China’s Balance of Trade with America
(How the dynamics might change)
China’s exponential growth in exports over the last two decades has been the fancy of every nation. To keep it exports competitive it pegged it currency to the dollar which also help it link its domestic inflation to its biggest trading partner. Going forward I am not too bullish on China’s exponential growth, rather I foresee moderation of China’s story which will come from a slowdown in exports (as its economy is export fed, as compared to India which is domestic consumption based). Factors that may moderate China’s export led growth:
1. High Transportation Cost – Fuel is at USD 80 a barrel and by end of this fiscal I expect it to cross USD 90 and spike further thereafter depending upon the economic recovery on rich nations. This is the single biggest factor coupled with currency appreciation (discussed next) that I feel will hurt China’s exports.
2. Currency Appreciation – China has recently shifted from a fixed peg to a crawling peg with the Dollar. The currency has appreciated only marginally and China’s inability or reluctance to gobble up any more Dollar reserves will give its currency a little more float. Any appreciation in excess of 10-15 % will hurt its exports competitiveness.
(How the dynamics might change)
China’s exponential growth in exports over the last two decades has been the fancy of every nation. To keep it exports competitive it pegged it currency to the dollar which also help it link its domestic inflation to its biggest trading partner. Going forward I am not too bullish on China’s exponential growth, rather I foresee moderation of China’s story which will come from a slowdown in exports (as its economy is export fed, as compared to India which is domestic consumption based). Factors that may moderate China’s export led growth:
1. High Transportation Cost – Fuel is at USD 80 a barrel and by end of this fiscal I expect it to cross USD 90 and spike further thereafter depending upon the economic recovery on rich nations. This is the single biggest factor coupled with currency appreciation (discussed next) that I feel will hurt China’s exports.
2. Currency Appreciation – China has recently shifted from a fixed peg to a crawling peg with the Dollar. The currency has appreciated only marginally and China’s inability or reluctance to gobble up any more Dollar reserves will give its currency a little more float. Any appreciation in excess of 10-15 % will hurt its exports competitiveness.
3. Anti Dumping and Countervailing Duties – It is fashionable and profitable for a trade body to lobby for sanction or duties on Chinese goods. Chinese Tyres, toys and some other goods are facing stiff anti dumping duties in US and EU.
China I feel is caught napping with its trillion Dollar Reserves and has got its monetary policy completely wrong. Its reserves dwindle if dollar falls and if China protects Yuan it has to buy still more dollars with a fear that Dollar may depreciate in the future. Developed country central banks would not mind being in China’s shoes. It’s a better position to have dwindling reserves having no reserves at all.
1 comment:
that`s a nice one
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