2004.
D?es, S. & Lemoine, F., The Devaluation of the Yuan: "A Little Impatience May Ruin a Great Project" (Confucious), La Lettre du CEPII, N? 178, April 1999.
Gaulier, G., Lemoine, F. & ?nal, D., EU15 Trade with Emerging Economies and Rentier States: Leveraging Geography, CEPII Working Paper, N? 2009-25, October 2009.
Fontagn?, L., Gaulier, G. & Zignago, S., Specialisation across Varieties and North-South Competition, Economic Policy, CEPR-CES-MSH, Vol. 23, 2008.
Fontagn?, L. & Paillacar, R., China is Shipping more Products to the United States than Germany , La Lettre du CEPII, N? 270, September 2007.
An appreciation of the yuan would give Chinese workers more purchasing power. This would hurt Chinese exports but help with their imports and thus help their terms of trade as many of their exports are dependent on importing the component parts and raw materials... The yuan appreciation would give them more purchasing power in international markets... But similar to other countries it would involve difficult restructuring as they move toward less but higher quality exports....
http://www.cepii.fr/anglaisgraph/publications/newsletter/e_newsletter/e_newsletter1043.htmNo 43
1st Quarter
2010
T H E F R E N C H C E N T R E F O R R E S E A R CH
A N D S T U D I E S O N T H E W O R L D
E C O NOM Y
FOCUS
China?s Export-Led Growth Has Reached its Limits
The rise of China has been a major feature of the global economic landscape for the last three decades. Research carried out at the CEPII has amply shown how the integration of China?s economy into the world economy has produced dramatic changes in its foreign trade and led to a far-reaching reshuffle of international trade. It has also argued that China?s extraordinary export performance could not provide by itself a sound base for its long-term development.
In 2009, China has become the leading world exporter. The expansion of China?s exports was made possible by a rapid diversification, from textile to electronics. This has also resulted in China becoming the world top exporter of high-technology products since 2004, ahead of the US since 2003. The degree of sophistication of China?s exports is now similar to that of a country with a level of income per capita three times higher. These spectacular achievements originate mainly from foreign firm affiliates located in China carrying international processing activities, i.e. assembling duty-free imported inputs for exports. Foreign affiliates are responsible for half of China?s trade and 80% of its high-technology exports. During the past decade, the gap between the export performance of foreign and domestic firms has widened both in terms of sophistication and technological levels. The foreign trade sector has thus remained highly dualistic, which has far reaching implications for China?s long-term development. Indeed the analysis at provincial level indicates that the export upgrading of foreign entities has no direct positive impact on economic performance. Only the technological upgrading of ordinary exports (for which the main part of the value-added chain is produced in China) has a significant impact on growth. Still, ordinary trade accounts for a small part of total high-tech exports.
The analysis of China?s position in international trade has also revealed that the technological advance of Chinas exports has not been accompanied by their quality/price upgrading. Based on the calculation of the unit value of trade goods (at a very detailed level of commodity classification), the composition of Chinese exports by price/quality range appears to be distorted downward even for the high-technology products. China?s exports are concentrated (70%) in low-price/quality goods and this has not changed since the mid-1990. The low unit value of Chinese exports has several explanations. The most plausible is that Chinese exports are mostly composed of mass market, standardized products. The undervaluation of the yuan is part and parcel of this strategy aimed at price competitiveness. In this respect, China?s position in world market segment strongly differs from that of India. China?s specialization has contributed to cushion the costs of adjustment for its major partners, as has left room for advanced economies in the upper ranges of the market.
Due to a scissor effect between the evolution of export and import prices, China?s terms of trade have sharply deteriorated since the mid 1990s. Prices (unit values) of China?s exports declined between 1997 and 2002 and they have shown a moderate upward trend since then. By contrast, China?s import prices (unit values) increased much faster, due on the one hand to the prices of imported manufactured goods (parts and components) and on the other hand to the prices of primary products. This has reduced the gains China has derived from its integration in international trade.
In the 2000s, China?s exports surged and its economic growth became increasingly dependent on external demand. The global economic crisis which broke out at the end of 2008 severely affected China?s exports and a strong stimulus package was necessary to support economic growth in 2009. The uncertainty of future external demand is now forcing China to shift to a growth model centered on domestic demand and, more specifically, on household consumption. A substantial appreciation of the yuan would contribute to the rebalancing and would also reverse the decline in the terms of trade.
References:
Lemoine, F. & ?nal, D., Rise of China and India in International Trade: From Textiles to New Technology, China & World Economy, Vol. 16, N? 5, September-October 2008.
Gaulier, G., Lemoine, F. & ?nal, D., China?s Emergence and the Reorganisation of Trade Flows in Asia, China Economic Review, N? 18, pp. 209-243, 2007 ; China?s Integration in East Asia: Production Sharing, FDI & High-Tech Trade, Economic Change and Restructuring, Vol. 40, N? 1-2, June 2007.
Lemoine, F. & ?nal, D., Assembly Trade and Technology Transfer: the Case of China, World Development, Vol. 32, N? 5, 2004.
Jarreau, J. & Poncet, S., Export Sophistication and Economic Performance: Evidence from Chinese Provinces, CEPII Working Paper, N? 2009-34, December 2009.
Gaulier, G., Lemoine, F. & ?nal, D., China: the Price of Competitiveness, La Lettre du CEPII, N? 254, March 2006.
Bensidoun, I., Lemoine, F. & ?nal, D., The Integration of China and India into the World Economy: a Comparison, The European Journal of Comparative Economics, Vol. 6, N? 1, pp. 131-155, 2009.
B?nassy-Qu?r?, A., Lahr?che-R?vil, A. & Lemoine, F., Should the Yuan Be Revalued?, La Lettre du CEPII, N? 227, October 2003 ; Rzepkowski, B., Speculating on the Yuan, La Lettre du CEPII, N? 234, May 2004 ; B?nassy-Qu?r?, A., Lahr?che-R?vil, A. & Mignon, V., Le Yuan et le G20, Revue d'?conomie financi?re, 2004.
D?es, S. & Lemoine, F., The Devaluation of the Yuan: "A Little Impatience May Ruin a Great Project" (Confucious), La Lettre du CEPII, N? 178, April 1999.
Gaulier, G., Lemoine, F. & ?nal, D., EU15 Trade with Emerging Economies and Rentier States: Leveraging Geography, CEPII Working Paper, N? 2009-25, October 2009.
Fontagn?, L., Gaulier, G. & Zignago, S., Specialisation across Varieties and North-South Competition, Economic Policy, CEPR-CES-MSH, Vol. 23, 2008.
Fontagn?, L. & Paillacar, R., China is Shipping more Products to the United States than Germany , La Lettre du CEPII, N? 270, September 2007.
