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U.S. – China Trade

U.S. – China Trade. With: The Clappers Jared Baker Rob Gillis John Pinegar Dean Thompson Josh Tomsik. China’s Recent Economic History. Mao Zedong. Marxist War & Revolution Great Leap Forward Cultural Revolution Died 1976. 具有中国特色的社会主义 Socialism with Chinese Characteristics.

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U.S. – China Trade

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  1. U.S. – China Trade With: The Clappers Jared Baker Rob Gillis John Pinegar Dean Thompson Josh Tomsik

  2. China’s Recent Economic History

  3. Mao Zedong • Marxist • War & Revolution • Great Leap Forward • Cultural Revolution • Died 1976

  4. 具有中国特色的社会主义 Socialism with Chinese Characteristics • Farm Privatization • Special Economic Zones (SEZ) • Shenzhen • Shanghai • Joined WTO

  5. Special Economic Zones • Special tax incentives for foreign investments in the SEZs • Greater independence on international trade activities • Economic characteristics are represented as "4 principles": • Constructions primarily relies on attracting and utilizing foreign capitals • Primary economic forms are sino-foreign joint ventures and partnerships as well as wholly foreign-owned enterprises • Products are primarily export-oriented • Economic activities are primarily driven by market

  6. “Shanghai Communique” 1972 – President Nixon visits China to sign the initial pact 1973 – Established liason offices in Beijing & Washington D.C. 1975 – President Ford visits Beijing to “reaffirm…U.S. interest” 1977 – President Carter also commits to the 1972 agreement January 1, 1979 – official diplomatic relations established – normalization March 1, 1979 – Embassies established in both countries After “Normalization” 1979 & 1980 – agreements reached on maritime, civil aviation, & textiles 1980’s – multiple state visits by both parties led to cooperation in “scientific, technological…cultural and trade relations” 1989 – Tiananmen Square – Economic sanctions issued by U.S. in response to these events “Diplomatic Exchanges”

  7. U.S. Economic Approach to China 1) The United States seeks to fully integrate China into the global, rules-based economic and trading system - China's participation in the global economy will nurture the process of economic reform - Encourage China to take on responsibilities commensurate with its growing influence - China's stake in the stability and prosperity of East Asia. 2) The United States seeks to expand U.S. exporters' and investors' access to the Chinese market - As China grows and develops, its need for imported goods and services will grown even more rapidly - Will continue to work with China’s leadership to ensure full and timely conformity with China’s WTO commitments - Encourage China to move to a flexible, market-based exchange rate in order to further increase U.S. exports of goods, agricultural products and services Source: U.S. State Department (www.state.gov)

  8. The United States seeks to fully integrate China into the global, rules-based economic and trading system 3 Examples: 1) Encourage responsibilities commensurate with its growing influence - Intellectual Property Rights – Hu Jintao visited MSFT in April 2006 - in 2004, China had a reported 90% software piracy rate* 2) China's stake in the stability and prosperity of East Asia - China & U.S. role in the North Korean nuclear talks - Multilateral talks to discourage nuclear proliferation 3) China's participation in the global economy will nurture the process of economic reform - Secretary Paulson recent visit to China (9/06) - meeting to encourage further economic reform * Source: Business Software Alliance (www.netadvantage.standardandpoors.com)

  9. The United States seeks to expand U.S. exporters' and investors' access to the Chinese market Investors Access to China - U.S. companies have established more than 20,000 equity & contractual joint ventures, and wholly owned enterprises - 100+ U.S. multinational firms have business in China - $54 Billion cumulative U.S. investment in China - 2nd largest - $3 billion (2005) in foreign direct investment - 5th largest –behind Hong Kong, Japan, S. Korea and Virgin Islands U.S. Exports to China - $285 billion in two way trade in 2005 - $33 billion in 1992 (763% increase) - 20% growth rate in U.S. exports to China - U.S. is China’s largest trading partner - China is U.S.’s 3rd largest trading partner (behind Canada & Mexico) Sources: U.S. State Dept. (www.state.gov) and U.S. China Business Council (www.uschina.org)

  10. The United States seeks to expand U.S. exporters' and investors' access to the Chinese market WTO Commitments: - Officially joined WTO in December 2001 • Agreed to lower tariffs and abolish market impediments • U.S. agricultural import tariffs dropped from 31% to 14% • U.S. industrial import tariffs dropped from 25% to 9% • Opened opportunities to banking, telecommunications & insurance “While accession does not guarantee smaller trade deficits, full implementation of all WTO commitments would further open China’s markets to--and help level the playing field for--U.S. exports.” • China is the 4th largest importer of U.S. agricultural goods April 11, 2006 – Joint Commission on Commerce & Trade • Addressed U.S. concerns regarding trade with China • Lack of transparency in regulatory process causes trepidation amongst U.S. investors • Concerns still existed regarding strict testing and standards requirements

  11. Video: Walmart/U.S Trade and China

  12. Current Trade Situation and U.S. Deficit

  13. China Total exports 752.2 B To US 21.4% Imports 631 B From US 7.4% United States Total Exports 927 B To China 4.6% Total Imports 1.727 T From China 15% Walmart 2004 • Walmart Claimed $15 B in Chinese imports (Total U.S. Deficit $162 B) • Other estimates higher $20+ or $30+ B 2005 Trade Situation *Trade Data from CIA factbook; Walmart Data from “Is Walmart Good for America”

