Research On The Effect Of Appreciation Of RMB On Labor-intensive Industry

Exchange rate is expressed in the currency of a country to another country's currency prices, exchange rate fluctuations directly affect products trade prices, thus affecting the industry. Economic literature on the impact of exchange rate fluctuations on a country's import and export trade, such as Marshall-Lerner Condition, Birkerdike-Robinson-Metzler Condition and J-curve Effect are the representative theories.The specific impact of exchange rate fluctuations on industrial products is closely related with such factors as constitute costs, bargaining power, real exchange rate appreciation of the country and competitor countries. Labor-intensive industry's bargaining power generally is weak, it is difficult to face the pressure of appreciation, and therefore affected by the impact of appreciation clearly. However, that an industry eventually demises or not depends largely on the comparative advantage, for the impact of currency appreciation is just part of it.In China, labor-intensive industries is one of leading export industries, accommodating much employment as well, it is very important to the economic development. Although the labor-intensive industries still have comparative advantages, the fluctuations of RMB exchange rate influences its development, and a long-term trend appreciation will erode the foundation of the comparative advantage. In accordance with the PPP theory and Harrod-Balasa-Samuelaon analysis, a long-term trend of RMB appreciation do exist, as a result, the trend will have an adverse impact on the labor-intensive industries overall.Two typical cases of the currency appreciation on the industry impact happened in Japan and Tai Wan, China. In light of the actual situation in China, the government and enterprises should make joint efforts as well as to take comprehensive measures to avoid the adverse effects of the RMB appreciation, and early planning, long-term effort.