china and us: situation and problems in economy & trade dr. haixin yao professor of economics,...
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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
I. IntroductionII. Status QuoIII. ProblemsIV. Prospect and Suggestion
I. Introduction
1. A brief review2. The comparison of some index:
China vs. US
1. A Brief Review
(1) Feb.21,1972 , President Richard M. Nixon of USA visited China.This was the milestone for the normalization of China-US relationship
--cont’
（ 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!
--cont’
（ 6 ） On Jan. 28, 1979, China leader Deng Xiao-ping visited USA.
-- cont’
（ 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.
－ cont’
(11) On Nov.19,1993, President Jiang Ze-min of China met President Bill Clinton in Seattle
－ cont’
--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.
-cont’
（ 12 ） During Oct. 26- Nov. 3, 1997, President Jiang Ze-min of China visited U.S.
Two countries published the joint communique.
-cont’
（ 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.
This bilateral negotiation had lasted for 13 years!
-- cont’
（ 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
-- cont’
（ 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
-- cont’
（ 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.
--cont’
（ 26 ） On Dec. 11, 2007, the Third economic 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.
2. The comparison of main social and economic index : China vs. US Table 1 International Comparison(1)(2005)
Source: national bureau of statistics, P.R.C.
Country acreagePopulation by the
end of yearDensity of pop.
(million sq.km ） （ billion ） （ person/ sq.km ）Country /area
World 134.279 6.4378 47.9 Developed countries 56.433 1.0113 17.9 Developing countries 77.891 5.4264 69.7
G7 21.445 0.7176 33.5 North America 21.572 0.4319 20.0 Southeast Asia union 4.48 0.5514 123.1
China 9.600 1.3076 136.2 USA 9.629 0.2965 30.8 Russia 17.098 0.1432 8.4
Table 2 International Comparison (2)(2005)
GDPPer capita
GDPGDP
growthGDP composing （％）
Country /area
（ billion u.s. dollar
s ）（ u.s .dolla
r ） (%) Primary Secondary Tertiary
World44384.8
7 6987 4.9 3.5 28.0 68.5
Developed countries
34466.20 35131 2.6 1.6 26.2 72.2
Developing countries 9926.40 1746 7.4 11.7 36.0 52.3
China 2228.9 1740 10.2 12.6 47.5 39.9
USA 12455.0
7 43740 3.5 1.2 22.3 76.5
Russia 763.72 4460 6.4 5.6 38.0 56.4
Table 3 International Comparison(3)(2005)
Table 4 China’s some index ranks in world （ 1978 －2005 ）
index 1978 1980 1990 2000 2003 2004 2005
Country acreage 4 4 4 4 4 4 4
population 1 1 1 1 1 1 1
Expected life 75 77 83 88 86 87
GDP(U.S. dollar) 10 11 11 6 7 7 4Per capital GDP(U.S. dollar) 175 177 178 141 134 132 128Total trade amounts(U.S.dollar) 27 25 16 8 4 3 3
export 28 28 14 7 4 3 3
import 27 22 17 9 3 3 3
FDI(U.S. dollar) 60 12 9 2 2 3Foreign exchange
reserve(U.S. dollar) 40 37 7 2 2 2 2
Table 5 International Comparison of Per capita national income units ： U.S. Dollar
Country /area 1990 2000 2002 2003 2004 2005 Total in world 4075 5244 5158 5559 6338 6987 Low income countries
356 383 394 439 507 580
Middling income countries
1170 1723 1770 1938 2265 2640
Modlling-low income countries
848 1158 1183 1295 1507 1746
High income countries
19617 26528 26130 28195 32132 35131
non-OECD members
9150 14368 14109 14740 16341 17656
OECD members 20394 27564 27184 29389 33547 36715 Area of European dollar
17747 22034 20524 23118 27921 31914
China 320 930 1100 1270 1500 1740
USA2333
0 34400 35230 37780 41440 43740
Table 6 International Comparison of GDP Units: billion U.S. dollar
Country /area 1990 2000 2002 2003 2004 2005
Total in world 21748 31776 32821 36875 41366 44385Low income countries 597 837 926 1055 1216 1391Middling income
countries3258 5215 5402 6104 7227 8535
Modlling-low income countries
386 6052 6327 7158 8443 9926
High income countries 17894 25725 26496 29719 32928 34466non-OECD members 596 1163 1138 1218 1358 1528OECD non-members 17293 24564 2536 28493 31562 32952Area of European
dollar5583 6130 6753 8316 9501 9813
China 355 1199 1454 1641 1932 2229Germany 1707 1900 2022 2443 2741 2782Japan 3040 4746 3971 4291 4623 4506U.K. 990 1438 1565 1798 2124 2193USA 5757 9765 10435 10951 11712 12455
