China Case Study

For the last twenty eight years, China has been quickly growing into one of the largest economies in the world. China has accomplished this feat, in part, by radically changing their policies on trade and free market interactions with other countries. During this process, China has bought approximately one hundred trillion dollars of United States debt in the form of Treasury bills, notes, bonds, and Inflation Protected Securities (Amadeo). This debt has given China leverage against the United States which has enabled China to keep the value of the United States dollar high, while keeping the value of the Chinese yuan low. As the inflation of the dollar continues to negatively affect the

Third, Chinese currency appreciation makes Chinese products more expensive to developed countries. In 1994, the dollar-to-yuan exchange rate for was 8.7, and 18 years later, the rate has decreased to 6.3, which means Americans have to pay 28% more to buy the same “made in China” products. Furthermore, the regulations and tariffs western countries have imposed on China make export more difficult and costly.

The Big Mac Index dated February 01, 2007 shows that the price of Big Mac in China

Since July 21, 2005, China has adopted a managed floating rate regime based on market supply and demand with reference to a basket of undisclosed currency. The daily trading price of the U.S. dollar against RMB in the foreign exchange market will be allowed to float within a band of +/->0.3% around the central parity published by People’s Bank of China. The signal was initially interpreted by the international market as an indication that China would embark on a gradual shift toward increased flexibility which eventually adopt a floating exchange rate regime where the RMB will appreciate much against US dollar. However, they soon

Australia has experienced an impressive economic boom in recent years on the back of selling natural resources, including coal and iron ore, to its Asian neighbours, and China accounts for more than a quarter of its exports. So weakness in the Chinese economy is bad news for Australia. Research by consultancy Oxford Economics last week, which modelled the impact of a 10% Chinese devaluation, accompanied by a sharp slowdown, suggested other hard-hit countries could include Brazil, Russia, Chile and Korea. If Beijing allows the yuan to decline further in coming months, it could increase trade tensions, or even a “currency war”, in which the world’s big trading blocs face off in a beggar-thy-neighbour battle to seize the largest possible share

In our quickly expanding global economy, how states execute trade is more important than ever. Global organizations like the International Monetary Fund are established to help the states trade and regulate trade currencies. These global organizations are not always efficient, and can lead to imbalances in trade currency. “For more than a decade, the U.S. and other countries castigated China for its currency policy, saying the yuan’s level gave the country’s exporters an unfair advantage at the expense of its trading partners (Talley 1).” Since free trade always seems to result in trade deficits that are detrimental to the United States, the discussion should center on correcting the trade imbalance in an effort to have these free trade treaties fairer for all sides by imposing tariffs on China.

There is an engaging style and superb analysis on how China benefits from a more flexible currency regime resulting in the trade surplus to the US. The reforms in strengthening market and financial institutions in a prospering ‘socialist market economy’ exerts the beneficial impact.

China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow

Furthermore while China does have motivation to keep the value of the yuan down there are downsides. While China has strict regulations they cannot prevent powerful Multinational Enterprises from moving their business and foreign direct investment they bring elsewhere. More importantly it is estimated that the richest one percent of Chinese households hold $2 -5 trillion in property and liquid assets. If the yuan is devalued too much these wealthy could overwhelm China’s vast foreign exchange reserve. (The Economist, 2012)

Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent

Secondly, the fixed dollar-pegged exchange rate system and monetary policy, the independence of the existence of a fundamental conflict, undermine the effectiveness of monetary policy cannot meet the needs of economic development. Monetary policy autonomy is essential for China’s macroeconomic stability; monetary policy should take precedence over the independence of significant exchange rate stability. But the Yuan against the U.S. dollar exchange

Devaluation of RMB is a monetary policy which affected the people in many aspects. It could influence every consumer, worker and investor in overseas buying power, export trade, cross-border investment and wages. Nowadays, with soaring commodity costs, house price and unstable stock, the people in China are under high pressure and we should improve our concern about the monetary policy. Because it relevant to people’s life and business closely, it is important to explore the long-term trend and the political intent of valuation of RMB. The purpose of this paper is to examine how leaderships decide to devalue the RMB and the effect of the decision. The paper will focus on the process of the decision making of Chinese Central Bank. And this research will

In recent years, China’s balance of payments always keeps “double favorable balance”. In 2005, China’s national economy developed quickly and stably. The exchange rat of RMB became more flexible. The current account surplus increased obviously and the capital account surplus decreased. The foreign exchange reserve still increased quickly. In 2005, Chinese government did some fiscal policy and monetary policy. Such as decreased government expense, raise the tax rate, used managed floating system, improve the foreign exchange management, enlarged the foreign exchange market. We can conclude that china’s BOP will still keep “double favorable balance” and keep

With China's deepening Opening Up and economic restructure adjustment and the continuous appreciation of RMB in recent years, the

The US and Europe felt that the RMB was undervalued for several reasons. One reason is that China’s exports had dramatically increased, growing 30% from 2004 to 2005, making China the third largest exporter in the world and accounting for