| Foreign trade has been playing an important role in China’s rapid economic growth during30years. However, due to China’s huge trade surplus year after year, her major trading partners veiled criticism, and generally believed that the RMB exchange rate was seriously underestimated. Under the pressure from other countries and due to China’s economic needs of sustainable development, on July2005, china reformed the exchange rate regime of RMB, following the principle of market-based, initiative, controllability and granularity. From then on, we started to follow the exchange rate system which is referred to a basket of currency fluctuations. By the time of February2012, the exchange rate of RMB to U.S. dollar had appreciated from8.0702to6.308, cumulatively appreciated20.99%. The appreciation of RMB had brought a series of effect, such as decrease of most goods, decline in corporate’s export-profits and the reduced trade surplus. On the other hand, the appreciation of RMB had been making Chinese enterprises’ import-costs decline, which undoubtedly had a positive effect for the import enterprises in China.In summary, the exchange rate is an important indicator for participating in international economic activity, and its changes have important roles on country’s trade balance, economic growth and industrial developments. Therefore, much attention had been paid in the study of exchange rate system.As an important indicator of a country’s participation in international economic activities, the change of exchange rate has an important impact on a country’s balance of trade, economic growth and industrial development. From the history of RMB development, the attention has focused on the relationship between the RMB and foreign trade, not only in the dispute of RMB devaluation in the Southeast Asian crisis, but also the appreciation pressure right now. Therefore, analysis of the relationship between the RMB exchange rate and China’s foreign trade not only related to the healthy and stable development of China’s foreign trade, the RMB exchange rate reform, but also related to the overall situation of reform and opening up, the trade relations between China and trade partners. Therefore, the analysis of the relationship of the RMB exchange rate changes and China’s foreign trade has important theoretical and practical significance.The method of research on the relationship between the exchange rate and the trade are lag effect analysis, monetary analysis, absorption analysis and elastic analysis, and the system’s theoretical system has been formed. Especially, the research of Marshall-Lerner condition in the elastic analysis is very rigorous exposition. Monetary analysis, absorption analysis is mainly analyzed from the macro-level; lag effect analysis, elastic analysis is analyzed from the micro-level analysis. And these methods get high degree of abstractions of the relationship between exchange rate changes and trade balance, and have strict assumptions. For example, the assumption of elastic analysis is that the change of the actual price of the import is equal to the exchange rate changes of export, the assumptions of the time lag effect analysis is that the share of import and export pricing currency are different. The purpose of this study is not to establish a theoretical system, but to do a specific analysis on the reality of the phenomenon, mainly focused on the impact of the real effective exchange rate of RMB and the development of China’s foreign trade, inspect on the mechanisms and pathways of the RMB exchange rate on international trade, so as to provide useful suggestions and comments on the current exchange rate system reform.In this paper, we mainly focus on the influences of the real effective exchange rate of RMB to the development of China’s foreign trade; examine the role of the exchange rate of RMB on international trade mechanisms and pathways so as to provide useful suggestions and comments on the current exchange rate system reform. In the empirical analysis, we not only study the impact of exchange rate on trade all over the country, but also make a sub-regional analysis. In addition, in order to have a concrete understanding of the impact of exchange rate changes on China’s trade development mode, we also make a specific analysis of the impact of real effective exchange rate on the development of China’s trade.This paper is divided into seven chapters.The first chapter was the introduction, introduced the research background, significance, research methods and innovations.The second chapter was the literature review section. Conducted a comprehensive literature review, mainly about the evolution of the global exchange rate regime, the measures of RMB exchange rate, the impacts of exchange rate of RMB on exports and imports and so on, in the last part of this chapter was a simple summary.In the third chapter we analyzed the changes of real effective exchange rate of RMB since the reform.In order to compare our rationality to select the real effective exchange rate as a proxy indicator of the RMB exchange rate, we further analyzed the changes of the exchange rate and the effective exchange rate of RMB, and compared the three indicators. For the purpose of recognizing the view that the underestimation of RMB exchange rate is the reason of the widening U.S. trade deficit, we further used quantitative analysis to test the relationship between RMB exchange rate and U.S. trade deficit. The results showed that the expanding U.S. trade deficit was not caused by RMB exchange rate fluctuation. Then, we analyzed one of the hot issues of academia:Is Marshall-Lerner condition is applicable in Sino-US trade. We selected four variables such as the Sino-US trade balance, the real effective exchange rate of RMB, China’s income level, American income levels to test the applicability of the Marshall-Lerner condition. The results showed that the Marshall-Lerner condition was not applicable in Sino-US trade. To