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

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