|Author Name||THORBECKE, Willem (Senior Fellow, RIETI)
|Creation Date/NO.||January 2014 14-E-002|
|Research Project||East Asian Production Networks and Global Imbalances
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China runs surpluses of $400 billion-$500 billion in processing trade. In value-added terms, East Asia as a whole runs surpluses in processing trade with the West. This generates appreciation pressures on exchange rates throughout the region. Using data up to 2012, this paper reports that a concerted appreciation would rebalance trade. An appreciation in China accompanied by depreciations in other surplus economies such as Taiwan and South Korea would not reduce China's surplus in processing trade but would increase its deficit in ordinary (labor-intensive) trade. To rebalance, East Asia as a whole needs to give market forces greater play in determining exchange rates, and international organizations need to conduct surveillance on regional production networks.