IDEAS home Printed from https://ideas.repec.org/p/ngi/dpaper/10-30.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Yuqing Xing, 2011. "Processing Trade, Exchange Rates and China’s bilateral Trade Balances," GRIPS Discussion Papers 10-30, National Graduate Institute for Policy Studies.
  • Handle: RePEc:ngi:dpaper:10-30
    as

    Download full text from publisher

    File URL: https://grips.repo.nii.ac.jp/?action=repository_action_common_download&item_id=1051&item_no=1&attribute_id=20&file_no=1
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Willem Thorbecke & Gordon Smith, 2010. "How Would an Appreciation of the Renminbi and Other East Asian Currencies Affect China's Exports?," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 95-108, February.
    2. Alejandro Micco & Ernesto Stein & Guillermo Ordoñez, 2003. "The currency union effect on trade: early evidence from EMU [‘A theoretical foundation for the gravity equation’]," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 315-356.
    3. Richard Baldwin & Daria Taglioni, 2006. "Gravity for Dummies and Dummies for Gravity Equations," NBER Working Papers 12516, National Bureau of Economic Research, Inc.
    4. Yuqing Xing & Neal Detert, 2011. "How the iPhone Widens the United States Trade Deficit with the People's Republic of China:," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 66(03), pages 339-350, September.
    5. Lee Branstetter & Nicholas Lardy, 2006. "China's Embrace of Globalisation," Working Papers id:640, eSocialSciences.
    6. Dani Rodrik, 2006. "What's So Special about China's Exports?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(5), pages 1-19, September.
    7. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, vol. 98(5), pages 1978-1997, December.
    8. Yuqing Xing & Neal Detert, 2010. "How the iPhone Widens the United States Trade Deficit with the People’s Republic of China," Trade Working Papers 23128, East Asian Bureau of Economic Research.
    9. Willem Thorbecke, 2010. "How Would an Appreciation of the Yuan Affect the People's Republic of China's Surplus in Processing Trade?," Working Papers id:2621, eSocialSciences.
    10. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
    11. Yin-Wong Cheung & Menzie D. Chinn & Eiji Fujii, 2010. "China's Current Account and Exchange Rate," NBER Chapters, in: China's Growing Role in World Trade, pages 231-271, National Bureau of Economic Research, Inc.
    12. Miaojie Yu, 2010. "Processing Trade, Firm's Productivity, and Tariff Reductions : Evidence from Chinese Products," Macroeconomics Working Papers 22799, East Asian Bureau of Economic Research.
    13. Fukunari Kimura & Ayako Obashi, 2016. "Production Networks in East Asia: What We Know So Far," ADB Institute Series on Development Economics, in: Ganeshan Wignaraja (ed.), Production Networks and Enterprises in East Asia, edition 1, chapter 0, pages 33-64, Springer.
    14. Yuqing Xing, 2014. "China's High-Tech Exports: The Myth and Reality," Asian Economic Papers, MIT Press, vol. 13(1), pages 109-123, Winter.
    15. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    16. Willem Thorbecke, 2010. "How Would an Appreciation of the Yuan Affect the People’s Republic of China’s Surplus in Processing Trade?," Macroeconomics Working Papers 22823, East Asian Bureau of Economic Research.
    17. Alejandro Micco & Ernesto H. Stein & Guillermo Luis Ordoñez, 2003. "The Currency Union Effect on Trade: Early Evidence from EMU," Research Department Publications 4339, Inter-American Development Bank, Research Department.
    18. Juan Ruiz & Josep M. Vilarrubia, 2007. "The wise use of dummies in gravity models: export potentials in the Euromed region," Working Papers 0720, Banco de España.
    19. Alicia Garcia-Herrero & Tuuli Koivu, 2008. "China'S Exchange Rate Policy And Asian Trade," Economie Internationale, CEPII research center, issue 116, pages 53-92.
    20. Robert C. Feenstra, 2002. "Border Effects and the Gravity Equation: Consistent Methods for Estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 491-506, November.
    21. Yuqing Xing & Neal Detert, 2010. "How the iPhone Widens the United States Trade Deficit with the People’s Republic of China," Trade Working Papers 23280, East Asian Bureau of Economic Research.
    22. Mr. Jahangir Aziz & Ms. Xiangming Li, 2007. "China’s Changing Trade Elasticities," IMF Working Papers 2007/266, International Monetary Fund.
    23. Shaghil Ahmed, 2009. "Are Chinese exports sensitive to changes in the exchange rate?," International Finance Discussion Papers 987, Board of Governors of the Federal Reserve System (U.S.).
