An Analysis Of RMB Real Effective Exchange Rate's Impact On Chinese Import And Export Trade

The RMB exchange rate issue has been a hot issue in the process of economic development for a long time. Despite of the global economic crisis, China's 2009 foreign trade surplus reached 196.1 billion U.S. dollars, which increased the friction with China's trading partners. In addition, for the purpose of stimulating their economies, the US-led Western countries take the measure of loosing monetary policy and weakening of the currency's exchange rate, which led to the excess of global liquidity. This gives China's enormous foreign exchange risk. In this new situation, how to achieve both the stability of RMB exchange rate, but also improve China's trade environment, has become a difficult problem in front of our government. Therefore, it is of great theoretical and practical significance to study the RMB exchange rate's impact on China's foreign trade.In this paper, we will use the annual data of 1980-2009, through the empirical research methods to study the effect of real effective exchange rate changes on the impact of foreign trade. In order to make a more convincing conclusion, we will use the empirical analysis of the unit root test, cointegration test, Granger causality test, error correction model (ECM) and the impulse response functions and other methods to explain exchange rate movements on import and export trade impact.After study, we can get main conclusions as follows:1. RMB real effective exchange rate and China's annual import and export has a long-term, stable cointegration relationship, and it is the Granger causes of China's import and export trade; 2. RMB Real Effective Exchange Rate has a obvious time lag effect on export trade, but it is not obvious on import trade, which is in accordance with "J-curve effect"; 3. RMB real effective exchange rate's impact on primary products is significantly less than it on industrial products, which can explain the characteristics of processing trade in China; 4. In the short term, real effective exchange rate's impact on import and export of industrial products will immediately reflect, and the impact on exports is greater than it on imports. Finally, we will propose some policy recommendations as follows:China should improve the exchange rate formation system, accelerate the development of the RMB foreign exchange market; expand domestic demand and reduce dependence on foreign trade; upgrade the Industrial structure and trade structure, Strengthen the independent innovation capability; develop the processing trade continually, guide the processing trade to Central and Western area; develop various of foreign trade, encourage the qualified enterprises to engage in foreign direct investment.