China's Foreign Trade Strategy Vs. RMB Exchange-rate Regime

Foreign trade strategy and RMB exchange-rate regime are two important issues in the process of China's opening to the outside. This dissertation tries to inquire the relation of the two ones. Foreign trade strategy is essentially the strategy of industry develop in the international enviorment. After the reform and opening to the outside, new strategies have been explored in our country. Comparing and studing the experience of economic development and trade development of other countries, especially the experience of the export-oriented economy such as Japan and the Asian "Four Tiger", target of transforming from the import substitution strategy to export-oriented strategy have been brought forward in 1980's. In 1992, establishing the socialist market economy system was taken as the target of economy reform, which means that the export-oriented strategy was selected as the new strategy of foreign trade of our country. Export-oriented strategy has played a big role in the optimizing allocation of resources and the upgrating of industries, and also has contributed a lot to the foreign trade development and economic development of our country. But now the implementing of export-oriented statagy in our country also brought forth many problems. In practice, the upgrating of China's industries doesn't transform to new international comparative advantages and the profits we get from foreign trade are very limited, which lead to the problem of immiserizing growth of foreign trade, namely, on one hand, the industry competitiveness indices is going down, on the other hand, the terms of trade is also getting worse and worse and China has become one of the countries whose terms of trade worsen most since 1994. At the same time, the implementing of export-oriented strategy also has led to the heavy fiscal burden of government and the overabundance of foreign exchange reserve. In this dissertation, the competitive advantage strategy is suggested for China under the new international environment. Competitive advantage strategy is a model in which the comparative advantages and new technology advantages are combinded together. Based on the courrent comparative advantages of labor and wage, this strategy focuses on the technology innovation, institutional innovation and structure upgrading to improve the international competitiveness of the export industries of our country. Through the analysis of the international competitiveness of our country's industries and the comparing between the competitive advantage strategy and the traditional trade strategies, it is argued in this dissertation that the implementing of competitive advantage strategy is feasible not only theoretically but also practically, and what's more, the vast domestic market of our country provides a strong support for the implementation of this strategy. As a main instrument of macro economic management, foreign exchange rate not only affects the foreign trade, capital flow and the balance of payment, but also has impacts on the currency circulation, inflation and employment, and the whole economy. RMB exchange rate regime has become a hot issues being discussed extensively in recent years. In this dissertation, the RMB exchange rate regime is studied in relative with the issues of foreign trade strategy. The positive analysis of Balassa-Samuelson Hypothesis on the data of our country shows that the RMB exchange rate moves according to a natural law of depreciating first and appreciating later during the process of strategic transition. The regression analysis of China's data shows that there is no evident linear relationship between the RMB exchange rate and the volume of import and export. Applying Marshall-Lerner Condition analysis to China's data shows that the depreciation of RMB does not necessarily lead to the improvement of our country's balance of payments. Combined with other analysis, it is concluded that keeping a stable RMB exchange rate is necessary for the implementation of competitive advantage strategy. As for the convertibility of RMB, the conclusion of this dissertation is that a convertible currency is better for the implementation of the trade strategy. Based on the above analysis, some policies including a competition-encouraging trade policy and a industry-structure-optimizing policy has been suggested. A proper RMBexchange rate policy is also proposed in cooperating with the implementing of the competitive advantage strategy.