    24. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Willem Thorbecke, 2013. "Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter," The World Economy, Wiley Blackwell, vol. 36(10), pages 1245-1260, October.
    2. Natalia Drzewoszewska, 2014. "Searching for the Appropriate Measure of Multilateral Trade-Resistance Terms in the Gravity Model of Bilateral Trade Flows," Dynamic Econometric Models, Uniwersytet Mikolaja Kopernika, vol. 14, pages 29-49.
    3. Eichengreen, Barry & Tong, Hui, 2015. "Effects of renminbi appreciation on foreign firms: The role of processing exports," Journal of Development Economics, Elsevier, vol. 116(C), pages 146-157.
    4. Inga Heiland, 2017. "Five Essays on International Trade, Factor Flows and the Gains from Globalization," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 74.
    5. Estrella Gómez-Herrera, 2013. "Comparing alternative methods to estimate gravity models of bilateral trade," Empirical Economics, Springer, vol. 44(3), pages 1087-1111, June.
    6. Xing, Yuqing, 2018. "Rising wages, yuan's appreciation and China's processing exports," China Economic Review, Elsevier, vol. 48(C), pages 114-122.
    7. Meng, Bo & Ye, Ming, 2022. "Smile curves in global value chains: Foreign- vs. domestic-owned firms; the U.S. vs. China," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 15-29.
    8. Aichele, Rahel & Heiland, Inga, 2018. "Where is the value added? Trade liberalization and production networks," Journal of International Economics, Elsevier, vol. 115(C), pages 130-144.
    9. Xing, Yuqing, 2014. "Measuring Value Added in the People’s Republic of China’s Exports: A Direct Approach," ADBI Working Papers 493, Asian Development Bank Institute.
    10. Bullón, David & Mena, Tayutic & Meng, Bo & Sánchez, Natalia & Vargas, Henry & Inomata, Satoshi, 2015. "Using the input-output approach to measure participation in GVCs : the case of Costa Rica," IDE Discussion Papers 529, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Inomata, Satoshi, 2013. "Trade in Value Added: An East Asian Perspective," ADBI Working Papers 451, Asian Development Bank Institute.
    12. Lili Yan ING & Miaojie YU, 2015. "Intensive and Extensive Margins of South–South–North Trade: Firm-Level Evidence," Working Papers DP-2015-70, Economic Research Institute for ASEAN and East Asia (ERIA).
    13. Bo Meng & Ming Ye & Shang‐Jin Wei, 2020. "Measuring Smile Curves in Global Value Chains," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(5), pages 988-1016, October.
    14. Matthieu Bussière & Bernd Schnatz, 2009. "Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark," Open Economies Review, Springer, vol. 20(1), pages 85-111, February.
    15. repec:era:wpaper:dp-2015-72 is not listed on IDEAS
    16. ye, ming, 2016. "Trace the goods and value-added route in exports," MPRA Paper 73476, University Library of Munich, Germany.
    17. Wen Chen & Lizhi Xing, 2022. "Measuring the Intermediate Goods’ External Dependency on the Global Value Chain: A Case Study of China," Sustainability, MDPI, vol. 14(7), pages 1-21, April.
    18. Aichele, Rahel & Heiland, Inga, 2014. "Where is the value added? China's WTO entry, trade and value chains," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100424, Verein für Socialpolitik / German Economic Association.
    19. Cong S. Pham & Xuan Nguyen & Pasquale Sgro & Xueli Tang, 2017. "Has China Displaced its Competitors in High†tech Trade?," The World Economy, Wiley Blackwell, vol. 40(8), pages 1569-1596, August.
    20. Satoshi Inomata, 2014. "Trade in value added: concept, development, and an East Asian perspective," Chapters, in: Richard Baldwin & Masahiro Kawai & Ganeshan Wignaraja (ed.), A World Trade Organization for the 21st Century, chapter 3, pages 48-70, Edward Elgar Publishing.
    21. Taguchi, Hiroyuki & Zhao, Jun, 2022. "China’s global value chain linkage and logistics performances in emerging ASEAN economies," MPRA Paper 113808, University Library of Munich, Germany.

    More about this item

    Keywords

    Processing Trade; Exchange Rates; China;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ngi:dpaper:10-30. 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: . General contact details of provider: https://edirc.repec.org/data/gripsjp.html .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: The email address of this maintainer does not seem to be valid anymore. Please ask the person in charge to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/gripsjp.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.