Welcome to the presentation

A Presentation by

1. 2.

Abdullah Al Noman Md. Ezazur Rahman

B-091690 B-091693

3.
4. 5. 6.

Md. Ruhul Amin

Md. Sahinur Rahman Md. Maruf Raihan Md. Rezaul Karim

B-091694
B-091705 B-091707 B-091709

CURRENY WAR BETWEEN USA & CHINA

Outline
Introduction II. Status Quo III. Problems IV. Prospect and Suggestion
I.

Introduction
What is currency war ? Currency war, also known as competitive devaluation, is a condition in international affairs where countries compete against each other to achieve a relatively low exchange rate for their own currency. As the price to buy a particular currency falls so too does the real price of exports from the country. Imports become more expensive too, so domestic industry, and thus employment, receives a boost in demand both at home and abroad.

Currency war between USA & China

Currency war between the countries is not that new. Countries use to change their strategies regarding the management of the exchange rates, and adopt those which are in their interests. Over the last thirty years the economies of both China and the United States have extremely expanded. However, three decades have passed; China is known to be one of the largest trading partners with the US, providing them with the largest source of imports. A drastic Yuan appreciation may price many Chinese goods and businesses out of world markets but is unlikely to reverse consumer demand for lower-priced products from efficient producers in the developing world. Rather than changing the fortune of US exports and jobs, a looming global currency war would see no winners. It would only deepen the mistrust between countries, especially the US as the only superpower and China as a rising power, whose mutual cooperation is essential for a speeder economic recovery.

# A Brief Review
1.

Feb.21,1972 , President Richard M. Nixon of USA visited China. This was the milestone for the normalization of China-US relationship .

2. In Dec.1975, President Ford of USA visited China.

3. On Dec. 16,1978, China US published the joint communique. 4. 0n Jan. 1, 1979China and US established their formal diplomatic relationship.

Before establishing formal diplomatic relationship in 1978. The total trade between China and US was only $0.99 billion. In 1979this volume of trade increased rapidly to $2.45 billion!
5. On Feb.1, 1980, The trade agreement of China-US validated formally. 6. During May 5-9,1982, Vice president George Bush visited China. (older Bush) 7. On Aug.17, 1982, Two government published the China-US joint communique. 8. During Apr. 25- May. 1,1984president Ronald Reagan visited China. China and U.S. signed four agreements.

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9. On Nov.19,1993, President Jiang Ze-min of China met President Bill Clinton in Seattle. 10.In 1993, the volume of China-US trade increased rapidly to $27.65 billion. --China became USs the fourth largest import trade partner and 13th largest export trade partner of US. --US also became the second largest export trade partner and third largest import trade partner of China.

11.During Jun.25- Jul.3,1998, President Bill Clinton visited China.

12.On Apr. 6-14, 1999Premier Zhu Rong-ji of China visited U.S. 13.On Nov.15, 1999, China and US signed formally the bilateral agreement about China joining WTO.

This bilateral negotiation had lasted for 13 years!

14.On May 25, 2000, US gave formally the permanence normal trade position to China. 15.On Oct. 19,2001, President Jiang Ze-min talked with President George W. Bush in Shanghai 16.On Dec.11, 2001, China joined formally WTO! 17.On Feb. 21-22, 2002, President George W. Bush visited China. 18.On Oct. 19, 2003, Chinas current President Hu Jin-tao met with President George W. Bush in Bangkok

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18.On Dec.15,2006,the First economic strategic dialogue.

The two parties reached a series of substantial agreements on security, finance, energy and aviation.
19.On May 22-23, 2007, the Second economic strategic dialogue. 20. On Dec. 11, 2007, the Third economic strategic dialogue . 14 cooperation files about economy & trade. 21. The Fourth economic strategic dialogue of ChinaUS will be held in Washington in June, 2008.

