Treasury Semiannual Report on International Economic and Exchange Rate Policies Released

On China, from the Report (page 4):

China has a significant bilateral trade surplus with the United States.  The country’s current account surplus fell from 3.0 percent of GDP over the full year 2015 to 2.4 percent for the four quarters through June 2016, moving below the established threshold for that criterion.  China’s intervention in foreign exchange markets has sought to prevent a rapid RMB depreciation that would have negative consequences for the Chinese and global economies.  Treasury estimates that from August 2015 through August 2016, China sold more than $570 billion in foreign currency assets to prevent more rapid RMB depreciation.  More transparency over exchange rate management and goals, and strong adherence to G‐20 commitments to refrain from competitive devaluation and not to target exchange rates for competitive purposes, will enhance the credibility of China’s exchange rate regime.  At the same time, China has a very large bilateral goods trade surplus with the United States.  This underscores the need for further implementation of reforms to rebalance the Chinese economy to household consumption.  Fiscal policy can support structural reform and provide consumption‐friendly stimulus to support demand if growth slows more than expected.

Detailed discussion of China on pages 15-18.

Here is the most recent Econbrowser post on the Chinese currency misalignment. See a more general discussion of the Penn effect at VoxEU. And on misalignment generally, see here.

Note that the Peterson Institute’s William Cline has recently taken issue with the Cheung-Chinn-Nong (2016) methodology; however, even there, based on the FEER methodology, they find neither under- nor overvaluation of the RMB.

4 thoughts on “Treasury Semiannual Report on International Economic and Exchange Rate Policies Released

  1. PeakTrader

    New York Times article:

    “Average annual income for a family in 2012 was 13,000 renminbi, or about $2,100. When broken down by geography, the survey results showed that the average amount in Shanghai, a huge coastal city, was just over 29,000 renminbi, or $4,700, while the average in Gansu Province, far from the coast in northwest China, was 11,400 renminbi, or just under $2,000. Average family income in urban areas was about $2,600, while it was $1,600 in rural areas.”

    My comment: The average family or individual in China is still very poor. They cannot afford to shop at Walmart (they shop at a Chinese version: Wu-mart), cannot afford a new American small car, eat at McDonald’s very often, etc.. I wouldn’t expect them to spend much on American goods. However, Americans certainly can afford Chinese goods.

    1. PeakTrader

      Of course, the communist elites are doing much better. They’re able to buy residential property, paying above average prices, e.g. in California, and created a tourism boom, over the past two decades, which offset much of the manufacturing surplus. In 2015, 4% of the population had passports – over 65 million Chinese.

      Forbes article:

      “Almost all of China’s richest people have made their money in state-dominated sectors, such as property and construction, resources, other heavy industries and telecommunications. This could be through preferential access to the best land (often seized illegally from citizens) for property developers, privileged access to below market rates of capital, or special access to raising capital or equity in listed SOEs. In almost all cases, those benefiting are CCP officials or members. It’s no wonder that there are now 85 million card-carrying CCP members with another 80 to 100 million on the waiting list to join.”

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