China's exchange rate policy and Asian trade
AbstractThis paper shows empirically that China's trade balance is sensitive to fluctuations in the real effective exchange rate of the renminbi. However, the current size of the trade surplus is such that exchange rate policy alone will probably not be able to address the imbalance. The potential reduction in the trade surplus resulting from an increase in the renminbi exchange rate is limited mainly because Chinese imports do not react as expected to a renminbi appreciation - they tend to fall rather than increase. By estimating bilateral import equations for China and its major trade partners, we find that the reaction for imports is generally confirmed for China's trade with Southeast Asian countries. That result might be attributable to Asia's vertical integration, as a large share of Chinese imports from Southeast Asia are re-exported. We also find that total exports from a number of Asian countries react negatively to a renminbi appreciation, which points to a dependence of Asian countries' exports on those of China.
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Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 282.
Length: 29 pages
Date of creation: Apr 2009
Date of revision:
China; trade; exports; real exchange rate;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-02 (All new papers)
- NEP-CNA-2009-05-02 (China)
- NEP-DEV-2009-05-02 (Development)
- NEP-IFN-2009-05-02 (International Finance)
- NEP-INT-2009-05-02 (International Trade)
- NEP-SEA-2009-05-02 (South East Asia)
- NEP-TRA-2009-05-02 (Transition Economics)
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