Does China's Huge External Surplus Imply an Undervalued Renmimbi?

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Title Does China's Huge External Surplus Imply an Undervalued Renmimbi?
Author Makin, Anthony John
Journal Name China & World Economy
Editor Yongding Yu
Year Published 2007
Place of publication Beijing, China
Publisher Blackwell Publishing
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 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.
Peer Reviewed Yes
Published Yes
Volume 15
Issue Number 3
Page from 89
Page to 102
ISSN 1671-2234
Date Accessioned 2008-01-14
Language en_AU
Faculty Griffith Business School
Subject International Economics and International Finance
URI http://hdl.handle.net/10072/17486
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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