China＇s Import-exchange Rate Linkage： Evidence from the China-bound Exports of Japan and Korea

This paper examines how the China-bound exports of Japan and Korea are related to exchange rates, motivated by the fact that processing trade makes up a large proportion of China＇s trade, and that Japan and Korea are the leading source countries for processing imports. Because processing imports are inputs for exports, the link between such imports and China＇s exchange rates are ambiguous. We estimate export functions that include China＇s RMB real effective exchauge rates （REER） along with bilateral real exchange rates （B RER） using Johausen ＇s cointegration method aud find that the RMB REER significantly affects Japanese and Korean exports to China, even more so than BRER in most cases examined. These two exchange rates appear in the export equations with opposite signs. Subsequently, we use the estimated model to illustrate the importance of accounting for a concurrent change in B RER when analyzing the effects of a hypothetical RMB revaluation on China＇s trade balances despite the apparently weak imports-B RER linkage.     

Performance of Garch Models in Forecasting the Volatility of Exchange Rate for Developing Countries

This paper empirically investigates the performance of GARCH model in forecasting the volatility of exchange rate of some developing countries. We apply linear GARCH model and non-linear GARCH model. We fit these two models to some developing countries exchange rate index from January, 1998 to February, 2005. The return series of the developing countries＇ foreign exchange rate are leptokurtic, significantly skew, deviating from normality and volatile clustering as well. We find within-sample and out-of-sample evidence that conditional estimates of non-linear GARCH model outperform the conditional estimations of linear GARCH models. In our comparisons in most of the developing countries, the non-linear GARCH model produce better results than the linear GARCH model tor forecasting the volatility of exchange rate.     

Retrospect of the Chinese Exchange Rate Regime after Reform： Stylized Facts during the Period from 2005 to 2010

In the present paper, we estimate the de facto RMB exchange rate regime, the currency basket, the floating band and the foreign exchange market pressure before and after the reform of the Chinese exchange rate regime in 2005. We find the following stylized facts： the value of the RAIB became stable after the reform; the weight of the US dollar remained high in the basket, while other currencies remained statistically significant; and the floating band gradually increased to lO percent during 2005-2008, and then greatly narrowed from the late summer of 2008 under the assumption of a yearly resetting interval. We find that the foreign exchange market pressure increased from 2005 to 2008. A possible reason is that the weight of the US dollar in the basket was slightly lower than the share of the US dollar in total transactions on the Chinese foreign exchange market. Therefore, it is reasonable for China to adopt a dollar peg exchange rate regime.     

Home Market Effects of Foreign Trade in China＇s Manufacturing Sector： Analysis Using International Standard Industry Classification Panel Data

In this paper,we use 2002-2008 International Standard Industry Classification two-digit bilateral trade panel data for manufacturing industries in China and the OECD countries to test for the existence of home market effects.We find that significant home market effects exist in 8 out of 12 industries.These industries include the food,beverage and tobacco industry, wood products,the paper products and printing industry,chemical products,other nonmetallic mineral products,machinery and equipment,transport equipment,and miscellaneous products and waste resources recycling industry.Textile,clothing and leather manufacturing,oil refining and nuclear fuel manufacturing,rubber and plastics,and basic metals and fabricated metal products industries do not exhibit home market effects.Indeed, strong reverse home market effects occur for oil refining and nuclear fuel manufacturing and for the rubber and plastics industry.The empirical results reveal that certain industries benefit from new export opportunities due to the expansion of domestic demand in China.     

China＇s Exchange Rate and Financial Repression： The Conflicted Emergence of the RMB as an International Currency

Instability in the worm dollar standard, as most recently manifested in the US Federal Reserve＇s near-zero interest rate policy, has caused consternation in emerging markets with naturally higher interest rates. China has been provoked into speeding RMB ＂internationalization ＂; that is, opening up domestic financial markets to reduce its dependence on the US dollar for invoicing trade and making international payments. However, despite rapid percentage growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls （reinforced by financial repression in domestic interest rates） to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating （appreciating） exchange rate could attract even more hot money inflows, the People＇s Bank of China should focus on keeping the yuan/dollar rate stable so as to encourage naturally high wage increases to help balance China ＂s international competitiveness. However, further internationalization of the RMB, as with the proposed Shanghai pilot free trade zone, is best deferred until world interest rates rise to more normal levels.     

Pricing to Market： Chinese Export Pricing to the USA after the Peg

In July 2005, the Chinese Government unpegged the RMB from the US dollar. As the RMB has followed a remarkably predictable appreciation over time, I examine the price of Chinese exports to the USA after unpegging the exchange rate. Results suggest that the Chinese industries with greater import market share were able to raise their prices after the removal of the pegged exchange rate regime; however, over time there is a significant deflationary trend. Chinese export prices tended to decrease under an unanticipated RMB appreciation; this effect was more pronounced for industries with more pricing flexibility. This suggests that Chinese exporters are consistently ＂pricing to market＂ and thus creating a significant foreign exchange policy implication. Specifically, a more flexible exchange rate regime will likely have little impact on the prices of Chinese exports to the USA but might increase the profit volatility of Chinese firms.     

