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China's Crawling Peg: Does it Signify a Broader Shift in International Economic Strategy?

14 Pages Posted: 23 Feb 2010 Last revised: 12 Nov 2012

Dan Ciuriak

Ciuriak Consulting Inc.; C.D. Howe Institute; Centre for International Governance Innovation (CIGI); BKP Development Research & Consulting GmbH

Date Written: December 1, 2006

Abstract

The accelerated expansion of China’s trade and current account surpluses since 2004, and the associated expansion of China’s foreign exchange reserves in the context of very rapid investment-driven domestic economic growth and adverse movements in China’s terms of trade have led China’s authorities to make several policy adjustments:
(a) Substitution of a crawling peg to the US dollar for the hard peg previously maintained.
(b) Some liberalization of private capital outflows, including of outward direct investment and progressive capital account convertibility.
(c) Ratcheting back of measures to attract capital inflows.
(d) VAT rebate cuts targeted at less sophisticated industries such as textiles.

This note first reviews China's role in the growth of global imbalances and considers the central issue of the valuation of the yuan. It then considers the interpretation of the shift to a crawling peg in light of the other policy moves which, taken together, point to a broader policy shift.

Keywords: China, exchange rate, currency peg, industrial policy

JEL Classification: F13, F14, F32, F33, F42, F55

Suggested Citation

Ciuriak, Dan, China's Crawling Peg: Does it Signify a Broader Shift in International Economic Strategy? (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=1556063 or http://dx.doi.org/10.2139/ssrn.1556063

Dan Ciuriak (Contact Author)

Ciuriak Consulting Inc. ( email )

83 Stewart St.
Ottawa, Ontario K1N 6H9
Canada

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

BKP Development Research & Consulting GmbH ( email )

Romanstrasse 74
München, 80639
Germany

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