The Effect of a Generalized Appreciation of East Asian Currencies on Exports from China

Abstract

By the end of 2007, China’s current account surplus represented 11.1 percent of the country’s gross domestic product. Many have argued that an appreciation of the RMB would help to reduce this surplus and restore order to global accounts. Using a panel data set including China’s exports to 33 countries, I find that a 10 percent RMB appreciation would reduce ordinary exports by 10 percent and processed exports by 4 percent. However, given the nature of ordinary exports and processed exports, a generalized appreciation in East Asia would generate a greater impact on the China’s overall level of exports. A 10 percent appreciation of all East Asian currencies would reduce ordinary exports by 10 percent and processed exports by 11 percent. A generalized appreciation in East Asia would impact both types of exports originating out of China and contribute more to resolving global imbalances than a bilateral appreciation of the RMB alone.