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Über dieses Buch

This book, by one of China's leading economists, explores the past and present of the RMB—the people's currency—as it is poised to compete with the dollar as the international reserve currency.

Exchange rate movement and its pass-through to changes in domestic prices have been topics of wide concern among economists. However, relatively few studies have empirically investigated the relationship between exchange rate movements and China's international trade.This book fills this gap, using the general equilibrium theory of the western economic science norm systems, integrating the leading heterogeneous firm theory of international trade, attempting to set up a theoretical structural model for further prediction, and applying the data from sample cases to examine the structural model. This book will be of interest to economists, financiers, and China watchers.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Does Appreciation of the RMB Decrease Imports to the US from China?

Abstract
In 2005, China abated its fixed exchange rate against the US dollar and began to appreciate the Renminbi (RMB). In this chapter, I explore the effect of the appreciation of the RMB on imports to the United States (US) from China by augmenting the gravity model with the exchange rate. Using an industrial panel data set during the period 2002–2008 and controlling for the endogeneity of the bilateral exchange rate, this extensive empirical analysis suggests that the appreciation of the RMB against the US dollar significantly reduced imports to the US from China. This finding is robust to a variety of econometric methods and to coverage in different periods.
Miaojie Yu

Chapter 2. Revaluation of the Chinese Yuan and Triad Trade: A Gravity Assessment

Abstract
The literature has paid little attention to the endogenous nexus between exchange rates and bilateral trade. In this chapter, I use a gravity model to investigate the two-way causality between exchange rates and bilateral trade with data from China, Japan, and the US during the 2002–2007 period. After controlling for the simultaneous bias between exchange rates and bilateral trade, the extensive empirical evidence shows that the revaluation of the Chinese yuan against the dollar significantly reduced China’s exports to the US but had no significant effect on China’s exports to Japan. These findings are robust to different measures, econometric methods, and period coverage.
Miaojie Yu

Chapter 3. Exports, Productivity, and Credit Constraints

Abstract
Recent Melitz-type (2003) intra-industry heterogenous trade models argue that a firm’s productivity has significant effects on the firm’s exports. This chapter examines how a firm’s credit constraints as well as its productivity affect its export decisions. We imbed the firm’s credit constraints into a Melitz-type general-equilibrium model by endogenizing the probability of the success of firm-specific projects. We show that, all else equal, it is easier for firms to enter the export market if (1) the probability of the success of their project is higher and consequently they have easier access to external finance from financial intermediaries; or (2) they have alternative sources, other than from financial intermediaries, to obtain funds. We test these theoretical hypotheses using firm-level data from Chinese manufacturing industries and find strong evidence supporting the predictions of the model.
Miaojie Yu

Chapter 4. Exports and Credit Constraints under Incomplete Information

Abstract
This chapter examines why credit constraints for domestic and exporting firms arise in a setting where banks do not observe firms’ productivities. To maintain incentive-compatibility, banks lend below the amount that firms would need for optimal production. The longer time needed for export shipments induces a tighter credit constraint on exporters than on purely domestic firms, even in the exporters’ home market. In our application to Chinese firms, we find that the credit constraint is more stringent as a firm’s export share grows, as the time to ship for exports is lengthened, and as there is greater dispersion of firms’ productivities reflecting more incomplete information.
Miaojie Yu

Chapter 5. Exchange Rate Movements and Exporter Profitability

Abstract
This chapter examines how RMB appreciation affects profitabilities of exporting firms. Based on highly disaggregated firm-level data from 2001 to 2007, we take RMB appreciation during 2005–2007 as a natural experiment and adopt a difference-in-difference method for exporters and non-exporters. Compared to those of non-exporters, returns on equity in exporting firms dropped by about 5% after RMB appreciation. The more dependence firms have on exporting, the more declines there are in their profitabilities. RMB appreciation raised the relative price of Chinese products, which in turn decreased the capacities of exporters to generate sales.
Miaojie Yu

