Print

China’s Exchange Rate Policy: Forty Years of Reforms and Prospects

147
Rubric: Economy, Economic Theory
DOI: 10.20542/0131-2227-2020-64-12-33-43
I. Kudryashova (KudryashovaIV@volsu.ru),
Volgograd State University, 100, Universitetskii Prosp., Volgograd, 400062, Russian Federation
PDF (RUS)

Abstract. After four decades of reforms, China has become one of the biggest economies of the world and its exchange rate policy is a key factor in this process. The paper focuses on the conditions that have shaped the directions of China’s exchange rate policy at every stage of its evolution, the measures taken and the results achieved in terms of the policy’s effect on the economic growth and balance of payments. It is shown that active state interference in the exchange market policy in the early stages resulted in the undervalued yuan exchange rate and also encouraged positive dynamics of internal production due to the enhanced national export competitiveness. In subsequent stages, liberalization of China’s economy, its integration in the global economic relations, its bigger contribution to the global product manufacturing and export led to the increased role of market forces in the yuan exchange rate formation. Some practical measures taken in this direction encouraged the balanced yuan exchange rate, lower surplus of current accounts and increase in balance volatility of capital and financial accounts. Currently, the yuan exchange rate is still controlled. China’s monetary authorities mostly use international reserves to regulate the yuan exchange rate. The paper concludes that it is necessary to further increase the influence of market factors in the yuan exchange rate formation and diversification of the yuan stability instruments in order to maintain export growth rates, to develop China’s financial market and to expand the scope and international spheres of the yuan use.

Keywords: exchange rate, foreign exchange interventions, international reserves, GDP, export, trade balance, current account, capital account and financial operations


