Foreign Exchange Rate of China

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Description:

China has record a huge trade surplus for a couple of years. The U.S. insisted that a trade surplus be caused by the manipulation of foreign exchange rates by China government. China government changed its foreign exchange policy from fixed system to variable system. But actually the new system also almost fixed system.

In Q4 2008, the new Forex Regulations are aimed to provide the new direction to address the changes in the foreign investment environment, rapid development in China's financial sector, widening imbalance in international trade accounts, growing trends of Chinese companies' outbound investments, speculation in RMB valuation, and many other macro economic and political considerations in the last decade.

Enablers:

If China accepts the U.S. demanding regarding foreign exchange policy,
-Execution of firm’s restricting
-Development of service industry
-Recognition of free trade country position

Inhibitors:

-Weak economic growth
-Decrease a trade surplus
-Increase unemployment

Paradigms:

China government can adjust its competitiveness using the foreign exchange rates. If China accepts the U.S. demanding, China loses the very powerful tool to control its economic. And also that means China close to the world economic condition.

Experts:

http://www.iie.com/publications/wp/wp04-1.pdf

Timing:

  • This is main issue between China and the U.S. during the APEC meeting.
  • The former Forex Regulations were promulgated in 1996 and subsequently amended in 1997. Over the last decade, China has undergone significant transformation in her economy. In addition, there have been fundamental changes in the foreign investment environment, rapid development in China's financial sector, widening imbalance in international trade accounts, growing trend of Chinese companies' outbound investments, as well as speculation in RMB valuation. These factors, coupled with many other macro economic and political considerations, have made revamp of the former Forex Regulations become more imminent than ever.

Web Resources:

  1. [1]
  2. "New direction of foreign exchange policy of China", PricewaterhouseCoopers
  3. "China: China Encourages Outbound Investments", Mondaq