Question

Place the following items on the Balance of Payments grid, from the point of view of China. Carefully label each entry on the attached BOP grid, and consider the location in both row and column. Sum by current account, capital account, and total balance of payments. Identify balance (surplus or deficit) at each level of aggregation.

a. The Chinese auto company Chery sells $50,000,000 worth of autos in the US. The US Chery distributor drew down the company’s Hong Kong bank account to pay for the US inventory of these cars.

b. CATL, a Chinese electric car battery company, sold $30,000,000 batteries to BMW for its electric car.

BMW drew down its Beijing bank account to pay for these imports.

c. Tianqi Lithium, a Chinese lithium producer, bought a 20% stake in an Chile’s SQM lithium company worth $40,000,000. Chile’s SQM deposited the proceeds in the Beijing bank account.

d. Panasonic, a Japanese company, invested $25,000,000 in the Tesla battery plant in Nevada. Tesla deposited the proceeds in its New York bank account.

e. China Molybdenum, a state-owned company, bought the cobalt mine Tenke in the Democratic Republic of Congo for $60,000,000. Tenke deposited the proceeds in a Beijing bank.

f. Vale, a Brazilian iron ore mining company, sells $65,000,000 steel to China for its extension of high-speed rail. Vale deposits the proceeds in its Beijing bank account.

g. China Molybdenum earns $10,000,000 income on its purchase of the Tenke mine. Tenke drew down its Beijing bank account to pay its Chinese owner.

h. Vietnamese workers in China are paying remittances to families in Vietnam. These Vietnamese families deposit this income in their Beijing bank accounts.

i. CATL has a $6,000,000 research and development assistance contract with GM for its electric car development for the Volt. GM drew down its Beijing bank account to make the payment to CATL.

Answer 1

BALANCE OF PAYMENT
current account	AMOUNT	AMOUNT
visible   Add: export: Autos to US by Cherry $50,000,000 electric betteries to BMW by CATL $30,000,000 Balance of trade Less:  Import : Coblet tenke mine from Congo $60,000,000 Steel from Vale $65,000,000 Net visible	$80,000,000 $125,000,000 ($45,000,000)
invisible :   Income from research and development project	$10,000,000
current account balance	($35,000,000)	($35,000,000)
Capital account
Long-term investment By purchasing share from Chile's SQM total investment balancing item	($40,000,000) ($40,000,000)	($40,000,000)
balance for official financing (BOP)		($75,000,000)

Deficit incurred by china by importing more than exporting

Deficit= Import - Export

= $125,000,000 - $80,000,000

= $45,000,000