China and US: Situation and Problems in Economy & Trade. Dr. Haixin Yao Professor of Economics, Liaoning University, China Visiting Scholar, California State University, Northridge (CSUN) April 15, 2008. Outline. Introduction Status Quo Problems Prospect and Suggestion . I. Introduction.
Dr. Haixin Yao
Professor of Economics, Liaoning University, China
Visiting Scholar, California State University, Northridge (CSUN)
April 15, 2008
Prospect and Suggestion
A brief review
The comparison of some index: China vs. US
(1) Feb.21,1972 , President Richard M. Nixon of USA visited China.This was the milestone for the normalization of China-US relationship
（2）In Dec.1975, President Ford of USA visited China.
（3）On Dec. 16,1978, China –US published the joint communique.
（4）At the end of 1978, China started to make economic reform and open up to the world !
（5）0n Jan. 1, 1979，China and US established their formal diplomatic relationship.
Before establishing formal diplomatic relationship in 1978. The total trade between China and US was only $0.99 billion. In 1979，this volume of trade increased rapidly to $2.45 billion!
（6）On Jan. 28, 1979, China leader Deng Xiao-ping visited USA.
（7）On Feb.1, 1980, The trade agreement of China-US validated formally.
（8）During May 5-9,1982, Vice president George Bush visited China. (older Bush)
（9）On Aug.17, 1982, Two government published the China-US joint communique.
（10）During Apr. 25- May. 1,1984，president Ronald Reagan visited China.
China and U.S. signed four agreements.
(11) On Nov.19,1993, President Jiang Ze-min of China met President Bill Clinton in Seattle
--In 1993, the volume of China-US trade increased rapidly to $27.65 billion.
--China became US’s the fourth largest import trade partner and 13th largest export trade partner of US.
--US also became the second largest export trade partner and third largest import trade partner of China.
（12）During Oct. 26- Nov. 3, 1997, President Jiang Ze-min of China visited U.S.
Two countries published the joint communique.
（13）During Jun.25- Jul.3,1998, President Bill Clinton visited China.
（14）On Apr. 6-14, 1999，Premier Zhu Rong-ji of China visited U.S.
（15）On Nov.15, 1999, China and US signed formally the bilateral agreement about China joining WTO.
（16）On May 25, 2000, US gave formally the permanence normal trade position to China.
（17）On Oct. 19,2001, President Jiang Ze-min talked with President George W. Bush in Shanghai
（18）On Dec.11, 2001, China joined formally WTO!
（19）On Feb. 21-22, 2002, President George W. Bush visited China.
（20）On Oct. 19, 2003, China’s current President Hu Jin-tao met with President George W. Bush in Bangkok
（21）On Dec. 7-10, 2003, China’s current premier Wen Jia-bao made a formal visit to US.
（22）On Nov. 19-21,2005，President George W. Bush made a formal visit to China.
（23）In Sep. 2006, China-US started strategic dialogue mechanism
（24）On Dec.15,2006,the First economic strategic dialogue.
The two parties reached a series of substantial agreements on security, finance, energy and aviation.
（25）On May 22-23, 2007, the Second economic strategic dialogue.
（26）On Dec. 11, 2007, the Thirdeconomic strategic dialogue .
14 cooperation files about economy & trade.
（27）The Fourth economic strategic dialogue of China-US will be held in Washington in June, 2008.
Table 1 International Comparison(1)(2005)
Source: national bureau of statistics, P.R.C.
3. Exchange rate
4. Finance field and capital market
From 1979 to 2006,the total trade between China and US has increased 106 –fold ,its growth rate has averaged 18.9% per annum!
In 2006, US was the second largest trade partner of China , the first largest export market, the sixth import origin place, and the third tech. import origin place.
In 2007 US was still the second largest trade partner of China, it had 13.9％shares of total foreign trade in China.
But, US has become the second largest export market of China!
Source: China customs - customs statistics
（1）U.S. Enterprise invest in China
U.S. started to invest directly in 1980.
At the beginning of 1990s, the investment of U.S. Enterprise had less than $0.4 billion per annum .
In 1990, there were only 45 U.S. Enterprises.
in recent five years, the number of projects invested and actual investment of U.S. enterprise has decreased gradually.
By the end of 2006,
52,211 U.S. Investment enterprises
actual accumulated investment reached $54 billion
8.78% and 7.87% share of total FDI
In 2007,those two proportions had decreased to 6.94％and 3.5％ respectively.
By the end of July, 2007，
accumulated project 53,754，
actual accumulated investment $55.42 billion
The basic aim is to
produce in China and sell in China
In 2002 and 2003, the U.S. enterprise’s investment in commerce, finance, insurance and real estate in China has increased obviously
――multinational companies are main participants.
