CEU Electronic Theses and Dissertations, 2013
| Author | Larsen, Joseph Jon |
|---|---|
| Title | The Renminbi: A Bane and Boon for the Chinese Economy |
| Summary | Abstract This thesis analyzes the costs and benefits of the undervaluation of the Chinese currency, the renminbi. This is an issue that has become highly controversial in recent years. The renminbi is undervalued through government intervention in foreign exchange markets and the sterilization of foreign exchange inflows. These policies result in a persistent current account surplus, as exports exceed imports. This thesis argues that large surpluses are distortive, resulting in the inefficient allocation of capital and substantial opportunity costs. This is demonstrated by the investment in low-yield foreign securities rather than high-yield domestic securities. In addition, maintaining large foreign exchange reserves results in foregone investment and potential losses through valuation changes. These effects dampen growth in domestic consumption. Despite these drawbacks, an undervalued renminbi has positive implications for export industries and the import of FDI. This thesis demonstrates that inward FDI leads to “positive spillover” of advanced technology and managerial practices when accompanied by effective domestic policies. Some examples demonstrated in the China case include mandatory joint ventures and local content requirements, both of which are designed to ensure the absorption of technology and expertise by domestic firms. Empirical data shows that these policies have been successful with regards to increasing the production capacity and sophistication of Chinese industry. |
| Supervisor | Horvath, Julius |
| Department | International Relations MA |
| Full text | https://www.etd.ceu.edu/2013/larsen_joseph.pdf |
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