Chapter 6. Export Tightening, Competition, and Firm Innovation

Abstract
This chapter investigates how firm innovation reacts to changes in competitive pressure in the export market. We use the exchange rate appreciation of the RMB during 2005–2007 as a natural experiment and exploit its differential impact on Chinese manufacturing firms with different export exposure. The appreciation reduced exports and imposed greater competitive pressure on exporters relative to non-exporters. In response, exporters increased innovation activities more than non-exporters. Using a difference-in-difference approach, we find the R&D expenses of exporters increased by 11% more than non-exporters during the appreciation period, and the new product development of exporters increased by nearly 1.5 times more than non-exporters. Innovation increased for productive, continuing exporters but decreased for less productive firms that quit exporting. These results contradict the prediction of models that link export and innovation solely via market size effects, and suggest the important role of competition in determining firm innovation.
Miaojie Yu

Chapter 7. Promotion Effect of CNY Appreciation on Export Quality

Abstract
How does the CNY appreciation impact Chinese exporters? In this chapter, we study the impact of exchange rate change on enterprises’ export quality decision. Using micro-level data of Chinese manufacturers and customs from 2000 to 2006, we estimate export quality more accurately by correcting approaches applied in previous literature. Based on the estimated export quality, we find that the appreciation of CNY intensifies the competition faced by Chinese exporters and therefore promotes their export quality upgrading behaviors. On average, 10% of CNY appreciation leads to an increase in export product quality by 0.19%. For industries with high quality differentiation, the effect of 10% CNY appreciation on export product quality increase is 0.4%, while for industries with low quality differentiation, this effect is insignificant. In addition, appreciation of CNY reduces the number of exporters. We also find that quality upgrading effect is more significant for non-core products and less-productive exporters. We find a new mechanism through which exchange rate change affects export decisions, and show that competition is an important driving force for product quality upgrading.
Miaojie Yu

Chapter 8. Outward Directs Investment, Firm Productivity, and Credit Constraints

Abstract
China is currently the third largest country in terms of outward direct investment (ODI), and the investors are mainly state-owned enterprises. This presents a question: what inhibits the private enterprises from increasing ODI? Using a firm-level panel data set of Zhejiang province in China, we examine the impact of firm heterogeneity on private firm ODI. We have three main findings: first, higher productivity level contributes to better access of ODI, and increases ODI value as well; second, lowering a firm’s financial constraint level can increase both the probability and volume of ODI; third, productivity cannot offset the negative effect of financial constraint on private firm ODI.
Miaojie Yu

Chapter 9. The Effect of RMB Internationalization on Belt and Road Initiative

Abstract
This chapter reviews the current development of the Belt and Road Initiative and RMB internationalization, and analyzes the effect of RMB internationalization on Belt and Road Initiative, through trade, investment, and currency reserve channels. The research specifically analyzes the effects of RMB internationalization on bilateral trade through a gravity model, in which panel data concerning the trade and data of currency swap agreements between China and other countries are used. The estimation result shows that both the dummy variable for swap agreements and the size of swap agreements impose significant positive effects on the trade volume between China and its trade partners.
Miaojie Yu

Chapter 10. The Potential Impacts of China–US BIT on China’s Manufacturing Industries

Abstract
This chapter finds that the overall effect of the foreign direct investment (FDI) and thereby the China–US bilateral investment treaties (BIT) on Chinese manufacturing sector is positive, which raises the productivity and profitability of the firms, using various econometric models and other evidence. The manufacturing sector as a whole has already opened up to the world economy and needs to continue this process. The industries in the manufacturing sector do not need to be protected, except for in limited fields related to national security, scarce natural resources, and well-defined strategic sectors. Gradual lifting of the protection may be needed in the short run for a small number of vulnerable sectors. A moderate relaxing of the current restrictions will increase FDI in manufacturing from all countries by 4–8% under different assumptions. This effect will be small when only considering FDI from the US. BIT will be beneficial for Chinese firms to invest overseas and become global players. Domestic firms need to update their technology, reduce costs, and learn management skills from their foreign competitors, while using the national treatment terms in BIT to enter the fields that are not opened to domestic firms under current regulations. Domestic firms also need to set up firm-level global strategy and reallocate firm’s resources according to the changing investment environment, taking advantage of profit opportunities outside the domestic markets.
Miaojie Yu

Backmatter

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