Uncovering the Relationship between FDI, Human Capital and Technological Progress in Chinese High-technology Industries

Using a panel dataset for 28 sub-industries from 5 Chinese industries from 1995 to 2006, this paper examines the impact of human capital, R＆D expenditure and FD1 spillover on the productivity improvement of Chinese high-technology industries. The whole industry sample results suggest that human capital promotes total factor productivity, technical change and technical efficiency change, but that FDI lowers all of these factors in Chinese high-technology industry. When we distinguish between types of ownership structure in the industries, we find that human capital improves technical change but lowers technical efficiency change, whereas FDI only improves technical efficiency change in state-owned and state-controlled enterprises but reduces technical change in state-owned and state-controlled enterprises and joint ventures.     

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

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.     

Autonomy and Effectiveness of Chinese Monetary Policy under the De Facto Fixed Exchange Rate System

This paper uses monthly data to examine the autonomy and effectiveness of monetary policy in China under the de facto fixed exchange rate arrangement in place from 1998 to 2005. The results obtained from Granger causality tests in a vector autoregression framework indicate that： （i） China actually conducted independent monetary policy during the fixed exchange rate period; and （ii） market-oriented policy measures are impotent in influencing real output and prices. The framework of the investigation into the autonomy of monetary policy adapts to the Chinese economic condition that primary loan and deposit rates are set by the central bank. Based on the empirical results, the present paper provides alternative strategies to improve the effectiveness of monetary policy in China, including developing the financial system and solidifying microeconomic fundamentals instead of forcing the adaptation of a more flexible exchange rate regime.     

Real exchange rates and U.S./Korean bilateral trade

This study examines the impacts of the real exchange rate on the bilateral trade between the U.S. and Korea using a highly disaggregated data set. In doing so, we estimate real exchange rate elasticity for 59 exported commodities （SITC two-digit classification） and 48 imported commodities （also SITC two-digit classification）. Furthermore, we classify commodities according to their attributes in order to examine whether commodity attributes influence the exchange rate elasticity of exports and imports. According to this study＇s results, there have been large changes across those commodities that are ranked as being top contributors to U.S. exports to and imports from Korea for the time periods before, during, and after the Korean financial crisis. Commodity attributes are shown to influence the exchange rate elasticity but are not always consistent with the a priori expectations.     

RMB Internationalization and Its Implications for Financial and Monetary Cooperation in East Asia

This paper emphasizes the importance of the denomination of financial assets rather than trade invoicing as a long-term determinant of an international currency. China needs to liberalize and open its financial system and make the RMB fully convertible, and to adopt a moreflexible exchange rate system to speed up its currency internationalization, for which China could follow either a global or regional approach. The global approach is a riskier and more unpredictable strategy because it would demand a scope and timeframe of financial liberalization that is likely to be beyond China＇s institutional capacity over the coming decade. There are two options that could be taken in following the regional approach. One is creating an ASEAN＋ New 3 （the Chinese Mainland, Hong Kong, and Taiwan） RMB bloc and the other is liberalizing China＇s financial industries and internationalizing the RMB by playing a leading role in East Asia＇s economic integration within the framework of ASEAN＋ 3, This paper concludes that the latter is a more realistic and effective approach for China.     

Euro-dollar real exchange rate misalignments： Is the euro overvalued？

This paper estimates both short term and long run relationship between the real bilateral EUR-USD exchange rate and its real determinants. In the long run, it finds that the non-stationary real exchange rate in levels is linearly co-integrated with real variables. Using an ordinary least squares method with error correction mechanism, it investigates real EUR-USD exchange rate misalignment in the short term. By analysing real variables and their influence on international trade and capital movements, potential economic policies capable of maintaining equilibrium in the balance of payments and avoiding currency overvaluation are considered.     

Global Production Network and the Upgrading of China＇s Integrated Circuit Industry

Using an analytical framework of the global production network （GPN）, the present paper examines the external environment and the internal dynamics of China＇s integrated circuit （IC） industry. We analyze the transition of China＇s IC industry from a state-led integrated device manufacturers＇ model to deeper integration into the GPN. We also explore the technological sources, the upgrading dynamics as well as the positioning of different nodes of China＇s IC industry in the GPN. We conclude that the ＂East Asia model＇＂ of gradual industrial upgrading might not apply anymore in the new era of GPN. High-technology industries can now be upgraded based on a parallel evolution model. Policy implications for China＇s high-technology industrial upgrading strategies are drawn from our analysis.     

