2013_MI_H1_Econs_CSQ2 Mark Scheme

1 Question 2 The Chinese Economy Extract 4: China and Currency Manipulation The subject of whether China undervalues its currency to gain a trade advantage on the United States is a longstanding point of contention between Washington and Beijing. Critics in the U.S. claim that currency manipulation has cost about 2 milli on U.S. jobs and hurt manufacturers. China claims that its exchange rates are not the reason for the trade gap and has accused the U.S. of using Beijing as a "scapegoat" for its greater economic woes. A wide coalition of US trade unions and members of Congress is stepping up pressure on President Barack Obama to confront China over alleged illegal currency manipulation. Source: Adapted from The Guardian, 20 May 2009 and http://worldnews.about.com Extract 5: China’s Exchange Rate Reform China’s fixed exchange system was discontinued from 2005 and a managed float system was adopted. A move that would increase the value of the Chinese Yuan against the dollar and help ease a trade imbalance, which has cost U.S. jobs. The move would come amid growing complaints that China’s undervalued Yuan has made it difficult for manufacturers in the United States and other countries to compete with China’s exports. However, He Weiwen in the Global Times news arti cle states that the US trade woes shouldn’t be blamed on the Yuan. He points out that from 1998-2004, the Yuan was fixed at 8.28 to the dollar and China's exports to the U.S. varied from year to year stressing that the Yuan exchange rate doesn't play a significant role in affecting US exports. China also continued to record trade surpluses against the United States after it initiated exchange rate reform in 2005 to allow the renminbi to appreciate 20 percent against the US dollar. Source: Adapted from http://www.epi.org/news/china and EPI News, April 9, 2010, "China Reportedly Close to an Agreement to Revalue Yuan" Table 1: Growth of U.S. trade in goods with China (%) Before Chinese Yuan’s reform 1999 2000 2001 2002 2003 2004 Growth of China Exports to US (%) 14.9 22.3 22.3 22.4 21.8 29 Growth of US Exports to China (%) 7.9 23.4 18.5 15.4 28.2 21.4 After Chinese Yuan’s reform 2005 2006 2007 2008 2009 2010 Growth of China Exports to US (%) 23.8 18.2 11.7 5.1 -12.3 23.1 Growth of US Exports to China (%) 31.3 30.3 17.3 10.8 -0.3 32.3

2 Extract 6: China’s Economic Growth to Benefit All of Asia? Foreign direct investment (FDI) into the mainland saw its strongest surge in more than two years last month with the US$14.4 billion of capital committed leaving the world's second biggest economy firmly on track to meet the government's target of US$120 billion of inflows this year. It is one of the principal drivers of mainland's breakneck economic growth in the past three decades. But foreign investment has grown elsewhere too. The ten ASEAN countries saw a record $37 billion of investment in