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Processing Trade, Exchange Rates, and the People’s Republic of China’s Bilateral Trade Balances

Author

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  • Yuqing Xing

    (Asian Development Bank Institute (ADBI))

Abstract

This paper analyzes the role of processing trade in the People’s Republic of China (PRC)’s bilateral trade balances and the impact of the yuan’s appreciation on processing trade. The analysis is based on panel data covering the PRC’s 51 trading partners from 1993–2008. The empirical analysis shows that : (1) processing trade accounts for 100% of the PRC’s overall trade surplus and can explain most of its bilateral trade balances; (2) the PRC’s processing trade shows a significant regional bias—its processing exports to East Asian economies are three times those to other regions while its processing imports from East Asian economies are eleven times those from other regions; (3) the PRC is one of the major sources of its own processing imports, accounting for 16.8% of its total processing imports from all 51 trading partners; and (4) the appreciation of the yuan would affect both processing imports and exports in the same direction—specifically, a 10% real appreciation of the yuan would reduce not only the PRC’s processing exports by 9.6% but also its processing imports by 3.9%. Therefore, a moderate appreciation of the yuan would have a very limited impact on the PRC’s trade balance.

Suggested Citation

  • Yuqing Xing, 2011. "Processing Trade, Exchange Rates, and the People’s Republic of China’s Bilateral Trade Balances," Macroeconomics Working Papers 23266, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:macroe:23266
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    File URL: http://www.eaber.org/node/23266
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    Cited by:

    1. Arndt Sven W., 2012. "Stabilization Policy in an Economy with Two Exchange Rate Regimes," Global Economy Journal, De Gruyter, vol. 12(2), pages 1-15, June.
    2. THORBECKE, Willem, 2012. "East Asian Supply Chains and Relative Prices: A survey of the evidence," Policy Discussion Papers 12006, Research Institute of Economy, Trade and Industry (RIETI).
    3. Jianhong Zhang & Chaohong Zhou & Arjen van Witteloostuijn & Haico Ebbers, 2013. "What does the Chinese market need? An empirical study of the determinants of Chinese imports, 1996--2008," Asia Pacific Business Review, Taylor & Francis Journals, vol. 19(3), pages 402-420, July.
    4. Zhou, Jing & Latorre, María C., 2014. "How FDI influences the triangular trade pattern among China, East Asia and the U.S.? A CGE analysis of the sector of Electronics in China," Economic Modelling, Elsevier, vol. 44(S1), pages 77-88.
    5. Reza Y. Siregar & C.S. Lim, Vincent, 2011. "Real Sector Propagation of the Recent Global Financial Crisis: An Integrative Report," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp83, April.
    6. Arndt, Sven W., 2011. "Adjustment in an Open Economy with Two Exchange-Rate Regimes," The Journal of Economic Asymmetries, Elsevier, vol. 8(2), pages 11-22.
    7. Zhou, Jing & Latorre, María C., 2013. "The impact of FDI on the production networks between China and East Asia and the role of the U.S. and ROW as final markets," MPRA Paper 51384, University Library of Munich, Germany.
    8. Richard Pomfret, 2012. "The Post-2007 Crises and Europe's Place in the Global Economy," CASE Network Studies and Analyses 439, CASE-Center for Social and Economic Research.

    More about this item

    Keywords

    Processing Trade; exchange rates; Bilateral Trade Balances; PRC;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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