Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212597 
Year of Publication: 
2007
Series/Report no.: 
BOFIT Discussion Papers No. 6/2007
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper shows empirically that China's trade balance is sensitive to fluctuations in the real effective exchange rate of the renminbi, although the size of the surplus is such that exchange rate policy alone will be unable to address the imbalance. One of the main reasons why the reduction in the trade surplus is limited is that Chinese imports are reduced with a real appreciation of the renminbi.By estimating bilateral import equations, we find that it is imports from other Southeast Asian countries which fall.This result reflects the vertical integration of Southeast Asia with China through the 'Asian production network'.We find, in turn, that imports from Germany - which serve China's domestic demand - behave as one would expect, ie they increase with renminbi real appreciation.All in all, our results raise concerns on the impact of renminbi appreciation on Southeast Asia even if regional currencies do not follow the renminbi's upward trajectory.
Subjects: 
China
trade
exports
real exchange rate
JEL: 
F14
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-860-0
Document Type: 
Working Paper

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