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China's Trade Surplus

In: Business and Management

Submitted By marcotse2003
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Course Paper Evaluation for Undergraduate Students
|For teachers | | |
| |Academic Year : 2012–2013 Semester: 1st [√ ] 2nd[ ] |Course Type : |
| |Course Title __China’s foreign trade _ |Compulsory[ ] Optional[√] |
| |Submission Date __Dec 5, 2012_ ____ | |
| | |Mode of examination : |
| | |Essay |
|For Students |School International School Major IET |
| |Name 謝玉麟 Student No. 2010054425 Mainland Student [ ] Non-mainland Student [√] |
| |Essay topic Understanding China’s trade surplus |
|Evaluations | |
| |Comments: |
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| |Marks:____ __ Signature |
| |Date |
|Criteria : |
|1.The essay topic should have implication to the reality, with certain originality; |
|2.Opinions in the essay should be clearly stated, with correct points of views, which meet the requirements of course study; |
|3.The extensiveness of references should be sufficient in order to reflect the current research results; |
|4.The knowledge and ability learned from the course should be properly demonstrated in the essay; |
|5.The essay should be reasonably structured and have clear organization, with proper summarization and format in texts, tables and illustrations. |
|Students should demonstrate serious attitude toward academic research in the essay. |

[Abstract]: China's international payments imbalance is increasingly cause for concern. China's international balance of payments surplus in the long-term lead to excessive growth of China's foreign exchange reserves, making the hedge foreign exchange reserves caused by excessive proliferation of liquidity into the monetary policy is now one of the important tasks. Therefore, our analysis of the reasons for the current international balance of payments surplus and some serious image, can China's current macro-control policy choices have important significance.

Taiwan's formal accession to WTO, the total foreign trade has maintained rapid growth in exports of capital, the share of technology-intensive products has also increased year by year, to promote long-term stability of China's economic growth. However, the resulting problem is very serious; especially the trade imbalance is increasingly attracting attention. Total amount of China's foreign trade surplus in 2004 is only 31.98 billion U.S. dollars, representing an increase 25.6% over the same period last year; in 2005 China's foreign trade surplus totaled 101.88 billion U.S. dollars, 3.19 times in 2004; in 2006 China's foreign trade surplus totaled 177.47 billion U.S. dollars, but also compared to 2005 increased by 74%.

First, leading to the main reason for the international balance of payments surplus

Theoretical explanation of international industrial division of labor in one industry after the country's development to maturity will cause industry exodus. 70, 80 years from the twentieth century began, the United States and Europe, and Japan and other developed countries to shift labor-intensive industry, Asian countries, has created Asia's newly industrialized countries. After 20 years of development, labor-intensive industries began to shift our country, and China's abundant cheap labor combined. This is a substantial increase in China's exports causes. But as China's economic development, raising the level of income, imports did not increase along with the substantial increase in national income.

1. Insufficient effective demand China's import growth rate of decrease is mainly due to insufficient effective demand. In recent years, China and major trading partners of the import growth rate there is a clear downward trend, such as 2005, China to the EU, U.S. imports increased by only 5% and 9.1%, far lower than the 28.8% and in 2004 31.9%. In 2006 because of China's imported aircraft, integrated circuits and other developed countries in Europe and the United States has a comparative advantage in the amount of goods to faster growth (compared to 2005 grew by 71.5% and 30.4%), so our country and the European Union, the United States import growth between the the rate in 2006 showed rising trend, but still below the 2004 level. The same period, China and other major trading partners of the import growth rate remains a downward trend. China's import growth rate declined substantially deeper roots in lack of effective demand. On the one hand, lack of effective demand may easily lead to excess capacity, lower corporate profit margins, so that enterprises lack the expanded reproduction of capital and technological innovation and motivation, thereby affecting the capital goods imports. On the other hand, in order to solve the lack of effective demand caused by a number of high energy consumption industries such as paper, aluminum, etc. have emerged in the past two years, the investment overheating. 2. Export bias of national policy Since reform and opening, in order to solve the capital shortage of foreign exchange and economic development, conflict, our country has taken a series of preferential policies to encourage exports and develop the coastal export-oriented economy; in particular the 1994 merger of the RMB exchange rate reform is effectively to promote exports. After 1998, response to the Asian financial crisis, weak exports, sluggish domestic demand, the situation, the state has adjusted the export tax rebate rate, while a series of measures to encourage the expansion of exports and foreign investment; the end of 2001, China's accession to the WTO; the beginning of 2005, textiles the quota was canceled. This export-oriented economic development is conducive to the implementation of policy measures and institutional environment for the formation of a competitive advantage of China's exports are made to further develop and export high-speed growth. 3. Global excess liquidity input Since 2001, the Federal Reserve began to implement more than two years of low interest rate policy, rather than loose monetary policy simultaneously, China's capital account surplus began to sustained growth, the appreciation of the RMB exchange rate is also growing international pressure, and these events are no coincidence. It is precisely because the three major economies of the world's long-term low interest rate policy, creating excess liquidity-driven global oil prices and global asset prices, but also forcibly driving the excess liquidity into the country's capital market and real estate market, China began to passive excess liquidity being manufactured. 4. Objective of the statistical differences There statistical difference was mainly attributable to the following five areas: (1) Hong Kong re-exports and increases, (2) the difference between FOB and CIF, (3) Statistical differences in the scope, (4) not included in Statistics of trade in services, (5) not included in Statistics and e-commerce invisible trade. With the foreign direct investment and international production networks created by the internationalization of production, and now the trade balance sheet editor is already very outdated and has greatly misleading. While the multinationals have their own assets, liabilities and financial data, but the United States and other governments and policy makers and organizers of International Trade is not an accurate comprehensive understanding of International Trade activities.

