The Impact Of Renminbi Appreciation On China’s Trade Balance Since The Exchange Rate Regime Reform

By applying theoretical and empirical methods, this paper studies the impact ofRenminbi appreciation on China’s trade balance since the reform of exchange rateregime. Specifically, I first attempt to understand the relationship between Renminbiexchange rate regime and trade balance by analyzing how exchange rate adjust tradebalance and reviewing the reforming progress of Renminbi exchange rate regime. Onthis basis, then I estimate the sensitivity of trade balance in response to the changes ofRenminbi exchange rate. Two samples are selected in the study, one from December2001since China’s entrance to WTO and the other one from July2005since thereform of exchange rate regime. Conclusions are obtained as followed: Firstly, thehigher price elasticity since the reform of exchange rate regime in2005found in thisstudy implies the fact that the lately reform in exchange rate regime has succeeded inmaking Renminbi more market-oriented. Secondly, in contrast with most studieswhich over emphasize the impact of exchange rate on trade balance, this paper showsno remarkable evidence that Renminbi appreciation could reduce China’s tradesurplus. Thirdly, the Renminbi appreciation may probably alter the trade structurebetween China and its main trade partners. Last but not the least, the Renminbiappreciation could have larger impact on processing trading products than it onoriginal trading products.