Since the balance of payment current account is surplus and it is increasing. This meant that China`s revenue from abroad exceed its expenditure abroad. Thus, UK must have contribute towards it=> a leakage to the UK `s economy. This leads to competive pressure on the exports market, especially UK. As UK`s exchange rate is high and it make exports less competitive=> trade deficit http://www.statistics.gov.uk/articles/nojournal/ukTrade.pdf
In turn, the exchange rate of China is low, this benefits those industies in UK that use imports as raw material=> reduced the cost of production.
Consumer spending is high in China, some of the money could spend on exports, which come from UK=> injection to the economic. Since the consumer spending is increasing rapidly ( from 7.2 % to 9%), this could result UK`s AD shift to right, since the demand is now more.
GDP growth is raising at the speend around 10%,this whould most probably cause by demand pull inflation. thus UK`s investor might invest in China and gain interest, profits and dividends.
The manufacturing wages in increasing at a high speed. Some manufacture previously move to China might move back to UK, and generate employment and increase total output. Unless it is caused by the increases in productivity.
Interest rate is raising, the exchange rate would rise as well. However,Althought it is said to be undervalued,as it increased it would not make much difference on the price of exports and it will probably be absorbed by Chinese manufacturers trimming their profit margins and so will not be passed on into export prices. And UK`s exchange rate is much higher than China.
There is a huge amount in capital investment.this may spend one transportation and infrastructure and especially the Olympic game hold by China in 2008, this might increase the potential production of China. But what is the effect on UK for this particular increase?
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Rather than answer the question you simply say it again.
ReplyDeleteLet me ask you a question - why were you absent from school today?
Mrs Mop - you have 4 weeks until your exams
I thought i said the impact on the UK, such as leakage to UK`s economy, UK could gain more interest, profit and dividend. Since consumer spending is high in China, some spending could be exports, thus a injection to UK`s economy.Mutiplier effect, leads to increases in Real GDP etc.
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