some extent, these results could explain the reasons why the trade surplus between China and U.S.A did not reduce while RMB appreciation over the past seven years.In the fourth chapter, we used the provincial panel data to analyze the impact of the real effective exchange rate fluctuations on our foreign trade development. We selected the real effective exchange rate, the actual utilization of foreign investment, capital investment, labor input, as well as the extent of non-market variables as explanatory variables, with the generalized estimation method of moments (GMM) we examined the relationship of each variable with China’s total foreign trade, imports and exports. The results showed that the test results of the relationship of RMB real effective exchange rate with China’s exports, imports are in line with the conclusions of the traditional economic theories. The real effective exchange rate of RMB hindered export promotion more (0.45) than imports (-0.03), which lead to the positive influence on total foreign trade. So, in the sample period, the influence of RMB real effective exchange rate appreciation on the growth of foreign trade is adverse. The reform of RMB exchange rate must be conducted under the principles of controllability and progressive. In the process of this reform, reasonable adjustments must be done thinking out the economic development both at home and abroad, avoiding that our domestic environment of economic development was harried by. the exchange rate reform.In order to further probe into the relationship of the changes of RMB exchange rate and the phenomenon of regional imbalances in China, a sub-region tests was done in the fifth chapter. We divided all samples in accordance with the administrative areas by provinces and cities into three regions of the eastern, the central and the western, examined the impact of the RMB exchange rate on the total foreign trade, exports and imports respectively. The results showed that, the relationships of the real effective exchange rate changes and trade development was in line with the results of the analysis of the traditional managerial theory and financial theory both in the eastern western and central region, which indicated that the external devaluation of RMB would reduce the price of Chinese exports products in international market, thereby increasing the export of our country. On the ether hand, the external devaluation would increase the prices of the imported products in domestic market, thus making imports decreased. Specifically, the effects of real effective exchange rate on trade development in different regions was different:(1) when the RMB exchange rate depreciated by1percent, the development of foreign trade in central and western region increased0.5418%and0.2055%, significantly greater than the impact coefficient in eastern part (0.1544).(2) The role in promoting export trade of real effective exchange rate in central region is the biggest (0.0460); followed by the eastern region (0.0308).(3) RMB exchange rate changes hindered the import trade in eastern part worst, for every1%depreciation of the real effective exchange rate would result a decrease of import trade about0.6245%; followed by the influence coefficient of the central region which was-0.0758, the smallest was-0.066which was in the western region.The processing trade had played an important role in China’s foreign trade, which accounted for half of China’s foreign trade in recent years. The upgrading of processing trade became the important task of both the government departments and the enterprises. In order to recognize the impact of the RMB exchange rate on the changes of China’s foreign trade development mode, in the sixth chapter we analyzed the impact of real effective exchange rate fluctuations on the development of China’s processing trade. The results showed that, both in the long-term or the short-term, the real effective exchange rate was the important reason of the development of China’s processing trade.①Johansen cointegration test results showed that in the long term, the relationship between the RMB real effective exchange rate and the development of processing trade is negative. The real effective exchange rate depreciated1%, the growth rate of China’s processing trade volume decreased by0.36415%.②The error correction model test results showed that the non-equilibrium error of the variables of RMB exchange rate, the technological advances, the use of foreign investment and the opening up last year made amendments of the processing trade to0.5293%this year.③Finally, we used the impulse response function and the decomposition method to decompose the influence of each variable on the processing trade. The decomposition results showed that the real effective exchange rate change was the dominant factor leading to the changes in the processing trade volume, while the role of the level of opening up of the processing trade is relatively small. Financial globalization and cross-border flows of capital are more far-reaching impact on China’s processing trade. The volatility of RMB exchange rate hinder a greater role on China’s processing trade, this conclusion led us to think about a question that whether China’s comparative advantage in labor had lost, which lead to the more obvious hinder of RMB exchange rate volatility on the export of processing trade barriers? Whether China’s demographic dividend period has ended and "Lewis turning point" has emerged? In order to recognize this question, we calculate the marginal productivity of labor in agricultural sector and the industrial sector by means of Lewis model, which demonstrate that China has crossed over "the first Lewis turning point" in2003, and in2022will arrive "the second Lewis turning point", China has entered the limited supply of labor from unlimited stage, and the comparative advantage in labor is being slowly fade away.Chapter seven is the part of conclusions and policy recommendations. |