The Case for Stabilizing China＇s Exchange Rate： Setting the Stage for Fiscal Expansion

China＇s financial conundrum arises from two sources. First, its large saving （trade） surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead, foreign currency claims （largely US dollars） build up within domestic financial institutions. Second, economists, both American and Chinese, mistakenly attribute the surpluses to an undervalued RMB. To placate the USA, the result was a gradual and predictable appreciation of the RMB against the dollar of 6 percent or more per year from July 2005 to July 2008. Together with the fall in US interest rates since mid-2007, this one- way bet in the foreign exchanges markets not only attracted hot money inflows but inhibited private capital outflows from financing China＇ s huge trade surplus. Therefore, the People＇s Bank of China had to intervene heavily to prevent the RMB from ratcheting upwards, and so became the country＇s sole international financial intermediary as official exchange reserves exploded Because of the currency mismatch, floating the RMB is neither feasible nor desirable, and a higher RMB would not reduce China＇ s trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal RMB/USD rate similar to that which existed between 1995 and 2004. However, for any newly reset RMB/USD rate to be credible as a monetary anchor, foreign ＂China bashing＂ to get the RMB up must end. Then the stage would be set for fiscal expansion to both stimulate the economy and reduce its trade surplus.     

Impact of Cross-Strait Trade Liberalization： A Computable General Equilibrium Analysis

This paper applies a computable general equilibrium model to investigate the potential economic effects of trade liberalization across the Taiwan Strait. Our simulation results reveal that cross-Strait trade liberalization will have significant positive impacts on external trade, domestic investment and real GDP for the economies in this area in general and in Taiwan in particular. Furthermore, the negative impact from the formation of a free trade arrangement between Taiwan and Chinese Mainland on Hong Kong seems to be rather small. These results suggest that cross-Strait trade liberalization is very likely to bring about a win-win situation for the economies in this area.     

Comparative study of the inducement of US subprime mortgage crisis and symptom of real estate in China

Since the essence of US subprime mortgage crisis just lies in the bank credit crisis caused by bubbles bursting of real estate market, some questions are really worthy of our deep reflection, such as whether there are bubbles existing in Chinese real estate market, whether there is crisis implied in Chinese real estate industry and financial crisis, as well as the difficulties that Chinese real estate is facing and the extent to which its difficulties might overshadow it. Therefore, based on the comparative study of the inducement of US subprime mortgage crisis and symptom of real estate in China, this paper illustrates the inducement of US subprime mortgage crisis and relevant symptom that Chinese real estate industry is facing, and further dialyzes a series of warnings brought to Chinese real estate.     

Empirical Analysis of Provincial Energy Efficiency in China

This paper proposes an energy efficiency index based on the data envelopment analysis approach. The index is used to examine energy efficiency in China. Using 1997-2006panel data for 29 provinces, we find that energy efficiency is negatively associated with the secondary industry share in GDP, the state-owned economic share in GDP and the government expenditure share in GDP, and is positively associated with the technical level and non-coal share in energy consumption. In addition, we find that there exists a large gap in energy efficiency among eastern, central and western regions. The eastern region has a significantly higher energy efficiency level than the eentral and western regions. We conclude that the different levels of industry structure, government intervention, energy structure, and the technology content in the three regions lead to the differences in energy efficiency.     

Pass-through Effects of Global Commodity Prices on China＇s Inflation： An Empirical Investigation

The present paper uses a two-step approach to estimate the pass-through effects of changes in international commodity prices and the RMB exchange rate on domestic consumer price inflation in China. We first estimate the pass-through effects of international commodity prices on producer prices and then estimate the pass-through effects of producer price inflation on consumer price inflation. We find that a l O-percent increase in international commodity prices would lead to China＇ s producer prices increasing by 1.2 percent 3 months later, which in turn would increase China＇ s domestic inflation by 0.24 percent over the same period. However, a 10-percent appreciation of the RMB exchange rate against the US dollar would help to reduce increases in producer prices by 4.4 percent over the following 3 months, which in turn would lead to a 0. 89-percent decline in consumer price inflation over the same period. Our findings suggest that appreciation of the RMB in an environment of rising global commodity prices and a weak US dollar could be an effective instrument to help contain inflation in China.     

Inter-industry Technology Spillover Effects in China： Evidence from 35 Industrial Sectors

The present paper calculates 35 industrial sectors’ similarity matrices for the period of 1997-2008 using China’s input-output tables for 1997,2002 and 2007,and uses these to measure inter-industry technology spillover to analyze the spillover effects on industrial sectors’ labor productivity.The empirical analysis shows that inter-industry technology spillover has a significant positive effect on the labor productivity of each industry.The elasticity of productivity effects of inter-industry technology spillover is not only larger than that of direct R&D input,but also increases over time.We group the industries into four major categories and find that the inter-industry technology spillover effect within the categories is,on average,greater than that between the four categories,indicating that technology spillover occurs more easily between similar industries.This research shows that the interindustry technology spillover effect in China has begun to increase,and the government should take advantage of this effect.