...revaluation of Chinese Yuan The Chinese national economy is probably the most powerful nowadays. At least, it is the main antagonist to the American economy. A lot of experts tend to call it as the main driver of renewal of the world’s economy after the global financial crisis. A reasonable question is what the preconditions of such powerful status are. In our opinion, these preconditions are the following. First of all, it is cheap labor force. Moreover, the country has a lot of labor force, more than any other country in the world. Because of the cheap labor force the country’s products are quite cheap on the international market. That is why it is not surprising that export plays a great role in the country’s economy. Cheap labor force is not the only reason for the competitiveness of the Chinese products. Cheap Yuan is another reason, but about it we are going to talk below. Some additional information about the national economy of China can be got from the following quote. “China's economy is huge and expanding rapidly. In the last 30 years, the rate of Chinese economic growth has been almost miraculous, averaging 8 percent growth in Gross Domestic Product (GDP) per annum. The economy has grown more than 10 times during that period, with Chinese GDP reaching 3.42 trillion US dollars in 2007. China already has the biggest economy after the United States and most analysts predict China will become the largest economy in the world this century” (The Chinese Economy). As it...
Words: 3461 - Pages: 14
...Case Study: China Revalues the Yuan and Moves to a Managed Float Regime, July 2005 Since early 1997, the Chinese government had pegged its currency, the yuan (or renminbi), to the U.S. dollar at a rate of Yuan8.28/$. The Chinese government had maintained this peg even through the difficult Asian currency crisis later in that year, when many emerging Asian countries were forced to abandon their pegs. China argued for years that a fixed and stable currency was critical for the development and growth of its economy. Pegging its currency would remove currency risk (regarding the U.S. dollar) and could encourage the development of both Chinese exports and foreign direct investment into the country. The success of the Chinese economy during the pegged period was indeed remarkable, growing in real GDP terms at over 10% per year. As China’s external trade grew, especially its surplus with the United States, increasing pressure was applied to the Chinese government, especially from Washington, to revalue the currency. The U.S. argued that its increasing trade deficit with China was the result of a significantly overvalued yuan. China argued that it was the result of their competitive cost position. While China continued to resist Washington’s calls for revaluation, they did acknowledge that maintaining the peg at 8.28 was becoming very costly in terms of buying U.S. dollars that were flowing into the country from trade and investment. In addition, speculative flows into...
Words: 597 - Pages: 3
...C.H.I.N.A.: ‘Cheap House Is Not Allowed’ Will China’s real estate bubble burst? Since the onset of the global financial crisis in 2007, China has faced some critical problems linked with the excess of liquidity in its internal market, due to the stimulus plan launched by the Government to soften the effects of the crisis. As a result China is now fighting against a high rate of inflation (especially food prices) and a high cost of property. While the inflation issue has been partially solved in the first term of this year, the fear for the real-estate market trend is still alive. This essay aims to critically analyse the real estate market in China, which is also strictly linked with the health of this country’s economy, by examining this issue from two different perspectives: from the point of view of those scholars who believe that the Chinese bubble will burst and from the point of view of those who believe that the Chinese market is still safe. First of all the essay will give the historical and economic background of the price rises in the Chinese real estate market, from the birth of this important economic sector to the global financial crisis. Secondly, in the core part, this paper will explain the main theory regarding the possibility of the real estate bubble burst and the counter argument. To better understand the actual situation in China there will be also a short comparison with the burst of the American bubble in 2007. In the conclusive paragraph some...
Words: 2726 - Pages: 11
...Stephanie Wicks-Franklin International Economics Research Paper Instructor Stephen L. Crain Wednesday, August 23, 2014 The US and China “A Marriage Made in Renminbi-Yuan” The United States presently in a tightly knit and powerful economic relationship with China. Reason being the US economy depends heavily on foreign capital, in particular the Renminbi-Yuan. According the US Treasury report as of September 21, 2014 the total debt for the United States was at a staggering $17,752,082,587,972.00, this is almost eighteen trillion dollars. With foreign governments and investors holding roughly half of it and China’s holds the largest portion thereof at $1.268 trillion, which is only slightly down from $1.279 trillion in 2013. Chinas investment in the US is a smart move on their part because doing so keeps the value of the dollar relatively high in comparison to the Renminbi-Yuan. Using this very simple it would make China’s exports to the US appear more affordable. This fundamentally helps, China’s the trade driven economy grow. According to the latest numbers provided they the United States Census Bureau as of July 2014 U.S. trade in goods with China are as follows the US exports approximately $9,288,200 and China imports $40,151,300 leaving a trade deficit of roughly $30,863,000 and the current total for the year being an incredible $186,079,900. In an article written for the Wall Street Journal, in September 2014 titled China's Trade Surplus Hits New High ...
