Research On Exchange Rate Appreciation Pass-Through Into Export Prices In China

Since the exchange rate reforms from 21 July 2005,RMB steps into an appreciation cycle. According to the data of NEER released by BIS,the NEER of RMB weighted by a basket of currency appreciates by 10.64% from July 2005 to December 2009, the amount is obvious. According to traditional macroeconomics model, the huge appreciation of RMB will increase the export price, weaken competitive power, then inhibit the export. However, the fact is just opposite. At the same time of the appreciation of RMB,it appears to increase continually in export scale of Chinese foreign trade, enlarge the current account surplus, and break a new record in history. Compared by 2005,the surplus of foreign trade in 2006 is increased by 23.86%, and compared by 2006, the surplus in 2007 is increased by 20.44%, ranks first in the world.Influenced by the world financial crisis in 2008,the increase falls into 7.43%.This phenomenon leads to an important problem worth studying:Why the export scale and the foreign trade surplus still increase quickly as the exchange rate appreciates? The paper analyzes this problem from the angle of exchange rate imperfectly pass-through.(1)The paper first analyzes the influencing factors of exchange rate-price pass-through elasticity, including export enterprise pricing strategy, export product competitive power, export product market power.Export pricing strategy includes cost makeup pricing, demand elasticity pricing and marginal cost pricing.The pass-through elasticity reduces by sequence.The total pass-through elasticity depends on weighted average elasticity which every enterprise takes. Most condition, export enterprise of our country will select demand elasticity pricing.Export product competitive power includes product price competitive power and non-price competitive power. The former shows that although the quality of the product is not the best, the product is very practicable. The export mostly maintains quantity, small profit but quick returns.Additionally, from the export of cheap products, we also provide "deflation" for the world, contribute price stability to developed countries. The latter shows that our export products have low adding value, the main reason is that the processing trade accounts a huge percent in total trade, we lack the ability of innovation and the brand of ourselves.Export product market power includes market share and market centralization degree. Although influenced by financial crisis in recent two years, our export still keeps increasing, it means that our market share is high; But our enterprises are small and dispersed in scale, it means that our market centralization degree is low.(2)Then we study the problem of exchange rate-price pass-through mechanism. From the analysis of supply-demand graph and the quantitative relations, we conclude the pass-though elasticity is influenced by demand elasticity; Additionally, from the construction and derivation of the Heterogeneous Enterprise Cournot Model, we conclude the pass-though elasticity is influenced by the percentage of domestic input, domestic cost and the amount of domestic export enterprises. The first two factors have a positive effect on pass-though elasticity, and the latter has a negative one.(3)Then we have a classified empirical research on exchange rate-price pass-through problem, the result shows elasticity is low in China. For the primary products and the manufactured products,1% appreciation in RMB, the price will fall by 0.119% and 0.0874%. This means that in the first few periods of exchange rate appreciation, it has a negative effect on export prices, but after one year or so, a positive effect begins, the condition of export is improved. From the long term, the most influence is absorbed by the decrease of domestic export price. Additionally, by comparison of exchange rate pass-through elasticity, we conclude the elasticity is becoming larger, the product competitive power is increasing.