Impacts of the Yuan’s Revaluation on the Chinese and U.S. Economies

1. CHINA’S ECONOMY IN 2011 New York Stock Exchange January 10, 20111 Impacts of the Yuan’s Revaluation on the Chinese and U.S. Economies Professor Yang Yao Director, China Center for Economic Research Deputy Dean, National School of Development Peking University

2. Two Interlinked Economies • China’s trade surplus with the US • 206.6 billion dollars in 2007 • 143.4 billion dollars in 2009 • However, 44% of these surpluses were contributed by American companies operating in China; and another 20% were contributed by other foreign companies operating in China. • The case of iPhone: contributed 1.9 billion dollars to China’s trade surplus with the US in 2009.

3. Results of a cross-country CGE model • The Computational General Equilibrium model • Sectoral forecasting model based on the input-out table • The CCER cross-country CGE model • Aimed at studying the impacts of trade on domestic economies • Has obtained preliminary results for RMB appreciation of 5%、10%, and 20% against the dollar.

4. On trade surpluses of China and the US(bil. dollars)

5. Causes • The US would not produce what China produces even if China were forced to give up the production. • Exports to the US would come from other countries such as Indonesia and Mexico.

6. On employment (%) On consumption(%)

7. On GDP (%)

8. What do we get from the data? • Both countries are likely to be barking on the wrong bush • China: reasonable paces of appreciation does not hurt the Chinese economy that much; • The US: even larger appreciation of the yuan will not significantly help the American economy.

9. What should the two countries do? • China: • Gradual appreciation of the yuan to combat inflation • The US: • Find other ways to boost the economy