A Study On The Effect Of RMB Exchange Rate On The Export Of China

China’s current account surplus and capital account surplus have been increasing significantly since 2002, and the RMB exchange rate issue has become the focus again. On July 21,2005, the People’s Bank of China announced that RMB exchange rate no longer got tied with the single U.S. dollar but referred to the definite value of a basket of currencies, and the yuan-dollar nominal exchange rate appreciated 2%. From then on, the RMB nominal exchange rate has being up against the U.S. dollar. On March 14,2014, the People’s Bank of China announced to loose its grip on the yuan-dollar nominal exchange rate, widening the daily trading band to two percent from one in spot exchange rate market, effective starting on March 17. All these strengthen the signal that RMB exchange rate regime reform is deeply influencing and changing the volatility of RMB exchange rate with the deepening of China’s reform and opening.According to the international economy theory, exchange rate is an important factor to promote export. The world economy recovers slowly following 2008 financial crisis, and China’s foreign trade faces a lot of difficulties such as shrinking external demand, slower export growth and large fluctuation in exchange rate market. The "new normal" of Chinese economy imposes new requirements on foreign trade that the goal of economic restructuring and up-gradation must be achieved by optimizing the mix of export commodities and promoting balanced foreign trade. Taking into account the economic and employment effects of foreign trade, this dissertation analyzes the effect of RMB exchange rate on the export of China from three angles, such as RMB exchange rate value, RMB exchange rate misalignment and RMB exchange rate volatility.First Chapter:Introduction. This part starts with stating the purpose and significance of this research and then makes clear systematically the domestic and foreign papers related to the research in this dissertation and the structure and process of the relevant theoretical development and then makes brief comments and summarizes the useful reference from the previous researches so as to lay a foundation for the research of this dissertation. And at the end of this chapter, the research approach and structure of this dissertation is introduced and the new innovating points and research prospects are proposed.Second Chapter:Theoretical Review of the Relationship between Exchange Rate and Balance of Payment. This part reviews the theory of exchange rate and balance of payment from four angles, such as elasticity approach, multiplier approach, absorption approach and monetary approach.Third Chapter:The Status Quo of RMB Exchange Rate Formation Mechanism and Chinese Foreign Trade. This part sums up the RMB exchange rate formation mechanism and the volatility of RMB exchange rate between 1994 and 2004. It also analyses the development of Chinese foreign trade from three angles, such as export scale, trade composition and trade mode.Fourth Chapter:The Impact of RMB Exchange Rate on Chinese Foreign Trade. This part explains the impact of RMB appreciation on China’s export from three angles firstly, such as exchange rate, trade mode and trade partners, and then analyses the impact of RMB appreciation on China’s export by means of polynomial distributed lags model, using 1994-2014 quarterly data.Fifth Chapter:The Impact of RMB Exchange Misalignment on Chinese Foreign Trade. This part briefs on the dominating approaches to estimate the equilibrium exchange rate firstly, and then estimates the misalignment of RMB exchange rate by means of Behavioral Real Exchange Rate model. In the end, this part analyses the impact of RMB exchange misalignment on China’s foreign trade in different periods.Sixth Chapter:The Impact of Exchange Rate Volatility on Chinese Foreign Export. This part analyze the impacts of RMB’s real effective exchange rate (reer) volatility and oil price on Chinese export by using smooth transition regression method and test the nonlinear Granger causality between RMB’s reer volatility, oil price and export. It gets the main conclusions as follow:Firstly, RMB’s reer volatility has asymmetric impacts on Chinese export. Secondly, RMB’s reer volatility has nonlinear negative effect on Chinese export in the period of high RMB’s reer and RMB’s reer volatility has linear effect on Chinese export in the period of low RMB’s reer. Thirdly, all the results are robust when the model takes account of oil shock.Seventh Chapter:Conclusions and suggestions for relevant policy. Through the empirical analysis, this dissertation concludes that RMB exchange rate, RMB exchange rate misalignment and RMB exchange rate volatility have different impacts on China’s export. Based on these results, this dissertation concludes with exploring policies to efficiently promote China’s export and further RMB exchange rate formation mechanism reform, such as sticking to RMB exchange rate reform, keeping the independence and flexibility of RMB exchange rate, promoting the internationalization of RMB, coordinating trade policies to match the requirement of foreign trade in "new normal" era, implementing diversified export strategy, expanding into international markets further, ramping up Chinese investment abroad.