――purchasing from international market.
――production base in China, sold in China market.
――pay attention to localization business.
――business performance is all right.
Investment Return rate :19.2%
(the IRR of its whole world was only 10.1% )
U.S. enterprises in China earned profit about $3.0 billion
81% U.S. enterprise in China earned profit.
（2）China’s invest to U.S.
China’s outward FDI is relatively small!
Table 11 China’s non-finance FDI to North America （2003-2006） unit：million U.S. dollar.
By the end of Jun. 2007，China’s FDI to U.S. had only $1.036 billion!
Before exchange rate reform, i.e. July. 21, 2005, $1 = 8.2765yuan
Table 12 Chinese currency exchange rate （average value, exchange U.S. dollar）
On July. 21,2005, China decided to reform its exchange rate
――give up pegging US dollar and set consult a basket of currencies.
――Chinese currency revalue 2%, from 8.2765 yuan/us dollar to 8.11yuan /us dollar .
――Chinese currency exchange rate was decided by the central rate set by a basket of currencies(fluctuation0.3％)
Since exchange rate reform, Chinese currency is appreciating continually with a faster speed.
In theory,Chinese currency appreciate would decrease adverse balance of US’ trade to China. But in fact, this effect is very limited.
From Jul. 21, 2005 to Mar. 28, 2008,
8.11yuan/us dollar → 7.01yuan/us. Dollar, appreciated accumulatively by 15.7％.
But, during this period , US’ adverse balance to Chinahas not decreased!
China is gradually opening Finance field and capital market.
More and more US’s finance institution go into China’s capital market directly or indirectly by all ways.
More and more US’s enterprise are holding or controlling the shares of listed companies in China through capital market, or by making M&A.
-- 17 US’s finance and investment institutions obtained the QFII.
-- 6 US’s investment companies held the shares of fund management companies.
-- 25 US’s enterprise are holding or controlling the shares of China’s enterprises.
In recent 5 years, more and more China’s enterprises go to overseas for listing and financing.
By the end of 2007，
77 China’s enterprises had been listed in America ,
-- 19 companies listed in NYSE
-- 30 companies listed in NASDQ
-- Other 28 listed in OTC
China has also held the second largest US’s treasury bill.
By the end of 2007, China held $346.6 billion US’s treasury bill(government bond).
It had 8.1% share of total US’s treasury bill
1. Basic features
Processing trade is main part of China-US trade
The volume of U.S. invested in China is more than that of China invested in U.S.
China has become the center of world assembling, “made in China” is also “made in world ”.
The degree of trade imbalances remains large.
In goods trade, China has trade surplus to US
In services and capital investment trade, China has adverse trade balance to US.
Trade surplus is in China, while profits is in US.
The report published by three researchers in UC showed
Apple Company sold iPod at $299 each one. Its cost and profit were as following:
Sell price: $299
purchased main parts $73 (from Japan )
purchased other parts $60 (from other country)
assemble $3 (in China !)
Profit: $163 (in US)
Apple Company gained $80
larger balance of trade, i.e. trade imbalances!
Chinese currency exchange rate: marketization
China’s intellectual property rights (IPR)
China’s safety of product
China’s capital market: further opening
US: trade problem is being politicized
US’s export controlling over China
US’s protectionist policy on trade
a. Complex and uncertainty
b. Chinese currency (Renminbi) will continue to appreciate
c. Trade friction and disputed will still increase.
d. Energy resources and environment protection will become new topics
e. Trade balance (trade imbalances) of China-US will reduce gradually
f. China’s finance ,service and infrastructure industry will open further to world.
g. China’s reform and opening has its irreversibility！
h. China and US economy will be face up long-term structural challenges.
China is the world’s third largest trading nation.
With the largest population with over 1.3 billion people and one of the world’s fastest growing economies
China has the largest potential and realistic market
U.S. is the second largest trade partner of China and the second largest export market of China .
China is the fourth largest trade partner of U.S.
The relationship of China-US economy and trade is and should be mutual beneficial and reciprocal relation in nature!
From the view of Game theory,
If cooperate , then both will obtain the benefits;
If not cooperate, then both will lose!
a. Adjust and control excess import.
b. Implement export free, cancel export restrict ions to China.
c. Adjust trade policy and system, improve outdated national trade act. Further liberalize trade .
d. Enlarge opening of industry and tech. market to other countries
e. Not politicize the trade problems
Continue to adjust economic structure.
Continue to deepen reform
Reform and adjust national policy and system about distribution
Change the relationship of consumption, investment and saving. Decrease saving rate.
Further Enlarge import.
Control export，adjust and change export policy.
Make Renminbi exchange rate more marketable
Further reform the financial system.
Enhance protecting for IPR.
Cancel some government subsidy for export enterprise