The Effects Of Real And Effective RMB Exchange Rate On China's Import And Export

In recent years, because of China's growing surplus in the trade balance, the international communities have questioned whether the RMB exchange rate is undervalued. Led by Japan, the United States and many industrialized countries have criticized the RMB exchange rate, that the RMB exchange rate is undervalued that led to a large number of China 's trade surplus, and called on the Chinese government to reform the RMB exchange rate regime or a revaluation of the RMB exchange rate to let the RMB appreciate to reduce China's trade surplus. Since the reform and opening up inl978, China's import and export trade is growing rapidly by the year 2005, total import and export volume reached 1.4221 trillion US dollars, an increase of 23.2 percent. The expansion of the scale of foreign trade and the improvement of the trade balance surplus has also created a potential revaluation of the RMB exchange rate pressure, after 1994 the pressure is even more obvious, and RMB is forced to emerged on the rise trend .On July 21 2005, People's Bank of China launched the new exchange rate policy, since then, the RMB is on the path of appreciation. Since July 2005, the RMB nominal exchange rate constant a record high, and December 28, 2007 breakthrough 7.3 juncture. However, China's trade balance of payments surplus is not reduce duing to the appreciation of the RMB. October 31, 2007 China's State Administration of Foreign Exchange announced that the first half of 2007, China's international balance of payments goods account surplus is 162.9 billion US dollars, and capital and financial account surplus is 90.2 billion US dollars.Well, China's trade surplus in the balance of payments is caused by the RMB exchange rate undervalued? Marshall - Lerner conditions sets up in China? If it is why the appreciation of the RMB does not improve China's trade balance of payments surplus? These are all we need to explore and study the issue. Therefore, the RMB exchange rate on China's balance of trade study is important. In this paper, based on the theory and literature the Marshall - Lerner condition is calculated, and obtained Marshall - Lerner Condition is the establishment in China. Through the use of quantitative analysis method , we obtained the relationgship of the real effective exchange rate of RMB changes and China's trade balance and the appreciation of the RMB will not improve our surplus. In this paper, the seven parts:Part I describe the background and significance of the RMB exchange rate reform and introduced the idea of this paper, methods, and innovation. Part II introduce the general theory of the exchange rate changes effecting on the trade balance in detail, including Elasticities Approach,Absorption Approach,Monetary Approach and Mondale - Flemming model and the advantages and disadvantages of these theories. From foreign and domestic these documents were summarized and concluded .Part III describe the factors of the exchange rate changes constrainting on the trade balance ; Part IV describe the current situation of RMB and China's trade balance after the reform of the RMB exchange rate, and recalled the changes exchange rate changes and the trade balance since the founding of China. Part V through the calculation of China's import and export demand elasticity, and certificate Marshall - Lerner condition whether sets up or not in China . By unitroot test, cointegration test , analyse the relationship between real effective exchange rate of RMB and China's import and export,lastly describe and analyse the results. Part VI based on the part give the analysis of the RMB revaluation improving our trade balance limitations. Part VII put forword the policy proposal on China's trade balance.The innovation of thesis: Firstly, we calculated the Marshall - Lerner Condition from July 2005 to December 2007 and verified during this period Marshall - Lerner conditions in China is established. Secondly, desribe the real effective exchange rate and by quantitative analysis method analyze RMB real effective exchange rate fluctuations on the impact of China's trade balance during January 2005 - 2007 December. Finally, by cointegration test we get RMB real effective exchange rate and China's trade balance does not exist long-term cointegration, ie Marshall - Lerner Condition in China may not be applicable.In the process of improving trade surplus with the exception of the exchange rate take into account other factors.