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Processing Trade, Exchange Rates and China’s bilateral Trade Balances

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  • Yuqing Xing

    (National Graduate Institute for Policy Studies)

Abstract

This paper analyzed the role of processing trade in China’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on a panel data covering China’s 51 major trading partners from 1993-2008. The empirical analysis shows that: (1) processing trade accounted for 100% of China’s overall trade surplus and could explain most of China’s bilateral trade balances; (2) China’s processing trade shows a significant regional bias. While China has maintained a surplus with all G-7 countries in processing trade, it has run a significant deficit with most of East Asian economies; (3) East Asian economies are major sources and account for 77% of China’s processing imports. The econometric analysis reveals that processing imports from East Asian is eleven times of that from other regions; (4) the response of processing imports to the yuan’s appreciation differs with that of normal trade. Specifically, a 10% real appreciation of the yuan will reduce rather than increase China’s processing imports by 3.9%. Given that processing exports will decrease 9.6% for the same appreciation and China’s trade surplus is mainly generated from processing trade, a moderate appreciation of the yuan would have a very limited impact on China’s trade balance.

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Bibliographic Info

Paper provided by National Graduate Institute for Policy Studies in its series GRIPS Discussion Papers with number 10-30.

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Length: 22 pages
Date of creation: Jan 2011
Date of revision:
Handle: RePEc:ngi:dpaper:10-30

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Keywords: Processing Trade; Exchange Rates; China;

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References

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Citations

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Cited by:
  1. Xing, Yuqing, 2012. "The People’s Republic of China’s High-tech Exports: Myth and Reality," ADBI Working Papers 357, Asian Development Bank Institute.
  2. 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.
  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, 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.
  5. THORBECKE, Willem, 2014. "Rebalancing Trade within East Asian Supply Chains," Discussion papers 14002, Research Institute of Economy, Trade and Industry (RIETI).
  6. Chu, Angus C. & Cozzi, Guido & Furukawa, Yuichi, 2013. "A Simple Theory of Offshoring and Reshoring," Economics Working Paper Series 1309, University of St. Gallen, School of Economics and Political Science.

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