Case | HBS Case Collection | 2010 (Revised from original 2006 version)

China: To Float or Not To Float? (A)

by Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

Abstract

On July 21, 2005 China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1% to 8.11 and, at the same time, introduced a more market-based exchange rate system. Many analysts and economists were disappointed with what they considered too small a change and called for more flexibility in the U.S. dollar/yuan exchange rate. Modification to China's exchange rate regime had been eagerly anticipated and much debated in the preceding months as China's trade surplus against the United States reached record highs and as friction intensified with Europe and Japan. Also, analysts argued that the tightly managed exchange rate put a strain on China's own economy. Not only was the exchange rate expensive to sustain, but it contributed to--as well as limited China's flexibility in responding to--a potentially overheating economy. Although China's extensive controls on the movement of capital into the country helped to counteract some inflationary pressure, controls were becoming more porous as China increasingly integrated with the world economy. It remained to be seen what China would ultimately choose to do with its exchange rate regime.

Keywords: Macroeconomics; Trade; Currency Exchange Rate; Governance Controls; Policy; Growth and Development Strategy; China;

Format: Print

30 pages

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Citation:

Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (A)." Harvard Business School Case 706-021, April 2010. (Revised from original March 2006 version.)

Related Work

Case | HBS Case Collection | 2006 (Revised from original 2006 version)

China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank

Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

With its $3 billion investment in Chinese state bank China Construction Bank, Bank of America--the second U.S. bank behind Citigroup in terms of assets and market capitalization--was one of several foreign banks directly participating in China's banking sector reform. Banking sector reform was considered by some analysts to be an important complement to capital account liberalization and further changes to China's exchange rate regime.

Keywords: Currency Exchange Rate; Banks and Banking; Foreign Direct Investment; International Relations; Banking Industry; China; United States;

Citation:
Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (D)- Bank of America's Strategic Investment in China Construction Bank." Harvard Business School Case 706-031, November 2006. (Revised from original March 2006 version.)

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Case | HBS Case Collection | 2006 (Revised from original 2006 version)

China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi

Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

In July 2005, China revalued its currency by 2.1% and adjusted its exchange rate regime toward a more market-based system. Esquel Group, a family-run, privately held textiles firm specializing in high-quality cotton shirts with its most significant manufacturing base located in China, was among those companies confronted with the challenge of addressing the revaluation of the yuan and the possibility of future appreciation. Provides a brief overview of China's textile industry and background on Esquel Group.

Keywords: Family Business; Currency Exchange Rate; Private Ownership; Problems and Challenges; Value Creation; China;

Citation:
Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (C)- Esquel Group and the Chinese Renminbi." Harvard Business School Case 706-023, November 2006. (Revised from original March 2006 version.)

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Case | HBS Case Collection | 2006 (Revised from original 2006 version)

China: To Float or Not To Float? (E)- ABB Investment in China

Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

In July 2005, China revalued its currency by 2.1% and adjusted its exchange rate regime toward a more market-based system. ABB, a global power and automation technologies company based out of Switzerland with operations in China, was among those companies confronted with the challenge of addressing the revaluation of the yuan and the possibility of future appreciation. Provides background on ABB's activities in China as well as incentives provided by Chinese officials for multinational corporations to move inland.

Keywords: Currency Exchange Rate; Investment; Multinational Firms and Management; International Relations; Problems and Challenges; Value Creation; China; Switzerland;

Citation:
Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (E)- ABB Investment in China." Harvard Business School Case 706-035, November 2006. (Revised from original March 2006 version.)

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Case | HBS Case Collection | 2006 (Revised from original 2006 version)

China: To Float or Not To Float? (F)- Alcatel and Strong Chinese Competition

Laura Alfaro, Rafael M. Di Tella and Ingrid Vogel

The Chinese operations of Alcatel, a global communications solution provider based in France, were faced with strong local competition and a difficult market. It remained unclear how Alcatel would be able to recover growth in the Chinese market. Initiatives were underway to increase focus on services over equipment, to increase Chinese research and development presence, and to merge with U.S. competitor Lucent.

Keywords: Currency Exchange Rate; International Relations; Growth and Development Strategy; Research and Development; Competitive Strategy; Horizontal Integration; Communications Industry; China; France; United States;

Citation:
Alfaro, Laura, Rafael M. Di Tella, and Ingrid Vogel. "China: To Float or Not To Float? (F)- Alcatel and Strong Chinese Competition." Harvard Business School Case 706-036, November 2006. (Revised from original May 2006 version.)

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Case | HBS Case Collection | 2013 (Revised from original 2006 version)

China: To Float or Not To Float? (B) - Timeline of Changes Relevant to the Chinese Renminbi

Laura Alfaro, Rafael M. Di Tella, Ingrid Vogel, Renee Kim and Bill Russell

On July 21, 2005 China revalued its decade-long quasi-fixed exchange rate of approximately 8.28 yuan per U.S. dollar by 2.1 % to 8.11% and, at the same time, introduced a more market-based exchange rate system. Many analysts and economists were disappointed with what they considered too small a change and called for more flexibility in the U.S. dollar yuan exchange rate. Provides a timeline of further changes relevant to the Chinese renminbi.

Keywords: Macroeconomics; Trade; Currency Exchange Rate; Governance Controls; Policy; China; United States;

Citation:
Alfaro, Laura, Rafael M. Di Tella, Ingrid Vogel, Renee Kim, and Bill Russell. "China: To Float or Not To Float? (B) - Timeline of Changes Relevant to the Chinese Renminbi." Harvard Business School Case 706-022, March 2013. (Revised from original March 2006 version.)

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This case describes the economic development problems faced by the small Caribbean-island country of Jamaica over most of the past half-century. The Jamaican economy showed relatively strong growth in the 1960s but stagnated in the 1970s. By the end of that decade, Jamaica was forced to turn to the International Monetary Fund (IMF) for balance-of-payments support. Over the 1980s and early 1990s, the unpopular policy conditions associated with IMF loan programs made the Fund a lightning rod for criticism over Jamaica's lack of economic progress. Jamaicans celebrated the end of IMF borrowing in the mid-1990s, but a severe financial crisis later that decade created a new layer of economic problems. In 2010, in the context of the global economic downturn, Jamaica once again returned to the IMF for financing support. This case allows students to explore the complicated economic difficulties faced by Jamaica, which remains burdened by a self-reinforcing set of interrelated factors, including high public debt, a sluggish private sector, an inefficient public sector, poverty, and crime, among others.

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