Words: 979 - Pages: 4
...Case 2: CHINESE MERCANTILISM Text 1. Chinese New Year China has become a major financial and trade power. But it doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory. Here’s how it works: Unlike the dollar, the euro or the yen, whose values fluctuate freely, China’s currency is pegged by official policy at about 6.8 yuan to the dollar. At this exchange rate, Chinese manufacturing has a large cost advantage over its rivals, leading to huge trade surpluses. Under normal circumstances, the inflow of dollars from those surpluses would push up the value of China’s currency, unless it was offset by private investors heading the other way. And private investors are trying to get into China, not out of it. But China’s government restricts capital inflows, even as it buys up dollars and parks them abroad, adding to a $2 trillion-plus hoard of foreign exchange reserves. This policy is good for China’s export-oriented state-industrial complex, not so good for Chinese consumers. But what about the rest of us? In the past, China’s accumulation of foreign reserves, many of which were invested in American bonds, was arguably doing us a favor by keeping interest rates low — although what we did with those low interest rates was mainly to inflate a housing bubble. But right now the world is awash in cheap money, looking for someplace to...
Words: 2565 - Pages: 11
...Special Report Investing in Emerging Market Currencies A Whole New World of Opportunity Editor: Evaldo Albuquerque World Currency Watch 98 S.E. 6th Avenue, Suite 2 Delray Beach, FL 33483 USA USA Toll Free Tel: (888) 358-8125 Email: http://worldcurrencywatch.com/contact-us Website: www.worldcurrencywatch.com Copyright © 2011 by World Currency Watch. All international and domestic rights reserved. No part of this publication may be reproduced in any form, printed or electronic, without prior written permission from the publisher, World Currency Watch. Notice: This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold and distributed with the understanding that the authors, publisher and sellers are not engaged in rendering legal, accounting or other professional advice or service. If legal or other expert assistance is required, the services of a competent professional advisor should be sought. The information and recommendations contained in this brochure have been compiled from sources considered reliable. Employees, officers, and directors of World Currency Watch do not receive fees or commissions for any recommendations of services or products in this brochure. Investment and other recommendations carry inherent risks. As no investment recommendation can be guaranteed, the Society takes no responsibility for any loss or inconvenience if one chooses to accept them. Any information or statements contained...
Words: 2019 - Pages: 9
...exchange rate Each country manages the value of its currency through varying mechanisms. The currency can either be free-floating or fixed. 1. Movable or Adjusted Peg System A system of fixed exchange rates, but with a provision for the revaluation (usually devaluation) of a currency. E.g. Between 1994 and 2005, the Chinese Yuan renminbi (RMB) was pegged to the United States dollar at RMB 8.2768 to $1. 2. Free Floating System In this system the exchange rate is allowed to vary against that of other currencies. It is...
Words: 1632 - Pages: 7
...Import 1% drop in China’s growth rate is due to 4% appreciation in RMB as an act of shifting demand from export to consumption and 1% increase in wage. As labour cost and RMB becomes more expensive, China exports price rises, thus Malaysia import price increases, contributing to capital outflow and increased CPI (Bokyeong, n.d.). 3. Growth The fall in exports also caused slowdown in growth when loans are harder to get, and cost of borrowing money increases. Malaysia’s fiscal deficits has reached RM14.9 billion, while bearing debt of 53 percent of GDP being Asia’s highest household debt country (Ar, 2013). On the other hand, as labour costs in China rise, Asean-China Free Trade Agreement becomes a potentially attractive option for Chinese and...