II. China-US economy & trade relationship: Status quo
1. Trade 2. Investment 3. Exchange rate4. Finance field and capital
market
1. Trade 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 !
Table 7 The data of China-US trade in recent 3 years
unit ： billion
Source: China customs - customs statistics
termyear Total trade Export to US Import from US
amount Growth rate amount Growth rate amount Growth rate
2005 211.63 24.78％ 162.90 30.4％ 48.73 9.1％
2006 262.68 24.12％ 203.47 24.9％ 59.21 21.8％
2007 302.08 15％ 232.70 14.4％ 69.38 17.2％
Table 8 the trade between China and main trade partner （ 2005 － 2007 ） unit ： billion
year countryTotal trade export import
balanceamount growth amount growth amount growth
2007
EU 356.15 27％ 245.19 29.2％ 110.96 22.4％ 134.23USA 302.08 15％ 232.70 14.4％ 69.38 17.2％ 163.32Japan 236.02 13.9% 102.07 11.4% 133.95 15.8% － 31.88HK 197.2 18.7 184.4 18.8 12.8 18.9 171.6Southeast union
202.6 26 94.2 32.1 108.4 21.0 － 14.2
2006
EU 272.3 25.3 182.0 26.6 90.3 22.7 91.7USA 262.7 24.1 203.5 24.9 59.2 21.8 144.3Japan 207.3 12.4 91.6 9.1 115.7 15.2 － 24.1HK 166.2 21.6 155.4 24.8 10.8 -11.8 144.6Southeast union
160.8 23.3 71.3 28.8 89.5 19.4 － 12.8
2005
EU 217.3 22.6 143.7 34.1 73.6 5.0 70.1USA 211.6 24.8 162.9 30.4 48.7 9.1 114.2Japan 184.5 9.9 84.0 14.3 100.5 6.5 － 16.5HK 136.7 21.3 124.5 23.4 12.2 3.6 112.3Southeast union 130.4 23.1 55.4 29.1 75.0 19.1 － 19.6
2. Investment
（ 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.
Table 9 U.S. enterprise invest in China:1986-2007
yearproject Actual investment
number proportion%amount （ billion
U.S. dollar ）proportion
%
1986 102 6.81 0.3262 14.54
1987 104 4.66 0.2628 11.36
1988 269 4.52 0.2360 7.39
1989 276 4.78 0.2843 8.38
1990 357 4.91 0.4560 13.08
1991 694 5.35 0.3232 7.4
1992 3265 6.7 0.5111 4.64
1993 6750 8.09 2.0631 7.5
1994 4223 8.88 2.4908 7.38
1995 3474 9.39 3.0830 8.22
1996 2517 10.25 3.4433 8.25
--cont’
year
project Actual investment
number proportion%amount （ billion
U.S. dollar ）proportion
%
1998 2238 11.3 3.8984 8.58
1999 2028 11.99 4.2159 10.46
2000 2609 11.67 4.3839 10.77
2001 2606 9.97 4.4332 9.46
2002 3363 9.84 5.4239 10.28
2003 4060 9.88 4.1985 7.85
2004 3925 8.99 3.9410 6.50
2005 3741 8.50 3.0612 5.07
2006 3208 7.73 3.0000 4.56
2007 2627 6.94 2.6262 3.50
--cont’
--cont’
--cont’ 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
Table 10 industry distribution of U.S. investment in China （ 2004-2006 ）
industry year
New set up corporate Actual investment
number prop （％）amount （ million U.S. dolla
r ）prop（％）
agriculture
2004
2005 79 2.11 40 1.31
2006 62 1.93 27 0.95
Manufacture ,
mining and
extraction
2004 2669 68 2773 70.4
2005 2403 64.23 2287 74.70
2006
1926 59.87 1965 58.58
service2004 1150 29.3 1057 26.8
2005 1259 33.65 734 23.98
2006 1217 37.97 873 30.47
---cont’
The basic aim is to produce in China and sell in China globalization strategy In 2002 and 2003, the U.S. enterprise’s
investment in commerce, finance, insurance and real estate in China has increased obviously
The characteristics of U.S. investment in China
――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.
The performance of U.S. enterprise investment in China
2004： Investment Return rate :19.2% (the IRR of its whole world was only
10.1% ) 2005: U.S. enterprises in China earned
profit about $3.0 billion 81% U.S. enterprise in China earned
profit.
