The Imbalance Of Current Account In China And The Adjustment On The Exchange Rate

Under the background of imbalance of the global economy, our country has maintained a large amount of current account surplus in recent years, which is still continuing to be expanding. The resulting problem is that China's foreign trade partners (particularly America) strongly asked for the appreciation of the RMB. These developed countries believed that China's exporters used the "unfair low-cost" to plunder the world markets and increasingly exported deflations to their countries and damaged their interests. So they continued to exert pressures on China to force the appreciation of the RMB. Facing with the pressures from all sides, China began to change its exchange rate policy largely, from a single, fixed exchange rate system which pegged to the US dollars before the year of 2005 into a market-based, managed and floating exchange rate system. Till the author completed this paper, the RMB exchange rate has growed from the original 8.11 to 6.9949 in April this year after its reform, increasing 15.94 percent. With the growth of exchange rate, China's current account imbalance has been improved recently, but the effect of the exchange rate policy is still not significant. Therefore, the research on the current account imbalance of China and the adjustment on the RMB exchange rate not only has the deep theoretical value, but also has the practical significance.This paper studies the China's current account imbalance and the adjustment on the RMB exchange rate, using the theoretical and empirical approach. The focus of our reseach is the determining factors which caused the China's current account imbalance and the effect of the adjustment on the RMB exchange rate on improving the imbalance. Finally, we provide our proposals on the corresponding policy about how to balance China's current account and how to adjust the exchange rate. The whole article is divided into five parts: In part one we introduce the definition and determing foctors of current account, and then explain the reasons which cause the current account imbalance and discuss the impact of China's long-term current account surplus particularly. The second part we mainly introduce the basic theories about the relationship between the exchange rate and current account and anlayse the impact of exchange rate adjustment on the current account. After that we paticularly introduce the aboved effect in China in three different periods of exchange rate policy. In the third part, we use the statistic methods of co-integration and the vector error correction, based on the above-mentioned theory, to make the empirical analysis of China's current account model in the interval 1980~2007. And we conclude that the effect of China's RMB exchange rate adjustment on the current account is not significant. Refering to this reality, we discuss the causes of it. In the fourth part, we discuss the international experience, take the cases of Japan and some East Asian countries, talking about its exchange rate fluctuations and changes in the current account, and summing up the experience of their policies, which will help to guide China's policy adjustment. Part five is the end of this paper, we sum up the main conclusions and put forward the proposals about the corresponding countermeasures.