Rmb Real Exchange Rate And China's Economic Growth Relationship Study

With the opening up of China's economy and high degree of the trade dependence, the RMB exchange rate to connect China with the world has increasingly become the focus of attention. High foreign exchange reserves and the "double surplus" of current account and capital account have given severe pressure to the central bank to maintain the RMB exchange rate stability. At present, there are still some different opinions to RMB exchange rate, the main concern is that wehther the appreciation of the RMB exchange rate affect China's economic growth, would like Japan in the seventies and eighties in the 20th century, since a decade-long recession was caused due to exchange rate appreciation in Japan. In an open economy, exchange rate is the one of the key factors to affect economic growth, if the RMB exchange rate system not be well organized; it will lay a huge hidden danger to China's economic growth, because the exchange rate imbalance will directly affect China's international competitiveness. In this paper, we analyze the relationship between RMB exchange rate and China's economic growth, so as to determine trend of the RMB exchange rate.In this paper, we use quarterly time-series data and yearly time-series data, use the unit root test, cointegration, Granger causality test, impulse response function and variance decomposition techniques based on the VAR model, and analyze the relationship between RMB real exchange rate and China's economic growth from the two aspects of the "exchange rate impact on economic growth" and "economic growth impact of exchange rate", Firstly, we analyze the impact of China's economic growth on real exchange rate of RMB, and the conduction mechanism is Balassa Samuelson effect. Secondly, we analyze the RMB real exchange rate on China's economic growth, which includes the following three aspects:1) the RMB real effective exchange rate→import and export trade→the economic growth of China; 2)the RMB real effective exchange rate→FDI→economic growth of China; 3)the RMB real exchange rate misalignment→economic growth of China. At last, based on the above theoretical analysis and empirical research, we propose some basic ideas for the reform of RMB exchange rate system.This paper's results show that the RMB real exchange rate and China's economic growth are closely related and their relationship is two-way. On the one hand, in the short term, the real exchange rate depreciation of the RMB has "tightening effect" on China's economic growth, in the long term the real exchange rate depreciation of the RMB has "balloon effect" on China's economic growth. The undervalued of RMB exchange rate will promote China's economic growth, while the overvalued of RMB real exchange rate will hinder China's economic growth. On the other hand, China's economic growth have caused the real exchange rate appreciation, Balassa Samuelson effect is available in China. If China want to keep long-term economic growth in the future, and trade goods sector's (manufacturing) labor productivity growth are faster as opposed to non-tradable goods sector's (services) labor productivity, then according to the Balassa Samuelson effect hypothesis, the RMB real exchange rate appreciation is an inevitable path. From the long-term policy aspect, it is important to vigorously improve the non-tradable sectors'(services) labor productivity, particularly in the production of services sectors' labor productivity; it is a good way to ease the appreciation pressure on RMB exchange rate.