An Analysis of the U.S. Dollar Depreciation: Whether It Is Beneficial to Chinese Economy

1526 Words Mar 8th, 2013 7 Pages
1. Introduction
Under the environment of the Global Financial Crisis (GFC), the financial markets had a severe impingement, especially the influences to the American financial market. Meanwhile, as one of the largest American ‘trading partners’, the third largest ‘export market’, China offers USA a majority of imports and keeps close trade relation with USA (Morrison, 2011, pp2-6). It can be seen that the changes of U.S. dollar might affect the Chinese economy. In order to keep sustainable development, the Chinese government focuses on the influences of U.S. dollar alteration and considers whether it is beneficial to Chinese economy. Since 2008, U.S. dollar depreciation brings China plenty of benefits, whereas there still have a few
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For example, Chinese passengers may own more extra money for outbound tourism and shopping, which may reduce their cost of travel abroad and shopping than before, especially travel to America.

The third one is to expand usage of foreign capital holdings. U.S. dollar devaluation motivates foreign capital flow into Chinese markets. There is a graph about China’s official foreign exchange reserves (1985-2006).
Table China’s official foreign exchange reserves (1985-2006)
Source: National Bureau of Statistics of China (2007).

The graph describes the foreign exchange reserves in China which expressed a dramatic increase between 1985 and 2006. Due to the Chinese economy development, an increasing number of foreign investments are keen to enter the Chinese capital market. Moreover, a significant number of Chinese corporations would gain more opportunities to cooperate with foreign companies and learn from each other. It also provides them enough foreign capital to invest in the international markets. But a large amount of foreign capital holding flow into China that may pose threat to domestic companies, namely the foreign companies may rob the domestic companies’ market share for their future development. So the Chinese government may consider building a security limitation of foreign exchange reserves.

4. Disadvantages of U.S. dollar devaluation to Chinese economy
In fact, owing to the friendly trade

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