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  • Does China’s Huge External Surplus Imply an Undervalued Renmimbi?

    Author(s)
    Makin, Anthony J
    Griffith University Author(s)
    Makin, Tony J.
    Year published
    2007
    Metadata
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    Abstract
    A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the USA. This paper provides a straightforward conceptual framework for interpreting the effect of China's exchange rate policy on its own trade balance and that of trading partners in the context of discrepant economic growth rates. It shows how pegging the exchange rate when output is outstripping expenditure induces China's trade surpluses ...
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    A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the USA. This paper provides a straightforward conceptual framework for interpreting the effect of China's exchange rate policy on its own trade balance and that of trading partners in the context of discrepant economic growth rates. It shows how pegging the exchange rate when output is outstripping expenditure induces China's trade surpluses and counterpart deficits for its trading partners. An important corollary is that given its strictly regulated capital account, China's persistently large surpluses imply a significantly undervalued renminbi, which should gradually become more flexible.
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    Journal Title
    China & World Economy
    Volume
    15
    Issue
    3
    Subject
    Applied economics
    Other economics
    Publication URI
    http://hdl.handle.net/10072/17486
    Collection
    • Journal articles

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