Words: 1218 - Pages: 5
...relation gifts ) HAVE A LOOK AT NEXT: - Starting up your own company in Asia as company owner - Working for a western company in Asia as employee ( Chinese or Europe contract ) - Working for a Asian Company as Western employee - Major problems working with Chinese staff & - Managing Chinese staff INFORM YOU WHEN HEADING ASIA: BUSINESS WISE What is my product ? How is the market ? Competition ? Expectations ? How big is my Chance ? INFORM YOU WHEN HEADING ASIA : PERSONAL WISE My salary ? Exchange rates ? Expenses ? Social security ? Tax ? Retirement ? Social life ? Family life ASIA BUSINESS WISE BUSINESS TYPE 1 Starting your own company in Asia 2 MAJOR TYPES 1) RO (registered office ) 2) WHOFE (whole owned foreign company) COMPANY TYPES: RO Easy to setup Setup time a few weeks Cheap to setup ( less as 500 euro and no starting capital needed) Can not hire staff Tax rate 11,67% on all activities No Legal power Can not be used to protect IP or whatever company rights COMPANY TYPES: RO Due to the high tax level not used for big activities. Depending the type of business useful for starting business ( no start up deposit ) COMPANY TYPES: WOFE Difficult to setup Setup time 3 months minimum Has all rights as Chinese owned company Only pay tax on real made revenues !!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Money deposit up to 60.000 euro ( starting capital ) COMPANY TYPES: WOFE Due to money deposit not given...
Words: 1330 - Pages: 6
...Introduction Foreign exchange is essentially about exchanging one currency for another. The foreign exchange market is global, and it is conducted through the internet, over-the-counter (OTC) through the use of electronic trading platforms, or by telephone through trading desks. Some shorten the term to “forex” or “FX”. The OTC market is also known as the “spot”, “cash”, or “off-exchange” forex market. (A spot transaction refers to an exchange of currencies at the prevailing market rate.). The spot/cash/OTC/off-exchange forex market is not a market in the traditional sense, because there is no central trading location, or exchange. Rather, it is an interconnected and electronic network of bank traders, dealers, brokers and fund managers for electronic transfers of money from one account into another account. The interbank market is one in which huge banks, insurance companies, corporations and other financial institutions manage the risks associated with fluctuations in currency rates by trading in large quantities. The secondary market, that is, the OTC market has developed more recently permitting retail (Smaller)investors to participate in forex markets. The OTC market has many of the same characteristics of the interbank market but it doesn’t provide the same prices, as the size of trades, and the volumes, are much smaller. Trading forex is buying one currency while at the same time selling a different currency. Some companies who do business in other countries...
Words: 2715 - Pages: 11
...PESTEL analysis for China1) Political Factorsi.Constitutional SystemChina or People¶s Republic of China adopts socialist system or communism in their political system in their decision-making processes in governing the country.The country¶s sole political party in power is known as the Communist Party of China.The government have the sole power to control all activities done by their citizen as whathave been describe in how communism system worked in governing a country. Inother words, the purposes of working in China are to contribute to the nation and alsoto the government as the government control on all activities in the country.ii.Stability of Government. The stability of the China government is quite moderate and stable because theadministration of the government are not publicize to the public either through thepress or on the internet. So, the degree of the citizen involvement in the politics is lowbecause of the heavy restrictions impose by the government. However, the policiesimpose and the law regulations are quite effective in terms of economy where China isone of the leading countries in the world. In the recent years (2001), China has joinedthe World Trade Organization and results rapid growth in industrial and manufacturingsectors because of the cheap labor in China. But still problems such as managingenvironmental degradation, demographic pressure and the extreme immigration fromrural to urban area must be faced by the government.iii.Business FreedomThe...
Words: 4476 - Pages: 18
...economists estimated that the Chinese currency (Yuan) was undervalued by 35%. So, for years, China kept a higher exchange rate. By doing so, China has some advantages but also some disadvantages. First, by undervaluing its currency, China keeps the Yuan as a weak currency, (because you need more Yuan to buy a US dollar). By doing that, China was able to keep a competitive advantage over other countries such as the US. Their products were sold for a cheaper price compared to the US products. But even if there are advantages, there are also disadvantages to have a high exchange rate. By having an undervalued currency, importations become really expensive. In fact, by having a high exchange rate, due to the price of importations, the deficit of China is also increasing. After several calls, the 21st of July 2005, China revalued its exchange rate from 8.28 Yuan per U.S dollar to 8.11 Yuan per U.S dollar. It implied other consequences on doing business with and “against” China. 2 - How is China’s exchange rate policy linked to its development strategy? How would changes in exchange rate policy impact growth in China as well as the rest of the world? Is the current exchange rate policy sustainable in the long run? China has known a relatively fast economic growth, becoming one of the leading exporting nations. Over the few last years, China has known a rapid growth in productivity relative to its competitors. Unlike the Euro, the Chinese Yuan is not on a floating exchange...
