Exchange Rate Reforms, Trade Openness And Chinese Dual Economy

This article researchs on exchange rate reforms ,open-trade policies and its impact on Chinese dual economy,as well as influence of Chinese dual economic structure on real exchange rate. CGE model mainly adopted here is the standard CGE model of International Food Policy Research Institute (International Food Policy Research Institute, IFPRI) developed by L?fgren, Harris and Robinson (2002), it is a single country, comparative static model,simultaneously introduces generalisation of the 1-2-3 model.The base year database for our CGE model--Social Accounting Matrix (SAM) of year 2005--is constructed based on the latest 2005 input-output tables of China. The SAM including 57 sectors and 57 commodities, three types of factor of production, and the data of different agricultural sectors come from PRCGEM-2007 database. We use classical statistics, Bayesian and Generalized Maximum Entropy (GME) methods to estimate the production elasticities, and compare them with other literatures to select better values of production elasticities. In the calculation of consumer's expenditure elasticity of demand, the mothed of Weighted Least Square Regression (WLSR) is used. Being short of data, elasticites of Armington and CET selected from the literatures. Finally, the sensitivity analysis is done.The main results are as follows:"The Balassa-Samuelson effect"would not be observed because of more rural surplus labors in China.In other words,when productivity growth rises,wages will not follow.If labour mobility between the rural and industrial sectors is inferior to that between the rural and service sectors(particularly the construction sector),then industrial productivity growth does not necessarily drive up service wages or service costs,placing downward pressure on real wages and real exchange rate. RMB appreciation causes a fall in domestic agricultural demand price. RMB appreciation reduces the output of most sectors, except for the construction and services sector. Increased demand for the construction and services sector induces more output in the construction and services sector because currency revaluation's income and wealth effect causes the domestic purchasing power to strengthen,in which import substitutions are less. Demand for the manufacturing, construction and services sector increases because demand for the construction and services sector induces more demand for manufactures products,the demand for other sectors's products decreases.The negative influence received by domestic consumption is smaller than the negative influence which domestic production receives.Speaking of overall influence to the import and export sectors, RMB appreciation produces negative impact on our country tradition export superiority sectors like textile sector, shoes & hats sector, electrical appliances sector,who are world price takers. The positive effect and the negative effect offset each other to give few impact on"Both-ends-abroad"enterprises that belong to "Great In and Out" sectors , in which raw materials come from overseas and finished products are sold overseas. More large RMB appreciation is quite disadvantage on China's macroeconomy.RMB appreciation reduces demands for agricultural labor because of more import substitutions. Increased demand for the construction and services sector induces more labor demand because RMB revaluation's income effect causes the domestic purchasing power to strengthen ,in which import substitutions are less.Surplus rural labor transferring to the nonagricultural industries like construction and services sector is the necessary way of transformation process from dual structure to one structure. There is a difference between the tarriff-cuts and the exchange rate appreciation. The tarriff-cuts could expand the import, at the same time, it would not suppress the export.Both tarriff-cuts in all sectors and agriculture tariff-cuts increase GDP,but the latter increase rate is smaller than the former. The tarriff-cuts increases the gap between urban and rual.Agricultural sectors shrink in which land is intensively used,and agricultural factors income fall.Industry sectors expand because of cost advantage,and industry factors income rise. The tarriff-cuts does more harm to consumption than production.Tarriff-cuts in all sectors leads to falls in the ouput prices of other grain,textile,clothing, sawmills & furniture sectors,with the increases occurring in other sectors output pirces.Under tarriff reductions in all sectors, most agricultural sector's outputs decline, except for stockbreeding,fishing, vegetable & fruit sectors. Tobacco & food,energy,construction, elec-steam sectors experience a decline in commercial output under tarriff-cuts in all sectors,except for commercial output in the industries and services sectors.Tarriff-cuts across all sectors causes almost all agricutural domestic sales to fall, and coal, oil,mine,manufacture,elec-steam sectors's domestic sales slightly drop,but other non-agricultural sectors's domestic sales rise. When the tarriff reduction experiments are conducted in all sectors, demands for agricultural labor in most agricultural sectors falls,except for stockbreeding,fishing, vegetable & fruit sectors.Demands for labor in most light-industries,manufacturing,and services sectors increase as results of the tarriff-cuts in all sectors,except for construction sector,because more import capital substitution in construction sector reduces construction sector's labor demand.When agriculture tariff reduction experiment is conducted, agricultural sectors suffer injuries comprehensively,in which output prices fall.Under agriculture tariff-cuts,most agricultural sector's commercial outputs decline due to import substitutions, except for stockbreeding and fishing sectors. There is a slight decline in commercial output of the coal,oil,mine,manufacture, and elec-steam sectors as a result of agriculture tariff-cuts. When agriculture tariff reduction experiment is conducted,most agricultural sectors's agricultural labor demands rise,with the exception of stockbreeding,fishing and other-agricultural sectors,at the some time, stockbreeding,fishing, forest, other-agricultural sectors's work labor & skill work labor demands decline.Agriculture tariff-cuts causes rises in almost industries,services sectors's labor demands,and leads to a rise in construction sector's agricultural labor demand,but reduces construction sector's work labor & skill work labor demand.For reducing negative influence of exchange rate reforms and trade openness on economy,firstly,China should enhances the agricultural competitive power through strengthening of agricultural support services and agricultural structural adjustment. Secondly, adjusting development stratagem by way of upgrading the industrial structure ,promoting consumption and expanding the internal demand to cope with the challenges from RMB appreciation. Thirdly,reduces exchange rate risk by deepening financial innovation.