--cont’
（ 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!
year 2003 2004 2005 2006
flow 65.05 119.93 231.82 198.34stock 502.32 665.20 822.68 1237.87
Source: www.fdi.gov.cn
3. Exchange rate Before exchange rate reform, i.e. July. 21,
2005, $1 = 8.2765yuan
Table 12 Chinese currency exchange rate （ average value, exchange U.S. dollar ）
year yuan/us dollar year yuan/us dollar1979 1.5549 1993 5.76201980 1.4984 1994 8.61871981 1.7050 1995 8.35101982 1.8925 1996 8.31421983 1.9757 1997 8.28981984 2.3270 1998 8.27911985 2.9366 1999 8.27831986 3.4528 2000 8.27841987 3.7221 2001 8.27701988 3.7221 2002 8.27721989 3.7651 2003 8.27701990 4.7832 2004 8.27651991 5.3233 2005 8.07591992 5.5146 2006 7.8238
--cont’ Fig. 3
The reform of Chinese currency exchange rate
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(fluctuation 0.3 ％ )
Table 13 Chinese currency exchange rate change since reform
（ 2005.07.21 — 2008.04.14, selected date ）date Exchange rate(yuan /us dollar)
2005/7/21 8.11002005/12/30 8.0702
2006/6/30 7.9956
2006/12/29 7.8087
2007/6/29 7.6155
2007/9/28 7.5108
2007/12/28 7.3046
2008/2/1 7.1903
2008/3/3 7.1058
2008/3/28 7.01372008/04/14 6.9996
--cont’ Fig.4
--Cont’
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 China has not decreased!
4. Finance field and capital market 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.
Table 14 List of US’s QFII Companies in ChinaNo. Name of QFII (USA) Date approved Rations approved
(100 millions)
1 Morgan Stanley &Co. International Limited 2003.06.05 4.02 Citigroup Global Markets Limited 2003.06.05 5.53 Goldman, Sachs & Co. 2003.07.04 3.04 J.P. MORGAN Chase Bank 2003.09.30 1.55 Merrill Lynch International 2004.04.30 3.06 Lehman Brothers International 2004.07.06 2.07 Bill & Melinda Gates Foundation 2004.07.19 1.08 INVESCO Asset Management Limited 2004.8.4 2.59 Templeton Asset Management Ltd 2004.9.14
10 Goldman Sachs Asset Management Intl. 2005.05.09 2.011 JF Asset Management Limited 2005.12.28 1.5
12 AIG Global Investment Corp. 2005.11.04 0.513 AMP Capital Investors Limited 2006.4.10 2
14. Yale University 2006.04.14 0.515 Morgan Stanley Investment Management
Intl.2006.07.07 2.0
16 Stanford University 2006.08.05 0.517 GE Asset Management Incorporated 2006.08.05 2.0
Table 15 US’s enterprise are holding or controlling the shares of China’s enterprises
year US’s enterprise China’s enterprises Share(%) Industry 2007 The Blackstone Group 中国蓝星集团 20% chemistry
Synnex Group 中国万网 >50％ networkCarlyle Asia Partners II 扬州诚德钢管 49% Steel tube
2006 Prudential Ins. Co. 深圳怡景中心城 50% Real estateAnheuser-Busch Limited
唐山啤酒厂 100% beer
Best Buy 江苏五星电器 51% Home electronic
Goldman Sachs Group 中国工商银行 4.93% 银行业Pacific Alliance Group 好孩子集团 67.5% Child’s goodsFedEx 大田快递 50% express
2005 Carlyle Group 徐工机械 45% Expert equip.Bank of America Corp 中国建设银行 8.19% bankMonster 中华英才网 45% network
2004 Morgan Stanley 永乐家电 20% Home electronic
Amazon.com 卓越有限公司 100％ ECCendant Travel Group 中青旅电子商务 40% Tour serviceAnheuser-Busch Limited
哈尔滨啤酒集团 29.6％ beer
P&G 宝洁（中国）有限公司 100％ consumable2003 Kodak 乐凯胶片 20％ chemistry2002 New Bridge Capital Ltd 深圳发展银行 15% bank
Anheuser-Busch Limited
青岛啤酒 20% beer
General Motors 上汽五菱汽车 34％ auto2001 Emerson Electric 安圣电气有限公司 100％ communicati
onＩＤＴ 新涛科技有限公司 100％ CMOS 、 semic
onductor2000 Ford Motor 江铃汽车 20％ auto
PPG 南昌市化工原料厂 100％ Charcoal product
--cont’
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
--cont’
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
III. Relationship of China-US Economy & Trade:
Problems1. Basic features Larger complementary 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.
For example:
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 Cost: 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 Other $83
2. The problems of China-US Economy & Trade 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
四、 Prospect and Suggestions
1. Prospect 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.
2. Suggestions 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.
--cont’ 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!
U.S. should 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
China should 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
Any Questions?