Table: International Comparison (2005)

II. China-US economy & trade relationship: Status quo

1. Trade 2. Exchange rate 3. Finance field and capital market

1. Trade

From 1979 to 2006,the total trade between China and US has increased 106 fold ,its growth rate has averaged 18.9% per annum! In 2006, US was the second largest trade partner of China , the first largest export market, the sixth import origin place, and the third tech. import origin place. In 2007 US was still the second largest trade partner of China, it had 13.9 shares of total foreign trade in China. But, US has become the second largest export market of China !

2. Exchange rate mechanism

Table : Exchange rate mechanism by China
Years Until 1978 1978-1980 1981-1986 1986-1994 1994-1996 1996 2001 2005 2006-2007 2008 2009 2010, June 2011 Jan Fixed exchange rate China changed its system of strict exchange rate policy and adopted dual exchange rate system. Later changed it with strict pegged US dollar by managing the float. Managed a fixed exchange rate against the basket of currencies. Yuan was fixed once again against dollar, 8.6 per dollar initially. Appreciation in value of Yuan occurred due to increase in productivity and GDP. Yuan got devalued Pegged in a narrow range i.e. 8.28 per dollar. Floating exchange rate was established which results in appreciation of value by 2.1% i.e. 8.28 to dollar Appreciation of 6.5 % was recorded i.e. 7.73 per$.(27th April 2007) Value increased by 20% which is 6.83 Yuan for 1$(Yuan strengthen over time) Value of Yuan was 8.5 Yuan for 1 $ (July) 6.8275 Yuan to 1 US $,reached to highest level against dollar after 2008 6.62 Yuan to 1 US $ Mechanism adopted by China

The reform of Chinese currency exchange rate

On July. 21,2005, China decided to reform its exchange rate

give up pegging US dollar and set consult a basket of currencies.

Chinese currency revalue 2%, from 8.2765 Yuan/US dollar to 8.11yuan /us dollar . Chinese currency exchange rate was decided by the central rate set by a basket of currencies(fluctuation 0.3)

Table : Chinese currency exchange rate change since reform 2005.07.21 2008.04.14, selected date

3. Finance field and capital market

China is gradually opening Finance field and capital market. More and more USs finance institution go into Chinas capital market directly or indirectly by all ways. More and more USs enterprise are holding or controlling the shares of listed companies in China through capital market, or by making M&A. -- 17 USs finance and investment institutions obtained the QFII. -- 6 USs investment companies held the shares of fund management companies. -- 25 USs enterprise are holding or controlling the shares of Chinas enterprises.

The problems of China-US Economy & Trade

larger

balance of trade, i.e. trade imbalances! currency exchange rate: marketization intellectual property rights (IPR) safety of product capital market: further opening

Chinese Chinas Chinas Chinas US:

trade problem is being politicized export controlling over China protectionist policy on trade

USs USs

Suggestions
China

is the worlds third largest trading nation.

With

the largest population with over 1.3 billion people and one of the worlds fastest growing economies
China has the largest potential and realistic market

U.S.

is the second largest trade partner of China and the second largest export market of China .
is the fourth largest trade partner of U.S. relationship of China-US economy and trade is and should be mutual beneficial and reciprocal relation in nature! the view of Game theory, If cooperate , then both will obtain the benefits; If not cooperate, then both will lose!

China The

From

U.S. should

Adjust and control excess import.

Implement export free, cancel export restrict ions to China.

Adjust trade policy and system, improve outdated national trade act. Further liberalize trade . Enlarge opening of industry and tech. market to other countries.

Not politicize the trade problems.

China should

Continue to adjust economic structure. Continue to deepen reform Reform and adjust national policy and system about distribution Change the relationship of consumption, investment and saving. Decrease saving rate. Further Enlarge import.

Control exportadjust and change export policy. Make Renminbi exchange rate more marketable Further reform the financial system. Enhance protecting for IPR. Cancel some government subsidy for export enterprise

Any Questions?

-Thank you all-