Second, the international balance of payments surplus impact analysis

International balance of payments surplus will affect their own pairs of the overall economic structure, increasing inflationary pressures, due to China's special foreign exchange policy and monetary policy, leading to our existing excess liquidity, price rise pressure. 1. Foreign exchange reserves surge in excess liquidity, price increases pressure International balance of payments surplus caused by pairs of foreign exchange reserves surged, leading to hedge excessive liquidity into the central bank monetary policy, current and future period of time, important task. As the rapid increase in foreign exchange reserves, the central bank hedging operations task has become increasingly heavy, more and more difficult, costs are getting higher and higher. Pairs of foreign exchange reserves, balance of payments surpluses leading to excessive growth of the existing exchange settlement system, unified by the central bank to buy foreign exchange. Therefore, in order to maintain exchange rate stability, the central bank passively eating a lot of foreign exchange, and thus to market a large number of the base currency. In recent years, due to rapid increase in foreign exchange reserves, base money Waihuizhankuan incremental and growing gap between the increment, leading to the central bank the hedging operations task has become increasingly heavy, more and more difficult for large, cost higher and higher. 2. Undermine the effectiveness of monetary policy The basis of the central bank seeks to weaken the negative impact of currency put a lot of hedging operation with a very passive, limiting the central bank's monetary policy, regulation and control of space and the degree of initiative, but also affected the central bank's policy, regulation and control results. The face of huge base money, the central bank's hedging operation often appeared to be inadequate, but also cannot be through hedging full release of base money pressures. Meanwhile, the hedging the size of the market surge will lead to higher interest rates, there is a strong appreciation of the RMB is expected, the Exchange will be large inflows, which in turn offset by hedging effect of policies. By the same token, foreign exchange reserves surge caused by a strong appreciation of the yuan is expected to also limit the role of interest rate control means space. Therefore, the hedging can only say that to a certain extent effective, but should not be indefinitely as a routine policy tool, and endless use.

Third, governance of international pairs of surplus measures

If a State does not take the initiative to take measures to correct the structural imbalances in their economies, then, in an open economy under the conditions of international arbitrage free movement of capital may be an imbalance in its structure a mandatory correction, and this mandatory correction, damaging the domestic economy are often based on the cost of return. Japan's bubble economy and the Southeast Asian financial crisis is the best example. Therefore, to improve China's international balance of payments situation, achieve the basic balance of international payments is imperative.

1. Restrictions on foreign capital inflow and investment in watershed China's existing inflationary pressure a factor is excess liquidity of foreign input. Therefore, to alleviate liquidity pressure to the field of foreign investors can invest strict restrictions on foreign capital outflow and inflow of strict regulation. In China's real estate industry, have already started on the secondary market of foreign capital to invest and tertiary markets, strict control of foreign investors to reduce speculation in the real estate industry to mitigate upward pressure on house prices, tight control of foreign capital on the livelihood of the industry linked to speculate. In addition, States may also try for other industries with overheated investment control, control of foreign capital in the proportion of large-scale projects of its registration record, strict supervision. 2. Raising the export value-added products to restrict the export of resource-based products China's export growth, the key is to rely on cheap labor advantage and resource-based products, while in the technical and marketing management, has been lagging behind the relatively low added value. Some high-energy products, a large number of exports will be further aggravated the tense situation in China's energy and affect the sustainable development of China's economy. Therefore, the policy should be given high-tech and high value-added products exported more preferential treatment, and gradually reduce the energy-intensive production and export of proportion in order to promote trade growth pattern, in order to achieve trade balance. 3. To encourage enterprises to use foreign exchange to carry out cross-border investment Present, China's impressive growth rate of overseas investment, but the amount remained inadequate, and China's economic strength compared with other countries a considerable gap looms large. In China, due to excessive foreign exchange reserves, facing the pressure of RMB appreciation. My Government should encourage enterprises to use foreign exchange to carry out large-scale foreign investment, improve the foreign investment in financial services support system, and encourage superior enterprises to go the domestic excess capacity transferred to foreign markets.

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