Advanced Search
MyIDEAS: Login

China: A Stabilizing or Deflationary Influence in East Asia? THe Problem of Conflict Virtue

Contents:

Author Info

  • Ronald McKinnon

    (Stanford University)

  • Gunther Schnabl

    (Tubingen University)

Abstract

Rapidly growing Chinese exports are middle-tech¡V¡Vand increasingly high-tech¡V¡Vmanufactured goods. China runs a huge and growing bilateral trade surplus with the United States, and the position of Japan has changed radically from being a net exporter to China in the 1980s and most of the 1990s to being a net importer today. China¡¦s smaller East Asian industrial competitors such as Taiwan, Korea, and Singapore face fairly difficult readjustment problems. However, China is a huge importer of primary products and industrial raw materials and runs large import surpluses with the ASEAN group. On the macroeconomic side, China has been a stabilizing influence. While maintaining steady high growth and exchange rate stability at 8.28 yuan per dollar since 1994, it has largely avoided, and thus dampened, the business cycles of its East Asian trading partners. But there are potential clouds on this horizon. Since 1995, China has run moderate multilateral trade surpluses coupled with large inflows of foreign direct investment. The resulting balance of payments surpluses have led to a rapid buildup of liquid dollar claims on foreigners¡V¡Vboth in official exchange reserves and, less obviously, in stocks held privately or in China¡¦s nonstate sectors. This increasing private dollar overhang leads to what we call the syndrome of ¡§conflicted virtue¡¨. If there is no threat that the renminbi will appreciate, private portfolio equilibrium for accumulating and holding both dollar and renminbi assets can be sustained. However, foreigners, particularly Japanese, are upset with China¡¦s ¡§excessive¡¨ mercantile competitiveness. They are urging China¡¦s government to appreciate the renminbi¡V¡Vand show greater future exchange rate flexibility, which could lead to repetitive appreciations. The result would be severe deflation throughout China¡¦s economy and a zero-interest liquidity trap¡V¡Vas in Japan, when forced into repeated appreciations of the yen in the 1980s into the mid 1990s.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.hkimr.org/uploads/publication/263/ub_full_0_2_2_wp200323_text.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 232003.

as in new window
Length: 31 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:hkm:wpaper:232003

Contact details of provider:
Postal: 55th Floor , Two International Finance Centre , 8 Finance Street , Central, Hong Kong
Phone: (852)2878 1978
Fax: (852)2878 7006
Email:
Web page: http://www.hkimr.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ronald McKinnon & Gunther Schnabl, 2003. "Synchronized Business Cycles in East Asia and Fluctuations in the Yen/Dollar Exchange Rate," Working Papers 022003, Hong Kong Institute for Monetary Research.
  2. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  3. Ronald McKinnon & Gunther Schnabl, 2003. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Working Papers 112003, Hong Kong Institute for Monetary Research.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hkm:wpaper:232003. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (HKIMR).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.