What accounts for China's trade balance dynamics?

Abstract

This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós (2001) and Prasad (1999). The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985-2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined-the foreign supply shock, the domestic supply shock, the relative demand shock, and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade 'imbalance'.

Foreign exchange reserves: a new challenge to China

“…In other words, the role of the exchange rate in determining trade balances is not important. This is in line with Liu (2004), Zhang and Wan (2007), groenewold and he (2007), Baak (2008), Thorbecke (2011), and many others.…”

China–United States trade war: Does devaluation favors China? An application NARDL

“…The effect of exchange rate on the trade balances has been examined by numerous researchers, that is, Khan, Rabbi, Ahmad, and Siqun (2019), Raghutla (2020), Kirikkaleli (2018), Smallwood (2019), Kharrat, Hammami, and Fatnassi (2020); Brada, Kutan, and Zhou (1993); De Silva and Zhu (2004), Shahbaz, Jalil, and Islam (2012), Narayan and Smyth (2004), Narayan (2006), Oskooee and Kanitpong (2017); Khan, Ali, and Ali (2016), WeiXian (1999), Kim (2009), Arize, Malindretos, and Igwe (2017), Wang, Lin, and Yang (2012), Zhang and Wan (2007) in case of different countries including China. Currency devaluation is found to have a positive effect on the trade balances with the absence of J‐curve by (Brada et al, 1993; Khan et al (2019), Raghutla (2020), Kirikkaleli (2018), Smallwood (2019), Narayan, 2006; Zhang & Wan, 2007) but some of the findings by (Wang et al, 2012; Weixian, 1999) favors both positive effect on trade balances and existence of J‐curve. The below given table provides the literature:…”

Malaysia and China: The Trade Balances, Foreign Exchanges and Crises Impacts

“…China appeared as the world's leading exporter since 2007, and its current account surplus amounted to about $260 billion (Ministry of Commerce, China), 1 which ranked top globally in 2013. There are worries that China's yuan regime, investment magnetism, and low labor costs, as well as its accession to the World Trade Organization (November 2001), may have positioned the country as a formidable economic competitor that threatens to crowd out other developing Asian countries [5,[8][9][10]. Malaysia, for instance, has suffered a continuous seven-year trade deficit with China since 2002-which peaked at $4.2 billion in 2007, before the major correction in 2009.…”