The Effects Of RMB Exchange Rate On China’s Import And Export

Since China got the accession to the WTO, the international voices in the appreciation of China’s Renminbi have been growing. International economists firmly believe that:the appreciation of currency will decline relative price of imported commodities and revaluate relative price of export goods, which undermines the competitiveness of export commodities in the international market. So we can learn that the exchange rate plays an important role in the export merchandise trade balance. RMB has gradually appreciated since1994, and the cumulative appreciation of the RMB’s nominal and real effective exchange rate have appreciated more than37.4%and59.8%respectively. However, international trade has remained long-term double surplus, international reserve has enlarged, and RMB faces a great pressure of appreciation at the same time.With the rapid growth of China’s foreign trade surplus, the main partner country’s trade deficit with China continues to expand, and trade friction has become more and more intensified. The rising U.S. unemployment rate, the growing euro debt crisis and the deterioration of the international economic situation all allow trading partners to turn to lift the flag of domestic trade protectionism. As the lack of domestic demand and export promotion, and the rise of foreign trade protection forces, the import and export trade of China and trading partners are facing unprecedented difficulties. Governor Zhou Xiaochuan of the People’s Bank has said that he would continue to expand the RMB’s bi-directional ranges and deepen the reform of the RMB exchange rate system. Will the increasing range of exchange rate volatility improve China’s import and export trade or not? Most of the existing studies stand on the total point to discuss the impact of the RMB’s exchange rate changes on China’s import and export trade. They all ignore the differences between the countries and cannot reflect the true situation. At the beginning, we review the background, significance and the framework of paper.In the following, trade balance of the relationship of several theories are compared, which includes elasticity theory, the absorption theory and transfer theory.Then, review on the development history of China’s trading partners after the reform and opening in1979will also be given.Based on the data from the third quarter of1997to the fourth quarter of2010, unit root test, integration theory as well as fixed or random effects and varying coefficient models are all used in discussing the relation between exchange rate fluctuation and foreign trade to make our conclusion more solid. In this research, we can know time series of exchange rate, export and import all have a unit root. And long-term integration relationship exists among them.Through research, the paper came to the conclusions:1)RMB appreciation will increase China’s imports as well as reduce its export.The elasticity coefficients of export among the different countries are different, while these of import are unanimous;2) The changes in RMB exchange rate volatility has no significant effect on China’s import while on export,it has significant effect and plays a negative role;3)As to WTO, it has a significant function both on export and import coefficient.And the export coefficient is smaller than that of import.4) As to the Subprime Mortgage Crisis, it has a significant function both on export and import while it plays a negative role.