Click to watch Steve Rodgers -
Click to watch Steve Rodgers -
china resources

Need an office in China? Office suites, meeting rooms, virtual offices, network access

free downloads
CHINA: "Managing Discontinuities in China" report

CHINA: "Managing Discontinuities in China" report. 8-page report by Booze Allen Hamilton.

proceed to download

back to index backCHINAtalk July,  2005

China's Currency Revaluation

What Did the Chinese Government Actually Do?

  • The People's Bank of China (PBOC) announced that China has abandoned its fixed exchange rate with the US dollar and moved to a managed float.
  • This means that, each trading day, the PBOC will set the value of the Chinese renminbi, with a basket of major trading-partner currencies as a guide (including the US dollar, yen, and euro at a minimum).
  • Beijing has not revealed—nor is it likely to anytime soon—the composition of this basket.
  • Bottom line: China has given itself a little more flexibility on its currency than before.
  • Big question: how much more will the renminbi appreciate?

Why Did They Do It Now?

  • China's currency move was in reaction to both external and internal pressures.
  • Part of the government's motive was to head off protectionist moves by the US Congress.
  • But Chinese authorities are also trying to stem the flow of hot money, which has produced a boom in capital investment and pushed its share of the economy from 40% three years ago to 51% last year.

Impacts: Very Small, Unless the Chinese Currency Continues to Appreciate

  • So far, the renminbi has appreciated 2%. This will have almost no impact on the US and Chinese economies.
  • Global Insight's best guess is that Beijing will allow the currency to appreciate by no more than 10% over the next two years. This should be seen in the context of estimates suggesting that the renminbi is undervalued by 30–40%.
  • Assuming that all other Asian economies (including Japan) allow their currencies to appreciate by roughly the same amount, this will translate into a 4% drop in the US dollar on a trade-weighted basis. This is relatively small compared with its 17% drop since early 2002.
  • Another factor to consider is that China's chronic current-account surplus is mainly driven by structural, excess saving in its private sector, rather than a undervalued currency.
  • Bottom line: unless the renminbi appreciates a lot, the overall impact on the US and Chinese economies will be small.
Source: Global Insight - GAI

previous page

go top
search our site



Other articles from the same issue (July,  2005).

The Five Biggest Myths About Doing Business in China
play read on

Is The China Market Back?
play read on

A global march with Japanese characteristics - The WTO column
play read on

Outsourcing "Points of Pain" in the Supply Chain
play read on

Automotive industry affected by recent guideline changes in China
play read on

China's machine tool market
play read on

China Tightens Employment Regulations for Hong Kong, Macau and Taiwan Nationals Working on the Mainland
play read on

China's Currency Revaluation
play read on

Spanish Government Directs Investment at Western China
play read on

China's Still On A Roll
play read on

Our Free eJournals

To visit GlobalAutoExperts Directory, click here.

©2008 | HCI Group, Ltd.
101 West Big Beaver Road, Suite 1400 | Troy, MI 48084 USA
USA Tel: +1.248.687.1060 | USA Fax: +1.248.927.0347
Fax UK: +44.(0)845.127.4765 | Fax Europe: +31.20.524.1659 | Fax Asia: +852.3015.8120