REFERENCES

  1. UnctadStat, Gross Domestic Product. Available at: https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=96 (accessed 15.01.2020).
  2. UnctadStat, International trade in Goods and Service. Available at: http://unctadstat.unctad.org/wds/ReportFolders/reportFolders.aspx (accessed 12.01.2020).
  3. World Bank, Total Reserves (Includes Gold, Current US$). Available at: https://data.worldbank.org/indicator/FI.RES.TOTL.CD?locations=CN&view=chart (accessed 12.01.2020).
  4. Lin G., Schramm R. China’s Foreign Exchange Policies since 1979: a Review of Developments and an Assessment. China Economic Review, 2003, vol. 14 (3), pp. 246-280. Available at: DOI:10.1016/j.chieco.2003.09.006 (accessed 10.12.2019).
  5. China: the Evolution of Foreign Exchange Controls and the Consequences of Capital Flows. BIS Papers, Financial Globalisation and Emerging Market Capital Flows, 2008, ¹ 44, pp. 143-151. Available at: https://www.bis.org/publ/bppdf/bispap44.pdf (accessed 12.01.2020).
  6. Izotov D.A., Suslov D.V. Valyutnyi kurs i vneshnyaya torgovlya KNR [Foreign exchange rate and China’s foreign trade]. Prostranstvennaya ekonomika, 2009, no. 3, pp. 36-63.
  7. World Bank. Exports of Goods and Services (% of GDP). Available at: https://data.worldbank.org/indicator/NE.EXP.GNFS.ZS?locations=CN&view=chart (accessed 17.01.2020).
  8. Anosova L.A., Kabir L.S. Liberalizatsiya potokov kapitala i perekhod k rezhimu plavayushchego kursa: opyt Kitaya [Liberalization of capital flows and the transition to a floating exchange rate regime: the experience of China]. Ekonomika i upravlenie, 2015, no. 5 (115), pp. 4-12.
  9. Kanamori T., Zhao Z. The Renminbi Exchange Rate Revaluation: Theory, Practice and Lessons from Japan. ADBI Policy Paper ¹ 9, 2006. 131 p. Available at: https://www.adb.org/sites/default/files/publication/159375/adbi-renminbi-exchange-rate.pdf (accessed 14.12.2019).
  10. World Bank. China: GNP per Capita, 1994. Available at: http://documents.worldbank.org/curated/pt/472061468746706804/pdf/multi0page.pdf (accessed 19.12.2019).
  11. State Administration of Foreign Exchange. The Time-series Data of Balance of Payments of China. Available at: https://www.safe.gov.cn/en/2019/0329/1496.html (accessed 05.02.2020).
  12. World Bank. External Debt. Available at: https://data.worldbank.org/indicator (accessed 20.01.2020).
  13. Yu Y. The Reform of China’s Exchange Rate Regime. China’s 40 Years of Reform and Development: 1978–2018. Garnaut R., Song L., Fang C., eds. ANU Press, 2018, pp. 313-328. Available at: https://www.jstor.org/stable/j.ctv5cgbnk (accessed 05.01.2020).
  14. Morrison W.M., Labonte M. China’s Currency: Economic Issues and Options for U. S. Trade Policy. Congressional Research Service, RL32165. 2008. Available at: https://www.everycrsreport.com/files/20080522_RL32165_2a36b30fed97b2cd7af3b6943d515dd8d0eaa93e.pdf (accessed 16.11.2019).
  15. World Bank. Current Account Balance. Available at: https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?locations=CN&view=chart (accessed 23.01.2020).
  16. China’s Trade with the United States and the World. Congressional Research Service, RL31403. 2007. Available at: https://fas.org/sgp/crs/row/RL31403.pdf (accessed 23.01.2020).
  17. McKinnon R. China’s Exchange Rate Appreciation in the Light of the Earlier Japanese Experience. ZEW Discussion Papers 06-035, ZEW – Leibniz Centre for European Economic Research, 2006. 14 p. Available at: http://ftp.zew.de/pub/zew-docs/dp/dp06035.pdf (accessed 03.01.2020).
  18. Das S. China’s Evolving Exchange Rate Regime. IMF Working Paper, no. 19/50, 2019. Available at: https://ssrn.com/abstract=3367435 (accessed 15.07.2019).
  19. Luo J., Williams G.W. The Impact of Chinese Exchange Rate Policy on World Soybean and Products Markets. Selected Paper, Agricultural and Applied Economics Association Annual Meeting. San Francisco, July 28, 2015. Available at: DOI:10.22004/ag.econ.205075 (accessed 19.11.2019).
  20. International Monetary Fund. Press Release: IMF Staff Completes the 2015 Article IV Consultation Mission to China. Available at: https://www.imf.org/en/News/Articles/2015/09/14/01/49/pr15237 (accessed 15.01.2020).
  21. Emter L., McQuade P. Foreign Exchange and External Sector Developments in China. Quarterly Bulletin Articles. April 2019, pp. 101-116. Available at: https://centralbank.ie/docs/default-source/publications/quarterly-bulletins/quarterly-bulletin-signed-articles/foreign-exchange-and-external-sector-developments-in-china-(emter-and-mcquade).pdf?sfvrsn=4 (accessed 17.01.2020).
  22. Lane P.R., Milesi-Ferretti G.M. The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis. IMF Economic Review, 2018, vol. 66, iss. 1, pp. 189-222. Available at: DOI: 10.1057/s41308-017-0048-y (accessed 10.12.2019).
  23. Kudryashova I.V. Kitaiskii yuan’ kak mirovaya valyuta: imperativy i real’nost’ [Chinese Yuan as a world currency: the imperatives and realities]. Mirovaya ekonomika i mezhdunarodnye otnosheniya, 2017, vol. 61, no. 9, pp. 36-44. Available at: DOI: 10.20542/0131-2227-2017-61-9-36-44 (accessed 10.12.2019).
  24. The People’s Bank of China. Exchange Rate. Available at: http://www.pbc.gov.cn/diaochatongjisi/116219/116319/3750274/3750284/index.html (accessed 28.01.2020).
  25. Cline W.R. Separating Wheat from Chaff in PPP Assessments of Exchange Rate Misalignment. September 28, 2016. Available at: https://www.piie.com/blogs/realtime-economic-issues-watch/separating-wheat-chaff-ppp-assessments-exchange-rate (accessed 28.12.2019).
  26. Frankel J. The Currency Manipulation Game. Project Syndicate, August 9, 2019. Available at: https://www.project-syndicate.org/commentary/america-china-currency-manipulation-by-jeffrey-frankel-2019-08?barrier=accesspaylog (accessed 11.01.2020).
  27. IMF Sees Dangers from Trade Tensions and Says the Dollar Is Overvalued. Consumer News and Business Channel, 17.07.2019. Available at: https://www.cnbc.com/2019/07/18/imf-sees-dangers-from-trade-tensions-says-usd-is-overvalued.html (accessed 14.01.2020).
  28. U.S. Department of the Treasury. Report to Congress on the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. May, 2019. 43 p. Available at: https://home.treasury.gov/system/files/206/2019-05-28-May-2019-FX-Report.pdf (accessed 17.01.2020).
  29. U.S. Department of the Treasury. Press Releases.Treasury Designates China as a Currency Manipulator. August 5, 2019. Available at: https://home.treasury.gov/news/press-releases/sm751 (accessed 23.01.2020).
  30. Bureau of Economic Analysis. International Trade in Goods and Services. Available at: https://www.bea.gov/data/intl-trade-investment/international-trade-goods-and-services (accessed 29.01.2020).
  31. Wong D., Koty C.K. The US-China Trade War: a Timeline. China Briefing. Available at: https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/ (accessed 03.02.2020).
  32. Nicita A. Trade and Trade Diversion Effects of United States Tariffs on China. UNCTAD Research Paper ¹ 37. November 2019. Available at: https://unctad.org/system/files/official-document/ser-rp-2019d9_en.pdf (accessed 31.01.2020).

