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Processing trade, exchange rates and China's bilateral trade balances

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  • Xing, Yuqing

Abstract

This paper analyzes the role of processing trade in China's bilateral trade balances and the impact of the yuan's appreciation on China's processing trade. The analysis is based on panel data covering bilateral processing trade between China and its partners from 1993 to 2008. The empirical results show that: (1) processing trade accounted for 100% of China's annual trade surplus during the period; (2) China's processing trade showed a significant regional bias—77% of processing imports originated from East Asia while only 29% of processing exports was destined to the region in 2008; and (3) a real appreciation of the yuan would negatively affect both processing imports and exports—specifically, a 10% real appreciation of the yuan would reduce not only China's processing exports by 9.1% but also its processing imports by 5.0%. Based on these empirical findings we conclude that the combined effect of the yuan's appreciation on the balance of processing trade and thus China's overall trade balance will be limited.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 23 (2012)
Issue (Month): 5 ()
Pages: 540-547

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Handle: RePEc:eee:asieco:v:23:y:2012:i:5:p:540-547

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Web page: http://www.elsevier.com/locate/asieco

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Keywords: China; Processing trade; Exchange rates;

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References

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Citations

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Cited by:
  1. Yuqing Xing & Manisha Pradhananga, 2013. "How Important is Exports and FDI for China's Economic Growth?," GRIPS Discussion Papers 13-04, National Graduate Institute for Policy Studies.
  2. Xing, Yuqing, 2012. "The People’s Republic of China’s High-tech Exports: Myth and Reality," ADBI Working Papers 357, Asian Development Bank Institute.
  3. Li, Fangyi & Song, Zhouying & Liu, Weidong, 2014. "China's energy consumption under the global economic crisis: Decomposition and sectoral analysis," Energy Policy, Elsevier, vol. 64(C), pages 193-202.
  4. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Simple Theory of Offshoring and Reshoring," MPRA Paper 44557, University Library of Munich, Germany, revised Feb 2013.
  5. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2012. "From China with love: Effects of the Chinese economy on skill-biased technical change in the US," MPRA Paper 40555, University Library of Munich, Germany.
  6. THORBECKE, Willem, 2014. "Rebalancing Trade within East Asian Supply Chains," Discussion papers 14002, Research Institute of Economy, Trade and Industry (RIETI).

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