  14. *Data from http://www.census.gov

  15. U.S. China * Graphs from St. Louis Fed’s International Economic Trends publications

  16. New Records - August 2006 • Record one month total deficit - $69.86 B • Record one months deficit with China - $21.96 B • 3 times the trade gap with Japan *From the Wall Street Journal

  17. What are we trading? *Data from http://www.census.gov

  18. Trade and Currency Regulations

  19. China Since joining WTO, China has made efforts to reduce administrative barriers to trade. Mostly tariffs and exchange rate adjustments Categories of commodities subject to licensing controls reduced to 3 from 8 Average Tariff rate 9.9% in 2006 vs. 15.3% in 2001 In 2000 import taxes cut by as much as 2%. Import taxes imposed on certain types of goods, mostly textile and raw material sectors Gradual abolishment of state monopoly of foreign trade Introduction of tariff-free and VAT-exemption imports for capital equipment for projects within the hi-tech and priority sectors WTO bars quotas, China has been gradually eliminating them. United States No foreign exchange controls over payments for imports Imports to US often subject to duties, but import licenses are generally not required Usually ad valorem or specific import duties. Regular rates on imports from locations enjoying normal trade relations of formerly most-favored nation status, including Hong Kong and the Chinese mainland. Import Regulations

  20. Chinese Securities Market • 1970’s- Chinese Securities market begins development • 1984- 1st joint stock company in China is founded (Beijing Tiangiao Department Store Co. Ltd.) • 1990- Shanghai and Shenzhen stock exchanges established with Shenzen Shekov Anda Ind Co Ltd. the first listed company • 1992- International investors allowed to invest in B-shares • 2002- Qualified Foreign Institutional Investors (QFII) allowed to invest in A-shares • 2006- Largest IPO, ICBC raises $19bb, lists on both Hong Kong and mainland exchanges to attract domestic and intl. investment • Regulated by Chinese Securities Regulatory Commission (CSRC), China’s equivalent of SEC

  21. Chinese Securities Market

  22. Trade Regulations • The most comprehensive guide to Chinese Customs regulations is The Practical Handbook on Import & Export Tax of the Customs of the PRC, compiled by the General Customs Administration. This guide contains the tariff schedule and national customs rules and regulations.It may be obtained for 220 RMB plus shipping and handling from: Xing Sheng Zhong Hai Fa Xing Zhong Xing Company. #6 JianNei DaJieDong Cheng Qu, Beijing 100730. Phone: (8610) 6519-5923 Fax: (8610) 6519-5616.

  23. Currency • Official Currency Renminbi • Means People’s Currency • Also know as Yuan and Kuai • Official Abbreviation CNY • Also abbreviated RMB

  24. 1 Yuan = 10 Jiao = 100 Fen Notes Yuan 100, 50, 20 , 10, 5, 2 and 1 Jiao 5, 2, and 1 Fen 5, 2, and 1 Yuan = Kuai Jiao = Mao Coins Yuan 1 Jiao 5, 2, and 1 Fen 5, 2, and 1 Renminbi

  25. History • Renminbi first issued shortly before takeover of mainland China by Communists in 1949 • 1st task was to end hyperinflation • 1978 dual track currency: RMB usable only domestically, foreigners forced to use foreign exchange certificates. • Strong black market in currency transactions • In 1980s and early 1990s swap centers brought the exchange rates to realistic levels abolishing the dual track

  26. US $/RMB exchange rate • From 1994 to July 2005, policy was to peg the value of the renminbi to the US $. • Policy was praised during the Asian financial crisis of 1998 as it prevented a round of competitive devaluations. • In 2003, came under criticism by the US as the value of the dollar fell.

  27. Currency • Pegged to the US $ at 8.28 during the previous decade • July 21, 2005, removed from the peg to the US $ • Subsequently revalued to 8.11 per US $

  28. Revaluation • Resulted from pressure from US and World Economic Council • RMB would be pegged to a basket of foreign currencies and would trade within a 0.3% band against this basket of currencies. • Dominated by US $, euro, Japanese yen and South Korean won • Smaller proportion of British pound, Thai baht and Russian ruble.

  29. Exchange Rate Jan 2000-PresentRMB/US$

  30. Revaluation • Revalued by 2% • Another 3% since • September 2006 G7 urged China to let its currency rise faster • Imbalances in trade and capital flows pose one of the biggest risks to global growth • China claimed that it would slowly increase the band the Yuan trades in

  31. Consequences of revaluation or floating RMB • US economy • Chinese buy less US securities • Demand down, prices down, interest up • Hamper US economy • China • Fewer exports

  32. The purchase of US bonds (briefly touch on this and mention that Prof. Bryson will further address it.)

  33. Currency Regulations • Foreign currency cannot be circulated within China or used to determine the price and settle accounts • You have to show your currency exchange receipts when you change RMB back to your own currency when you depart • No limit on the amount of foreign currency brought in but it must be declared • Cannot bring Renminbi into China • Cannot take Renminbi out of China

  34. Questions

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