Registered in System SCIENCE INDEX

For citation:
Kudryashova I. China’s Exchange Rate Policy: Forty Years of Reforms and Prospects. World Eñonomy and International Relations, 2020, vol. 64, no. 12, pp. 33-43. https://doi.org/10.20542/0131-2227-2020-64-12-33-43

Contents World Eñonomy and International Relations. 2020, vol. 64, no. 12

Comments (0)

Show

No comments

Add comment







Indexed

 

 

 

 

Dear authors! Please note that in the VAK List of peer-reviewed scientific journals, in which the main scientific results of dissertations for the degree of candidate and doctor of sciences should be published for the “MEMO Journal” the following specialties are recorded:
economic sciences:
5.2.5. World Economy.
5.2.1. Economic Theory
5.2.3. Regional and Branch Economics
political sciences:
5.5.4. International Relations
5.5.1. History and Theory of Politics
5.5.2. Political Institutions, Processes, Technologies

 

Current Issue
2025, vol. 69, No. 3
Topical Themes of the Issue:
  • Interference Debate within the UN: Record of Systematic Study 
  • Problems and Ways of Russia’s Access to Non-CIS Countries Product Markets
  • The Integration in Central Asia: Restrictions and Perspectives
Announcement

Dear authors of the journal!

Please note that the author's copies of the issues in which your texts are published are kept in the editorial office for no more than one year. After this period expires, the editorial office has the right to dispose of unclaimed copies at its own discretion.

 

Submit an Article
Submit an Article
INVITATION FOR PUBLICATION
The Editorial Board invites authors to write analytical articles on the following topics:
  • changes in the processes of globalization in modern conditions
  • formation of the new world order
  • shifts in civilization at the stage of transition to a digital society

The editors are also interested in publishing synthesis articles / scientific reviews revealing the main trends in the development of certain regions of the world - Latin America, Africa, South Asia, etc.

Scientific and Practical Seminar of IMEMO, RIAC
and the MEMO Journal