Parsing China's Trade Surplus
Nicholas Lardy of the Institute for International Economics explains how it has become so huge and how it will affect the yuan's value
Some numbers just make you sit up and take notice. After seeing those out of Beijing on Jan. 11 -- showing China's trade surplus had topped $101 billion last year, triple the 2004 figure -- the world definitely noticed. The big jump came in spite of a 2% revaluation of China's currency, the
yuan, in July. With the latest figures, trade hawks in the U.S. and elsewhere are sure to call for a more significant appreciation of the yuan to slow the flood of exports from mainland factories.
But would that really help cut the surplus? BusinessWeek Asia Editor David Rocks on Thursday spoke with Nicholas Lardy, a senior fellow at the Institute for International Economics in Washington, to get some perspective on the numbers. Edited excerpts of their conversation follow:
China: What Can 2% Do?
China’s 2% appreciation has given both sides of the Rmb (or Yuan) debate some crumbs to chew on. After two years of guessing ‘when’ and ‘how much’, the Rmb bulls can point to the fact that something has happened and can conjure some scenarios calling for more gains to come. The bears can point at just 2% for two years of hype. The appreciation barely pays for the negative carry in the Rmb revaluation
trade.
China rejects gradual revaluation
By Wanfeng Zhou, MarketWatch
Last Update: 2:32 PM ET July 26, 2005
NEW YORK (MarketWatch) -- China's central bank threw cold water Tuesday on speculation that the yuan will be allowed to strengthen further."A revaluation of RMB by 2%,effective in the beginning of the exchange rate regime reform, does not in the least imply an initial move which warrants further actions in the future," the People's Bank of China said in a statement on its web site...
China
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