Yuan's appreciation not to do significant good for US economy
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The appreciation of the Chinese currency, the yuan, would not be a great help in reducing the U.S. trade deficit and creating jobs, a Chinese economist said here Monday.
Yao Yang, director of the China Center for Economic Research (CCER) at Peking University, made the remarks at a forum titled "China's economy in 2011: Forecast and Analysis from Leading Chinese Economists."
"As the two countries are the two biggest trade partners in the world, neither China's nor the U.S.' economic issues are merely domestic. Instead, it's global," Yao said.
China's trade surplus with the United States in 2007 stood at 206.6 billion U.S. dollars, and it declined to 143.4 billion dollars in 2009 due to shrinking external demand in the wake of the global financial crisis.
But Yao pointed out that 44 percent of the surplus was contributed by U.S. companies operating in China, and 20 percent by other foreign companies there.
Yao took iPhone, a personal electronic device designed by the U.S. Apple Inc. as an example. He said, the product, assembled in China, alone accounted for 1.9 billion dollars of China's trade surplus with the United States in 2009.
"Most of China's trade with the U.S. is compensation trade, which may account for 60 percent of the total (bilateral) trade," Yao said. "The yuan's appreciation may somewhat increase China's trade surplus, contrary to the common sense."
It means China can import raw materials and equipment at relatively low prices, he added.
Even if China is forced to give up exporting some of its products once the yuan appreciates, the United States will still have to buy those products, which it usually does not manufacture, from other countries -- which neither helps bring down its trade deficit nor create jobs, he said.
According to a CCER model co-developed with a U.S. institution, if the yuan appreciates by 5 percent against the dollar, the U.S. employment rate will rise by only 0.03 percent; even if the yuan appreciates by 20 percent, it only helps to raise U.S. employment by 0.16 percent.
The effects of the yuan's appreciation on stimulating consumption are even smaller. According to the model, U.S. consumption will be up a mere 0.02 percent, given a 5-percent appreciation of the Chinese currency against the dollar.
Meanwhile, the model showed that the increase in the yuan's value is unlikely to affect the U.S. gross domestic product (GDP) much -- if the yuan rises by 5 percent, the U.S. GDP would go up 0.02 percent, while China's GDP would contract 0.56 percent.
"In general, our research shows that the impact of the yuan's appreciation on the economies of China and the U.S. is minor. The attempt to fix U.S. economic problems by urging the yuan to appreciate is not effective," Yao said.
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