Words: 1935 - Pages: 8
...Answers to eThemes of the Times for Krugman/Obstfeld International Economics: Theory and Policy, 7e Chapter 1: Introduction "U.S. and Trade Partners Maintain Unhealthy Long-Term Relationship" By Louis Uchitelle, New York Times, Saturday, September 18, 2004 1. The subject of this article centers on the current account balance. Does this seem like an "international trade" or an "international money" issue? Answer: Aspects of the issue seem to overlap with both areas of international economics. The article discusses goods and services transactions [trade], as well as international borrowing and exchange rates [money]. 2. Many economists seem to be giving the issue of the current account a lot of thought. Does there seem to be a consensus in the article? Does your answer surprise you? Answers will vary. If anything, the consensus is confusion—confusion at how the deficit has persisted for so long with no severe consequences. Bergsten stands out as the most alarmed, though almost every economist seems a bit concerned about the trade deficit. This economist, on the contrary, is not concerned at all about the current account deficit, and you may come to your own conclusion upon reading further chapters. In general economists tend to agree about many big-picture issues, but may disagree occasionally where the data is open to interpretation or when more ideological considerations come into play. 3. Near the end of the article there is a logical fallacy...
Words: 10454 - Pages: 42
...which $114 billion was with the United States alone. Foreign-invested firms accounted for more than half of this amount. 2 In the U.S., organized labor and various pundits and politicians increasingly blamed China for the loss of as many as 3.5 million manufacturing jobs.3 U.S. Senator Chuck Schumer (D-NY) became a leading voice calling for punitive tariffs if China did not allow its currency, the yuan, to appreciate.4 When China did allow the yuan to appreciate beginning in May 2005, the yuan grew by almost 21% over the next three years, from 8.3 to 6.8 yuan per dollar. However, in October 2008, China once again froze the exchange rate. By then, China's trade surplus with the United States had grown to $258 billion, while its overall current account surplus reached $426 billion. Although political complaints about China’s export-led growth model achieved limited traction, the global financial crisis brought the problem to light. In the fourth quarter of 2008, China’s exports shrank for the first time since 1978. In the first quarter of 2009 they dropped by 25%. Chinese savings stood at 51%, with consumption at 36%. As thousands of processing and assembly plants were forced to close, laying off as many as 20 million workers, it now became absolutely clear to China’s leadership that the growth...
Words: 11533 - Pages: 47
...scale manufacturers to short distribution channels in these countries. Consequently, to remain "the world's leading nutrition, health and wellness company" and keep high market shares, Nestlé wrote a new international strategy : the company decided to focus on emerging markets like China (rather than North American or European countries). Drivers are clear : with nearly 1500 billion inhabitants, increasing standards of living, and more friendly governmental policies, China is an attractive country and has market potential for Nestlé. In this report, I will explain Nestlé's international strategy in the Chinese ice cream market, and the different moves and tactics it used to compete with local brands in the first times. I will then discuss the effectiveness of the strategy and I will conclude with Nestlé's new international business strategy in China. Nestlé's strategy in the Chinese ice cream market : an unusual entry-mode Founded in 1905 by the merger of the Anglo-Swiss Milk Company, Nestlé is a Swiss multinational. With more than 450 manufacturing facilities in over 80 countries spread over 6 continents, Nestlé is a global brand leading the world market for beverages and food items. It is indeed the largest food company in the world measured by revenue. However, mass-market ice cream in the developed countries is under pressure as consumer tastes shift toward healthy, fresh food or premium brands, opening up the market to smaller players. Considering the fact that China's...
Words: 1912 - Pages: 8
